<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-_________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
IMAGEMAX, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 7389 23-2865585
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
TWO BALA PLAZA, SUITE 300
BALA CYNWYD, PENNSYLVANIA 19004
(610) 660-7754
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
BRUCE M. GILLIS
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
IMAGEMAX, INC.
TWO BALA PLAZA, SUITE 300
BALA CYNWYD, PENNSYLVANIA 19004
(610) 660-7754
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
BARRY M. ABELSON, ESQUIRE MICHAEL M. FROY, ESQUIRE
MICHAEL P. GALLAGHER, ESQUIRE MARK L. DOSIER, ESQUIRE
PAUL T. PORRINI, ESQUIRE SONNENSCHEIN NATH & ROSENTHAL
PEPPER, HAMILTON & SCHEETZ LLP 8000 SEARS TOWER
3000 TWO LOGAN SQUARE CHICAGO, IL 60606
EIGHTEENTH AND ARCH STREETS (312) 876-8000
PHILADELPHIA, PA 19103-2799
(215) 981-4000
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 of 1933, 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 of 1933, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH PROPOSED MAXIMUM AGGREGATE
CLASS OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING PRICE AMOUNT OF
TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) (2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.............. 3,565,000 Shares $14.00 $ 49,910,000 $15,124.24
</TABLE>
(1) Includes 465,000 shares of Common Stock subject to the over-allotment option
granted to the Underwriters.
(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997
PROSPECTUS
3,100,000 SHARES
IMAGEMAX, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
ImageMAX, Inc. Prior to the Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $12.00 and $14.00 per share. See "Underwriting"
for information relating to the determination of the initial public offering
price. Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "IMAG."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------
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.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.... $ $ $
Total(3)..... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,250,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 465,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively.
The shares of Common Stock are offered by the several Underwriters, when,
as and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of certificates for the
shares of Common Stock will be made on or about , 1997.
WILLIAM BLAIR & COMPANY JANNEY MONTGOMERY SCOTT INC.
THE DATE OF THIS PROSPECTUS IS , 1997
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 be any sale of these securities
in any State in[nb]which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
State
<PAGE>
[Map With Location of Company's Headquarters and Principal Branch Offices]
------------------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and to make available quarterly reports
containing unaudited financial statements for the first three quarters of each
year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING, OVER-ALLOTMENT AND SYNDICATE COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the Offering made
by this Prospectus, the Company will acquire 14 document management service
companies, representing 11 ownership groups (collectively, the "Founding
Companies") in separate transactions (the "Acquisitions") in exchange for shares
of its Common Stock, the assumption of certain indebtedness and cash. Unless
otherwise indicated, all references to "ImageMAX" shall mean ImageMAX, Inc.
prior to the effectiveness of the Acquisitions and references herein to the
"Company" shall include 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,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share, per share and financial information set forth
herein: (i) have been adjusted to give effect to the Acquisitions, the
conversion of all outstanding shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") into 443,489 shares of Common Stock and a
.846154-for-one split of the currently-outstanding shares of Common Stock, and
(ii) assume no exercise of the Underwriters' over-allotment option. See "The
Company" and "Underwriting."
THE COMPANY
ImageMAX, was founded in November 1996 to become a leading national,
single-source provider of integrated document management solutions. Prior to the
Offering, ImageMAX has not conducted any operations. ImageMAX has entered into
agreements to acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. The Founding Companies, which
have been in business an average of over 20 years, have operations in 13 states,
employ over 950 people and provided services to over 5,000 clients in the last
year from 18 locations. The Company's pro forma combined revenues for the
twelve-month period ended December 31, 1996 were $43.3 million. Pro forma
combined revenues for the six months ended June 30, 1997 were $24.6 million, an
increase of 16.2% over the comparable 1996 period. Pro forma operating income
for the six months ended June 30, 1997 was $2.2 million, an increase of $2.3
million over the comparable 1996 period.
The Company has initially targeted a broad variety of services and
products, as well as technical and vertical market expertise, in order to create
a platform from which it can become a leading national, single-source provider
for clients with intensive document management needs. The Company's services
include document management consulting, media conversion (consisting of digital
imaging and micrographics), data indexing, information storage and retrieval,
and document management systems maintenance. The Company's products include
proprietary, open-architecture digital imaging and indexing software as well as
document management systems and supplies. The Company provides these services
and products individually or in combination to provide solutions to a wide range
of clients' document management needs. The Company's service and product
offering mix is designed to take advantage of the Company's substantial
technical and systems experience in the area of digital document management as
well as product and vertical market knowledge of the Founding Companies'
managers, who have an average of 14 years industry experience.
The Company's diversified client base operates primarily in
document-intensive industries such as health care, financial services and
engineering. Key clients include Abbott Laboratories, Novartis AG, First Union
National Bank, Nordstrom Credit, Inc., The Boeing Company, General Electric
Company, Avis Rent a Car, Inc. and Waste Management, Inc.
Based on a recent study of the Association for Information and Image
Management International ("AIIM"), the U.S. market for document management
services and products was over $6.5 billion in 1996. The Company believes that
this market has been growing at an annual rate of approximately 11% since 1994.
The Company further believes that there is a substantial unvended component of
the service market not contained in the AIIM data because most document
management
3
<PAGE>
services for large organizations are currently performed in-house. The document
management industry is also highly fragmented. The Company estimates that there
are over 2,000 companies engaged in a wide variety of business-to-business
document management services and product sales and that a substantial majority
of these companies are small businesses selling to a single geographic market,
offering a limited range of services or selling to a limited number of client
market segments. The Company believes that it will continue to benefit from key
factors driving the growth of the document management industry, including: (i)
continued advances in digital technology which have dramatically reduced the
cost of imaging, storing, indexing, and retrieving documents electronically
while improving users' ability to manage documents more efficiently; (ii) growth
in document management needs of organizations desiring to better manage
information in order to improve productivity, competitiveness and client
service; and (iii) the trend of organizations to increasingly outsource their
document management services in order to allow them to focus on their core
competencies and revenue generating activities, reduce fixed costs, benefit from
the expertise and economies of scale of outside providers and gain access to new
technologies without the risk and expense of near-term obsolescence.
The Company intends to implement its business strategy focused on the
following key elements:
o Become a single source provider of in-house or outsourced document
management solutions by further developing consultative relationships
with clients to assess their document management needs and to recommend
and provide cost-effective combinations of services and products. The
Company will customize packages of services and products for specific
vertical markets and will expand national account coverage to service
clients who seek to benefit from working with a single vendor.
o Capitalize on business integration by creating a single nation-wide brand
name, integrating the Company's information and communications systems
and consolidating the Company's planning, acquisition support and
administration under the direction of its experienced executive
management team to enable business unit management to devote increased
resources to business generation and client service. The Company intends
to establish company-wide technology centers that will focus on software
product development, enhancement of systems integration expertise and new
product development such as data warehousing services and inter/intranet
document management solutions.
o Expand sales and marketing efforts, including hiring additional
salespeople at the Founding Companies, creating a national account sales
force, emphasizing sales training in digital document management
applications, cross-selling additional services and products,
capitalizing on the Company's present vertical market expertise and
extending successful existing marketing programs that utilize direct
marketing, telemarketing, seminar selling and internet marketing.
o Aggressively pursue acquisitions to enhance its position as a provider of
complete document management solutions by expanding geographic coverage
and market share, expanding service and product capabilities, obtaining
key human resources and technical expertise and generating critical mass
and economies of scale nationally and in regional markets. The Company
will position itself to be a preferred acquirer of other companies in the
highly fragmented document management industry as a result of the
Company's capabilities, management personnel, solutions orientation and
integration strategy. Additionally, the Company's relationships with over
100 independent document management service providers through its
software licensing and data entry service activities provide the Company
with a valuable source of potential future acquisitions.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........... 3,100,000 shares
Common Stock to be Outstanding after the
Offering.................................... 5,438,727 shares(1)
Use of Proceeds............................... To fund the Acquisitions and for general cor-
porate purposes, including future acquisi-
tions. See "Use of Proceeds" and "Certain
Transactions."
Proposed Nasdaq National Market Symbol........ IMAG
</TABLE>
- ------------------
(1) Includes 1,184,468 shares of Common Stock to be issued in connection with
the Acquisitions (based on an assumed initial public offering price of
$13.00 per share). Excludes (i) 302,500 shares of Common Stock which will be
issuable upon the exercise of stock options to be granted in connection with
the Offering at an exercise price per share equal to the initial public
offering price, (ii) 297,500 shares of Common Stock available for future
grants under the Company's 1997 Incentive Plans and (iii) 250,000 shares
available for future issuances under the Company's Employee Stock Purchase
Plan. See "Management - Stock Incentive Plans."
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the shares of Common Stock offered
hereby.
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ImageMAX will acquire the Founding Companies simultaneously with and as
a condition to consummation of the Offering. For financial statement
presentation purposes, ImageMAX has been identified as the "accounting
acquirer." The following table presents certain summary unaudited combined
historical financial data of ImageMAX and the Founding Companies, adjusted to
give effect to (i) the consummation of the Acquisitions, (ii) certain pro forma
adjustments to the historical financial statements described below and (iii) the
consummation of the Offering and the application of the estimated net proceeds
therefrom. See "Selected Financial Data," the Unaudited Pro Forma Combined
Financial Statements, including the notes thereto, and the historical Financial
Statements for ImageMAX and the Founding Companies, including the Notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1996 1996 1997
------------ --------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues.................................................. $ 43,256 $ 21,157 $ 24,590
Gross profit(2)........................................... 12,608 6,115 8,202
Selling, general and administrative expenses(3)........... 11,216 5,633 5,396
Amortization of intangible assets(4)...................... 1,246 621 621
Operating income (loss)................................... 146 (139) 2,185
Interest income, net(5)................................... (2) 8 8
Income (loss) before income taxes......................... 144 (131) 2,193
Net income (loss)(6)...................................... $ (242) $ (244) $ 1,169
Net income (loss) per share............................... $ (.05) $ (.05) $ .23
Shares used in computing pro forma net income (loss) per
share(7)................................................ 5,091,419 5,091,419 5,091,419
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO FORMA
PRO FORMA COMBINED
COMBINED(8) AS ADJUSTED(9)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,243 $ 4,466
Working capital (deficit)................................. (26,642)(10) 7,731
Total assets.............................................. 52,643 53,866
Long-term debt, less current portion...................... 1,356 --
Shareholders' equity...................................... 10,689 46,418
</TABLE>
- ------------------
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1996 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.
(2) Includes a pro forma adjustment to increase cost of revenues to reflect the
Company's new operating leases on facilities at certain Founding Companies
(the "Rent Differential").
(3) Reflects a pro forma reduction in compensation to the owners of the
Founding Companies to which they have agreed prospectively (the
"Compensation Differential"). Includes compensation costs associated with
positions eliminated or which will be eliminated in connection with the
Acquisitions, including the retirement of four senior Founding Companies'
executives and other identified head-count reductions totalling
approximately $650,000, $400,000 and $250,000 for the year ended December
31, 1996 and for the six months ended June 30, 1996 and 1997, respectively.
Excludes compensation of $610,000 annually based upon employment agreements
with the Company's executive management (see "Management - Employment
Agreements") and other costs associated with being a public company. See
Unaudited Pro Forma Combined Financial Statements.
(4) Represents amortization of $33.0 million of goodwill to be recorded as a
result of the Acquisitions over an estimated life of principally 30 years
and amortization of acquired developed technology of $0.8 million over an
estimated life of seven years. Excludes a charge of $4.0 million for
acquired non-recurring in-process research and development and a $0.5
million charge related to a fee payable in the fourth quarter upon the
closing of the Offering. See "Certain Transactions" and Unaudited Pro Forma
Combined Financial Statements.
(5) Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the repayment of debt paid from the net proceeds of
the Offering. See "Use of Proceeds."
(6) Reflects an estimated corporate income tax rate of 39.2% before considering
the non-deductibility of approximately $840,000 of annual amortization of
intangible assets.
(7) Includes (i) 710,770 shares of Common Stock issued and outstanding at
September 11, 1997, (ii) 1,184,468 shares to be issued in the Acquisitions
(based on an assumed initial public offering price of $13.00 per share),
(iii) 443,489 shares to be issued upon the conversion of all shares of
Series A Preferred Stock outstanding at September 11, 1997 upon the
consummation of the Offering, and (iv) 2,752,692 of the 3,100,000 shares
being sold in the Offering (at an assumed initial public offering price of
$13.00 per share) necessary to pay the cash portion of the consideration
for the Acquisitions, Founding Companies' indebtedness as described in "Use
of Proceeds" and expenses of the Acquisitions and the Offering.
(8) The pro forma combined balance sheet data (i) assume that the Acquisitions
were consummated on June 30, 1997 and (ii) reflect the September 1997 sale
of Common Stock and Series A Preferred Stock (an aggregate of 291,183
shares of Common Stock, on an as converted basis), resulting in net
proceeds of $1.4 million (the "September Financing").
(9) Adjusted for the sale of the 3,100,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $13.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(10) Includes $26.3 million payable to the owners of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions,
which is to be paid from the net proceeds of the Offering.
6
<PAGE>
SUMMARY FINANCIAL DATA FOR INDIVIDUAL FOUNDING COMPANIES
(IN THOUSANDS)
The following table presents summary statement of operations data for the
Founding Companies (see "The Company" for complete names of each Founding
Company) for the year ended December 31, 1996 and for the six months ended June
30, 1996 and 1997. Operating income (loss) has not been adjusted for any pro
forma adjustments or to take into account increased costs associated with the
Company's new executive management and with being a public company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Introduction." Adjusted pro forma operating income (loss) includes
operating income adjusted for the Compensation Differential and the Rent
Differential and excludes pro forma and historical amortization of intangible
assets, costs associated with being a public company and the Company's executive
management compensation. Adjusted pro forma operating income (loss) includes
compensation costs eliminated or which will be eliminated in connection with the
Acquisitions (see note (3) to Summary Pro Forma Combined Financial Data). See
Unaudited Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
ENDED JUNE 30,(2)
DECEMBER 31, ---------------------
1996(1) 1996 1997
------------ ------ ------
<S> <C> <C> <C>
AMMCORP:
Revenues.................................................. $5,573 $2,727 $2,781
Gross profit.............................................. 1,746 765 925
Operating income.......................................... 119 30 128
Adjusted pro forma operating income....................... 528 229 310
CodaLex Group:
Revenues.................................................. $4,057 $1,869 $2,627
Gross profit.............................................. 962 487 751
Operating income (loss)................................... (122) 6 340
Adjusted pro forma operating income (loss)................ (159) (12) 340
DataLink:
Revenues.................................................. $3,151 $1,620 $1,712
Gross profit.............................................. 567 269 455
Operating income.......................................... 100 56 223
Adjusted pro forma operating income....................... 140 75 241
DocuTech:
Revenues.................................................. $2,322 $1,053 $1,407
Gross profit.............................................. 1,206 498 849
Operating income.......................................... 459 137 469
Adjusted pro forma operating income....................... 420 108 395
I(2) Solutions:
Revenues.................................................. $3,959 $2,148 $2,286
Gross profit.............................................. 1,550 895 936
Operating income (loss)................................... (123) 195 81
Adjusted pro forma operating income....................... 263 227 175
IMS:
Revenues.................................................. $2,292 $1,299 $1,402
Gross profit.............................................. 386 251 596
Operating income (loss)................................... (218) (78) 310
Adjusted pro forma operating income (loss)................ (217) (79) 309
IDS:
Revenues.................................................. $1,431 $ 502 $1,482
Gross profit.............................................. 399 120 635
Operating income (loss)................................... (119) (87) 273
Adjusted pro forma operating income (loss)................ (41) (66) 578
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
ENDED JUNE 30,(2)
DECEMBER 31, ---------------------
1996(1) 1996 1997
------------ ------ ------
<S> <C> <C> <C>
OMI:
Revenues.................................................. $3,666 $1,867 $2,103
Gross profit.............................................. 815 559 525
Operating income.......................................... 140 231 157
Adjusted pro forma operating income....................... 158 213 151
Spaulding:
Revenues.................................................. $8,693 $4,337 $4,477
Gross profit.............................................. 2,876 1,365 1,449
Operating income (loss)................................... (141) (391) 78
Adjusted pro forma operating income (loss)................ (319) (485) 90
TIMCO:
Revenues.................................................. $4,991 $2,306 $2,160
Gross profit.............................................. 1,639 725 724
Operating income.......................................... 416 180 227
Adjusted pro forma operating income....................... 521 241 265
TPS:
Revenues.................................................. $3,215 $1,482 $2,227
Gross profit.............................................. 846 359 572
Operating income.......................................... 94 25 103
Adjusted pro forma operating income....................... 121 31 119
</TABLE>
- ------------------
(1) Consists of operating results for the year ended December 31, 1996 with the
exception of I(2) Solutions which is included for the year ended October 31,
1996.
(2) Consists of operating results for the six months ended June 30, 1996 and
1997, with the exception of I(2) Solutions which is included for the six
months ended April 30, 1996 and 1997.
ImageMAX was incorporated in Pennsylvania in November 1996. The Company's
executive offices are located at Two Bala Plaza, Suite 300, Bala Cynwyd,
Pennsylvania 19004-1573, and its telephone number is (610) 660-7754.
8
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions, as they
relate to the Company or its management, are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed below. Prospective investors should
carefully consider such factors as well as the other information set forth in
this Prospectus in evaluating an investment in the shares of Common Stock
offered by this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION; MANAGEMENT OF
GROWTH
ImageMAX was founded in November 1996 and has conducted no operations to
date. ImageMAX has entered into agreements to acquire the Founding Companies
simultaneously with and as a condition to the closing of the Offering. Prior to
the consummation of the Offering, the Founding Companies will have been
operating as separate independent entities. Currently, the Company has no
centralized financial reporting system and will initially rely on the existing
reporting systems of the Founding Companies which the Company intends to
integrate and enhance. The success of the Company will depend, in part, on the
Company's ability to integrate the operations of the Founding Companies,
including developing programs and processes that will promote cooperation and
the sharing of opportunities and resources among the Founding Companies.
ImageMAX's executive management group has been assembled only recently and has
no previous experience in the document management services industry. There can
be no assurance that the executive management group will effectively be able to
oversee the combined entity and implement the Company's operating or growth
strategies. Further, to the extent that the Company is able to implement its
acquisition strategy, the resulting growth of the Company will place significant
demands on executive and senior management and on the Company's internal systems
and controls. There can be no assurance that the newly assembled management
group will be able to effectively manage the Company through a period of
significant growth. In addition, no assurance can be given that the Company's
current systems will be adequate for its future needs, that the Company will be
successful in implementing new systems or that the cost of any such new systems
will not be material. See "Business - Business Strategy" and "Management."
A number of the Founding Companies offer different services, utilize
different capabilities and technologies and target different geographic markets
and industries. While the Company believes that there are substantial
opportunities in integrating the businesses of the Founding Companies, these
differences increase the risk inherent in successfully completing such
integration. Further, there can be no assurance that the Company's strategy to
become a national, single-source provider for integrated document management
solutions will be successful, or that the Company's target industries 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 the Offering.
RISKS OF ACQUISITIONS
The Company intends to aggressively pursue the acquisition of additional
document management services businesses in new geographic regions and in the
regions where the Company currently operates as part of its growth strategy. Due
to consolidation in the document management services industry, there is
significant competition in acquiring such businesses, and the prices for
attractive acquisition candidates may be bid up to higher levels, particularly
in cases where competitors with greater financial and other resources than the
Company compete for the same acquisition targets. The success of any completed
acquisition, including the Acquisitions, will depend in large measure on the
Company's ability to effectively integrate the operations, management and
information systems of the acquired business. The process of integrating
acquired businesses often involves unforeseen liabilities, risk exposure and
difficulties and may require a disproportionate amount of the Company's
financial
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and other resources. Acquisitions may involve a number of additional risks, such
as adverse short-term effects on the Company's reported operating results,
diversion of management's attention, the ability of the Company to retain key
personnel and clients, unanticipated problems or legal liabilities, and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be
successful in identifying or consummating favorable acquisition opportunities,
or in integrating future acquisitions, or that acquired businesses will achieve
sales and profitability that justify the Company's investment therein. Further,
to the extent that the agreements relating to acquisitions by the Company
provide for indemnification of the Company with respect to contingent and other
liabilities of the acquired entity, such indemnification obligations may be, and
are in the case of the Acquisitions, for a limited duration and subject to
negotiated limitations. If any claims or liabilities of the Company relating to
the Founding Companies or future acquisitions are determined to not be subject
to any indemnification obligations, or if the amount of such claims or
liabilities exceed such limitations or the ability of the sellers of the
acquired entities to satisfy their indemnification obligations, the Company's
business, financial condition and results of operations could be materially and
adversely effected. See "Business - Business Strategy."
NEED FOR ADDITIONAL FINANCING TO IMPLEMENT ACQUISITION STRATEGY
The Company intends to finance future acquisitions by using cash from
operations, by issuing shares of Common Stock and through borrowings under the
Company's then-existing credit facilities. The Company believes that its cash
position after the Offering, its cash flow from operations, the 2,000,000 shares
of Common Stock to be registered pursuant to a shelf registration statement and
its contemplated credit facility will be sufficient to fund acquisition activity
for approximately 12 months following the Offering. However, no assurance can be
given that such financing sources will be adequate to fund such acquisition
activity, or that the Company will not need additional debt or equity financing
to successfully implement its acquisition strategy. 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, such financing will be available on terms the Company
deems acceptable. If the Company does not have sufficient cash resources or
availability under its then existing credit facilities, or if the Common Stock
does not maintain sufficient value or potential acquisition candidates are
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company will be unable to successfully implement its
acquisition strategy.
Prior to consummation of the Offering, the Company intends to enter
into a credit facility (the "Credit Facility") to assist in the funding of
future acquisitions and operating activities. There can be no assurance as to
the terms, timing or ability of the Company to obtain such a credit facility.
The Company may substantially increase its level of indebtedness in the future
to finance its acquisition program. The degree to which the Company is
financially leveraged following such borrowings and the terms of the Company's
indebtedness could have important consequences to shareholders, including that
(i) the Company's ability to obtain additional financing in the future for
working capital and general corporate purposes, to make acquisitions, fund
capital expenditures and pay dividends may be impaired, (ii) a substantial
portion of the Company's cash flow from operations may have to be dedicated to
the payment of the principal of and interest on its indebtedness, (iii) certain
of the Company's borrowings may be at variable rates of interest, which will
expose the Company to the risk of increased interest rates, (iv) the Credit
Facility will contain certain financial and restrictive covenants which could
limit the ability of the Company to effect future debt or equity financings and
may otherwise restrict corporate activities, and (v) the Company may be more
highly leveraged than many of its competitors, which may place the Company at a
competitive disadvantage. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pro Forma Combined Liquidity and Capital
Resources" and "Business - Business Strategy."
SIGNIFICANT INTANGIBLE ASSETS
Approximately $33.8 million, or 62.8%, of the Company's pro forma total
assets as of June 30, 1997 represents intangible assets arising from the
Acquisitions, of which approximately $33.0 million is goodwill which will be
amortized using an estimated life of principally 30 years and approximately
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$0.8 million is acquired developed technology which will be amortized over a
period of seven years. Goodwill is an intangible asset that represents the
difference between the total purchase price of the Acquisitions and the amount
of such purchase price allocated to the fair value of the net assets acquired.
Goodwill and other intangibles are amortized over a period of time, with the
amount amortized in a particular period constituting a non-cash expense that
reduces the Company's net income in that period. A reduction in net income
resulting from the amortization of goodwill and other intangibles may have an
adverse impact upon the market price of the Company's Common Stock. In addition,
in the event of a sale or liquidation of the Company or its assets, there can be
no assurance that the value of such intangible assets would be recovered.
IMPORTANCE OF DEVELOPMENT OF NEW SERVICES AND MAINTENANCE OF TECHNOLOGICAL
CAPABILITIES
The announcement or introduction of competing services or products
incorporating new technologies or the emergence of new technical standards could
render some or all of the Company's services or products unmarketable. The
Company believes that its future success depends on its ability to enhance its
current services or products and develop new services or products that address
the increasingly sophisticated needs of its clients. 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 client
requirements could have a material adverse effect on the Company's business,
financial condition or results of operations. Although the Company's current
service and product offerings span a wide range of technologies, many of such
technologies are non-proprietary in nature. Further, although the Company
believes that it will be able to continue to offer services and products based
on new technologies, 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
effectively implement such technologies on a cost-effective basis or that such
technologies will not ultimately render obsolete the Company's role as a third
party provider of document management services and products.
COMPETITION
The Company operates in a competitive environment. The document management
services industry is highly fragmented and has relatively low barriers to entry.
A significant source of competition is the in-house document handling capability
of businesses within the Company's target markets, the so-called "unvended" part
of the market. Despite current trends in favor of greater outsourcing, there can
be no assurance that these businesses will outsource more of their document
management needs or that other businesses will not bring in-house services that
they currently outsource. In addition, certain of the Company's competitors are
larger businesses, many of which have greater financial and other resources than
the Company. Certain of these competitors operate in broader geographic areas
than the Company, and others may choose to enter the Company's areas of
operation in the future. In addition, there may be no assurance that other
companies with greater resources than the Company will not enter the document
management services industry in the future. Further, the Company intends to
enter new geographic areas and expects to encounter significant competition from
established competitors in each of such new areas. As a result of this
competitive environment, the Company may lose clients or have difficulty in
acquiring new clients, and its business, financial condition and results of
operations may be adversely affected. See "Business - Competition."
RELIANCE ON MANAGEMENT AND PERSONNEL
The Company's operations and future prospects are dependent on the
performance of its executive management team, including Bruce M. Gillis, S.
David Model, James D. Brown and Andrew R. Bacas. The Company will also be
dependent on senior management of the Founding Companies and on the senior
management of businesses acquired in the future. If any of these people are
unable or unwilling to continue in their present roles, or if the Company is
unable to attract and retain other skilled employees, the Company's business,
financial condition and results of operations could be materially and adversely
affected. In connection with the Offering, the Company is entering into
employment contracts with each of Messrs. Gillis, Model, Brown and Bacas and
certain members of senior
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management of the Founding Companies. The Company intends to obtain key-person
life insurance on Mr. Gillis in the amount of $1.0 million. See "Management."
The Company's future success and plans for growth also depend on its
ability to attract, train and retain personnel in all areas of its business.
There is strong competition for qualified personnel in the document management
services industry and in many of the geographic markets in which the Company
competes. As of September 1, 1997, the federal minimum wage increased to $5.15
an hour and there can be no assurance that such rate will not be substantially
increased in the future. In addition, California and other states have increased
or may increase their minimum wage above the federal minimum. Increases in the
minimum wage may cause the Company to increase wages to remain competitive.
Accordingly, the Company's business, financial condition and results of
operations may be adversely affected.
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. Although the
Company believes the Founding Companies have established procedures intended to
eliminate any unauthorized disclosure of confidential information and, in some
cases, have contractually limited their potential liability for unauthorized
disclosure of such information, there can be no assurance that unauthorized
disclosures will not result in liability to the Company. It is possible that
such liabilities could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON CERTAIN MARKETS
The Company derives its revenues primarily from its target markets,
including the health care, financial services and engineering industries.
Fundamental changes in the business practices of any of these markets, whether
due to regulatory, technological or other developments, could cause a material
reduction in demand by such clients for the services offered by the Company. Any
such reduction in demand may have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Business -
Clients and Key Markets."
ENVIRONMENTAL RISKS RELATED TO CERTAIN OPERATIONS OF THE COMPANY
Certain of the Company's operations utilize chemical products which are
regulated under federal, state and local laws as hazardous substances, and
produce wastes which are regulated under these laws. The Company is not
currently aware of any environmental conditions relating to present or past
waste generation at or from these facilities that would be likely to have a
material adverse effect on the business, financial condition or results of
operations of the Company. However, there can be no assurances that
environmental liabilities will not have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Business - Environmental Matters."
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's results of operations are subject to variations in any given
year, and from quarter to quarter. Factors that may cause material fluctuations
in quarterly results of operations include the timing and structure of
acquisitions, the timing and magnitude of costs related to such acquisitions,
the gain or loss of significant clients, increases or reductions in the scope of
services performed for significant clients, the timing or completion of
significant projects, the relative mix of higher and lower margin projects,
changes in pricing strategies, capital expenditures and other costs relating to
the expansion of operations, the hiring or loss of personnel, and other factors
that may be outside of the Company's control. In addition, because the
anticipated financial benefits of the combination of the Founding Companies may
not be generated immediately, the Company's initial results as a combined
company may reflect corporate overhead that exceeds the realized benefits. As a
result of the foregoing and other factors, the Company may experience material
fluctuations in its results of operations on a quarterly basis, which may
contribute to volatility in the price of the Common Stock. Given the possibility
of such fluctuations, the Company believes that quarterly comparisons of the
results of its
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operations during any fiscal year may not be meaningful and that results for any
one fiscal quarter may not be indicative of future performance. The Company will
incur non-recurring charges related to the closing of the Acquisitions and the
Offering of approximately $4.5 million in the fourth quarter of 1997, including
an estimated non-cash charge of approximately $4.0 million for acquired
in-process research and development and a $0.5 million charge related to a fee
payable in the fourth quarter upon the closing of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CASUALTY; RISK OF BUSINESS INTERRUPTIONS
The Company currently maintains and intends to continue to maintain, to the
extent such insurance is available on commercially reasonable terms,
comprehensive liability, fire, flood and earthquake (where appropriate) and
extended coverage insurance with respect to the properties that it now owns or
leases or that it may in the future own or lease, with customary limits and
deductibles. Certain types of loss, however, may not be fully insurable on a
cost-effective basis. In the future, should uninsured losses or damages occur,
the Company could lose both its investment in and anticipated profits from the
affected property and may continue to be obligated on any leasehold obligations,
mortgage indebtedness or other obligations related to such property. Any
significant damage to the Company's facilities or other event that causes
significant interruptions in the Company's operations may not be covered by
insurance and could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business - Facilities."
PUBLIC SECTOR MARKET AND CONTRACTING RISKS
Though a modest portion of the Company's present business involves public
sector contracts, the Company anticipates a growing portion of its business
coming from local, state and federal government agencies. Public sector
contracts are subject to detailed regulatory requirements and public policies,
as well as to funding priorities. Contracts with public sector customers may be
conditioned upon the continuing availability of public funds, which in turn
depends upon lengthy and complex budgetary procedures, and may be subject to
certain pricing constraints. Moreover, public sector contracts may generally be
terminated for a variety of factors, including when it is in the best interests
of the respective government. There can be no assurance that these factors or
others unique to contracts with governmental entities will not have a material
adverse effect on the Company's future business, financial condition and results
of operations.
SUBSTANTIAL INFLUENCE OF MANAGEMENT AND EXISTING SHAREHOLDERS
Based on an assumed initial public offering price of $13.00 per share, the
existing shareholders of ImageMAX, the former shareholders of the Founding
Companies and the directors and other executive officers of the Company, and
entities affiliated with them, will beneficially own approximately 43% of the
then outstanding shares of Common Stock following the completion of the Offering
(39.6% if the Underwriters' over-allotment option is exercised in full) and are
likely to continue to exercise substantial control over the Company's affairs.
These shareholders acting together would likely be able to elect a sufficient
number of directors to control the Board of Directors and to approve or
disapprove most matters submitted to a vote of shareholders. See "Principal
Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop upon completion of the Offering or, if it
does develop, that such market will be sustained. Accordingly, purchasers of the
Common Stock may experience difficulty selling or otherwise disposing of their
shares. The initial public offering price of the Common Stock will be determined
by negotiation among the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Stock after the
Offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The market price for the Common
Stock following the
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Offering may be highly volatile. Prices for the Common Stock will be determined
by the marketplace and may be influenced by many factors, including the depth
and liquidity of the trading market, investor perception of the Company and
general economic and market conditions and trends. In addition, factors such as
the Company's financial results, quarterly variations in the Company's financial
results, changes in earnings estimates by analysts, reported earnings that vary
from such estimates, press releases by the Company or others, and developments
affecting the Company or its industry generally may have a significant impact on
the market price of the Common Stock. The stock market has, on occasion,
experienced extreme price and volume fluctuations which have often been
unrelated to the operating performance of the affected companies.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution of $10.68 per share in the pro forma net tangible book value
per share of Common Stock (based upon an assumed initial public offering price
of $13.00 per share) as of June 30, 1997. See "Dilution." In the event the
Company issues additional 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. See "Shares Eligible for Future Sale."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales, or the possibility of sales, of Common Stock by the Company's
existing shareholders could adversely affect the market price of the Company's
Common Stock following the Offering. Upon consummation of the Offering (based on
an assumed initial public offering price of $13.00 per share), the Company will
have outstanding an aggregate of 5,438,727 shares of Common Stock. Of these
shares, all of the shares sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act of 1933, as amended (the "Securities Act").
Simultaneously with the closing of the Offering (based on an assumed
initial public offering price of $13.00 per share), the Company will issue in
the Acquisitions, in the aggregate, 1,184,468 shares of Common Stock as a
portion of the consideration for the Founding Companies. Such shares and the
1,154,259 shares of Common Stock held by existing shareholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under the
Securities Act. As a result of the contractual restrictions described below and
certain exemptions under the Securities Act, the Restricted Shares will be
available for sale in the public market as follows: (i) 765,769 shares will be
eligible for sale upon expiration of the lock-up agreements at least 180 days
after the date of this Prospectus; and (ii) 1,184,468 shares will be eligible
for sale pursuant to the provisions of Rule 144 one year from the consummation
of the Offering. Additionally, 302,500 shares of Common Stock may be acquired
upon the exercise of outstanding stock options to be granted upon completion of
the Offering to certain directors and officers of the Company which vest over a
period of three years. The Company has reserved for future issuances an
additional 297,500 shares of Common Stock under its 1997 Incentive Plan and
250,000 shares for future issuances under its Employee Stock Purchase Plan. The
Company intends to register the shares issuable upon exercise of options granted
under such plan, and upon such registration, such shares will be eligible for
resale in the public market. Further, the Company intends to register 2,000,000
shares of Common Stock on a shelf registration to be utilized as consideration
for future acquisitions, if any. Upon issuance, such shares generally will be
eligible for resale in the public market. The Company, the Company's directors
and officers, and certain shareholders of the Company have agreed not to offer,
sell or otherwise dispose of any shares of Common Stock or any securities
exercisable for or convertible into Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of William Blair &
Company, L.L.C., except for the sale by the Company of shares of Common Stock in
the Offering, in the Acquisitions and in other acquisition transactions (so long
as the persons receiving such Common Stock agree to be similarly restricted for
the remainder of
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the 180 day lock-up period). The shareholders of Founding Companies receiving
shares of Common Stock pursuant to the Acquisitions have agreed not to offer,
sell or otherwise dispose of such shares until one year after the closing of the
Acquisitions, except for transfers to immediate family members who agree to be
bound by such restrictions. Notwithstanding the preceding, shareholders of the
Founding Companies receiving shares of Common Stock pursuant to the Acquisitions
and all current shareholders have been granted certain "piggyback" registration
rights permitting them to include their shares in certain future registration
statements filed by the Company. See "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN ARTICLES, BYLAW AND STATUTORY
PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Bylaws (the "Bylaws") could delay or
frustrate the removal of incumbent directors, discourage potential acquisition
proposals and proxy contests and delay, defer or prevent a change in control of
the Company, even if such events could be beneficial, in the short term, to the
interests of the shareholders. For example, the Articles and Bylaws allow the
Company to issue preferred stock with rights senior to those of the Common Stock
without shareholder action, provide for the Board of Directors to be divided
into three classes of directors serving three-year staggered terms, and provide
that the Company's shareholders may call a special meeting of shareholders only
upon a request of shareholders owning at least 50% of the Company's capital
stock. These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. See "Description of Capital
Stock."
The Articles authorize the issuance of up to 40,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock, no par value per share (the
"Preferred Stock"). The Board of Directors will have the power to determine the
price and terms under which any such Preferred Stock may be issued and to fix
the terms thereof. The ability of the Board of Directors to issue one or more
series of Preferred Stock without shareholder approval, as well as certain
applicable statutory provisions under the Pennsylvania Business Corporation Law,
could deter or delay unsolicited changes in control of the Company by
discouraging open market purchases of the Common Stock or a non-negotiated
tender or exchange offer for such stock, which may be disadvantageous to the
Company's shareholders who may otherwise desire to participate in such
transaction and receive a premium for their shares.
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL")
contains a number of statutory "anti-takeover" provisions applicable to the
Company. One such BCL provision prohibits, subject to certain exceptions, a
"business combination" with a shareholder or group of shareholders (and certain
affiliates and associates of such shareholders) beneficially owning more than
20% of the voting power of a public corporation (an "interested shareholder")
for a five-year period following the date on which the holder became an
interested shareholder. This provision may discourage open market purchases of a
corporation's stock or a non-negotiated tender or exchange offer for such stock
and, accordingly, may be considered disadvantageous by a shareholder who would
desire to participate in any such transaction. The BCL also provides that
directors may, in discharging their duties, consider the interests of a number
of different constituencies, including shareholders, employees, suppliers,
customers, creditors and the community in which it is located. Directors are not
required to consider the interests of shareholders to a greater degree than
other constituencies' interests. The BCL expressly provides that directors do
not violate their fiduciary duties solely by relying on poison pills or the
anti-takeover provisions of the BCL.
ABSENCE OF DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock
and currently intends to retain all available funds for use in the operation and
expansion of its business. The Company does not anticipate that any cash
dividends on the Common Stock will be declared or paid in the foreseeable
future. See "Dividend Policy."
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THE COMPANY
ImageMAX was founded in November 1996 to become a leading national,
single-source provider of integrated document management solutions. Prior to the
Offering, ImageMAX has not conducted any operations. ImageMAX has entered into
agreements to acquire simultaneously with, and as a condition to, the
consummation of the Offering, the Founding Companies. For a description of the
transactions pursuant to which these businesses will be acquired, see "Certain
Transactions."
The Company has entered into definitive agreements to acquire: Utz Medical
Enterprises, Inc., the parent of American Micro-Med Corporation ("AMMCORP");
CodaLex Microfilming Corporation ("CMC"), Imaging Information Industries, Inc.
("I(3)" and, collectively with CMC, "CodaLex"); Laser Graphics Systems and
Services, Inc. ("Laser Graphics" and, collectively with CodaLex, the "CodaLex
Group"); DataLink Corporation ("DataLink"); DocuTech, Inc. ("DTI") and DocuTech
Data Systems, Inc. ("DDS") (collectively, "DocuTech"); Image & Information
Solutions ("I(2) Solutions"); Image Memory Systems, Inc. ("IMS"); International
Data Services of New York, Inc. ("IDS"); Oregon Micro-Imaging, Inc. ("OMI");
Semco Industries, Inc. ("Spaulding"); Total Information Management Corporation
("TIMCO"); and TPS Micrographics, Inc. ("TPS").
Upon consummation of the Acquisitions, the Company will employ over 950
people, have operations in 13 states and will have provided services to over
5,000 clients in the last year from 18 business locations. For the year ended
December 31, 1996 and the six months ended June 30, 1997, the Company had pro
forma combined revenues of $43.3 million and $24.6 million respectively.
Certain information regarding each of the Founding Companies is summarized
below:
AMMCORP (Chesterton, Indiana, near Chicago) is a provider of microfilm,
scanning and record storage and retrieval services primarily to health care
providers in the Chicago metropolitan area, northern Indiana, southern Michigan
and western Ohio. As a medical records specialist, AMMCORP offers 24-hour,
365-day physically staffed retrieval. David C. Utz, Jr. has been the Chairman
and Chief Executive Officer of AMMCORP since August 1988. Mr. Utz has served as
a Director of ImageMAX since its inception in November 1996 and will enter into
a three-year employment agreement with the Company upon consummation of the
Offering.
The CodaLex Group is comprised of three micrographic and digital imaging
service businesses under common control, CMC (Cayce, South Carolina near
Columbia), Laser Graphics (Cleveland, Tennessee, near Chattanooga) and I(3)
(Marietta, Georgia, near Atlanta). The CodaLex Group primarily serves the health
care and financial services markets in the southeastern U.S. and is a Kodak
imaging equipment broker-dealer in all three locations. I(3) was started in 1995
to focus on digital imaging and is a Canon dealer. David C. Yezbak has served as
President of CMC, Laser Graphics and I(3) since 1995 and as Vice President of
CodaLex from 1992 to 1995. Mr. Yezbak will enter into a three-year employment
agreement with the Company upon consummation of the Offering. Theodore J.
Solomon has served as Chairman of the Board of CMC, Laser Graphics and I(3)
since 1992. Mr. Solomon will enter into a part-time consulting agreement with
the Company upon consummation of the Offering, with an initial term of six
months.
DataLink (Tempe, Arizona) was formed in 1984 as a
computer-output-to-microfiche ("COM") specialist serving the Phoenix
metropolitan area. DataLink has broadened its offerings to include micrographic
and digital imaging service business and scanning services and systems. Judith
K. DeMott has been the President of DataLink since its formation. Ms. DeMott
will enter into a one-year consulting agreement with the Company upon
consummation of the Offering.
DocuTech (Lincoln, Nebraska) includes the businesses of DTI, a micrographic
and digital imaging service business, and DDS, a provider of open-architecture
document scanning software products. DTI primarily serves the health care and
financial services markets in Nebraska. DDS markets its DocuROM(Trademark),
FileTRAX(Registered), ScanTRAX(Trademark) and other scanning and digital image
management software nationally to both end-users and other document management
businesses including six of the Founding Companies. DDS has more than 70 other
document management businesses acting as value-added resellers of its software
products. DTI is a
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Canon dealer in Nebraska. Rex Lamb founded DTI in 1991 and has served as its
President since inception. He co-founded DDS in 1994 and has served as its
President since inception. Upon consummation of the Offering, Mr. Lamb will
enter into a three-year employment agreement with the Company and is expected to
join the Company's Board of Directors. Mark Creglow co-founded DDS in 1994 and
has served as its Vice President since inception. Prior to founding DDS, Mr.
Creglow was Regional Sales Manager for Distribution Management Systems, Inc.
Upon consummation of the Offering, Mr. Creglow will enter into a three-year
employment agreement with the Company.
I(2) Solutions (Monroe, Louisiana) is a provider of micrographic, digital
imaging, digital data storage and graphic design services primarily to
hospitals, state and local government agencies, engineering and general
commercial clients from its Monroe facilities. I(2) Solutions also operates a
retail store at its Monroe location, which produces litigation exhibits and
architectural and engineering prints and sells engineering, drafting and related
supplies. I(2) Solutions is a Kodak dealer in Louisiana, Texas and Mississippi,
a Minolta dealer in Louisiana, Texas and Arkansas and an OCE dealer in Louisiana
and Texas and provides service and repair support to its equipment customers.
Gary D. Blackwelder joined I(2) Solutions in 1976, and became President in 1986.
Mr. Blackwelder will enter into a five-year employment agreement with the
Company upon consummation of the Offering.
IMS (Dayton, Ohio) provides micrographic and digital imaging services
specializing in large-format documents (primarily engineering drawings) to a
national client base of manufacturing businesses. IMS also licenses
ImageMAX(Trademark) software for scanning and indexing aperture cards. IMS
licenses the software both to end-users and to other document management
companies. IMS is a Photomatrix dealer. Ovidio Pugnale joined IMS's predecessor
in 1980 as General Manager and became IMS's President in 1986. Mr. Pugnale will
enter into a three-year employment agreement with the Company following
consummation of the Offering.
IDS (Millwood, New York, near New York City) is a provider of offshore data
entry services supporting forms processing as well as the indexing of both
microfilmed and digitally-imaged records. IDS also performs litigation support.
IDS serves end-users and document management companies nationally. Mitchell J.
Taube and Ellen Rothschild-Taube co-founded IDS in 1989, since which time Mr.
Taube has served as President and Ms. Rothschild-Taube has served as Vice
President. Mr. Taube and Ms. Rothschild-Taube (on a part-time basis) will enter
into three-year employment agreements with the Company upon consummation of the
Offering.
OMI (Eugene, Oregon) provides micrographics and digital imaging products
and services primarily to health care providers, financial institutions and
government agencies in Oregon and Washington from its Eugene facility and a
branch office in Portland, Oregon. OMI is a certified dealer of Canon
micrographic and digital imaging equipment in Oregon, and provides service and
repair support to its equipment customers. John E. Semasko acquired OMI in 1975
and has served as its President since inception. Mary Jane Semasko has served as
Vice President since OMI's inception. Mr. and Mrs. Semasko will enter into
three-year employment agreements with the Company and Mr. Semasko is expected to
join the Board of Directors upon consummation of the Offering.
Spaulding (Stoughton, Massachusetts, near Boston) provides both
small-format and large-format document filming and digital imaging services and
equipment sales and related maintenance service to a variety of commercial,
non-profit and government clients in the New England region. Spaulding has a
branch office in Worcester, Massachusetts. Spaulding is a Minolta dealer for
micrographics and hybrid micrographic systems equipment in Maine, Massachusetts,
New Hampshire and Vermont, a Xerox dealer for large-format scanners, plotters,
and digital imaging equipment in New England and eastern New York and a Fujitsu
scanning equipment systems dealer throughout the Northeast. Spaulding also acts
as a nationwide value added reseller of specialized software and hardware for
Adobe Systems Incorporated, Computervision Corporation, CDP Communications,
Inc., Cadnet Corporation and Westbrook Technologies, Inc. Carmen DiMatteo,
Spaulding's President, has been with Spaulding for 37 years and will enter into
a consulting agreement with the Company upon consummation of the Offering for an
initial term of six months.
17
<PAGE>
TIMCO (Emeryville, California, near San Francisco) provides micrographics
digital imaging and record storage and retrieval services primarily to financial
services and government clients in northern California. TIMCO maintains a branch
office in Sacramento, California. James E. Bunker co-founded TIMCO in 1980 and
has served as its Chairman since the founding. Mr. Bunker will enter into a two-
year employment agreement with the Company upon consummation of the Offering.
Jeffry P. Kalmon joined TIMCO in 1984 as a sales representative and has served
as its President since 1996. Mr. Kalmon will enter into a three-year employment
agreement with the Company upon consummation of the Offering.
TPS (Forest, Virginia, near Lynchburg) provides micrographic and digital
imaging services to general commercial, health care, financial institutions and
government entities in Virginia. TPS also sells and services Canon micrographic
and digital imaging equipment. TPS maintains a branch office in Richmond,
Virginia. Having joined TPS in 1978, David L. Crowder has served as its
President since 1990. Mr. Crowder will enter into a three-year employment
agreement with the Company upon consummation of the Offering.
The following table indicates the date each Founding Company was
established and sets forth the Founding Companies' revenues for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
REVENUES
REVENUES SIX MONTHS
TWELVE MONTHS ENDED JUNE 30,
YEAR ENDED -----------------
ESTABLISHED DECEMBER 31, 1996 1996 1997
----------- ----------------- ------- -------
<S> <C> <C> <C> <C>
AMMCORP................................... 1976 $ 5,573 $ 2,727 $ 2,781
The CodaLex Group......................... 1972 4,057 1,869 2,627
DataLink.................................. 1984 3,151 1,620 1,712
DocuTech.................................. 1991 2,322 1,053 1,407
I(2) Solutions............................ 1974 3,959(1) 2,148(1) 2,286(1)
IMS....................................... 1961 2,292 1,299 1,402
IDS....................................... 1989 1,431 502 1,482
OMI....................................... 1975 3,666 1,867 2,103
Spaulding................................. 1886 8,693 4,337 4,477
TIMCO..................................... 1980 4,991 2,306 2,160
TPS....................................... 1975 3,215 1,482 2,227
------- ------- -------
Total combined revenues................. 43,350 21,210 24,664
Elimination of inter-company
revenues(2)......................... (94) (53) (74)
------- ------- -------
Total pro forma combined revenues..... $43,256 $21,157 $24,590
======= ======= =======
</TABLE>
- ------------------
(1) Represents results for the twelve months ended October 31, 1996 and six
months ended April 30, 1996 and 1997.
(2) Represents DocuTech and IDS revenues from other Founding Companies.
The aggregate consideration (excluding transaction costs) that will be paid
by the Company to acquire the Founding Companies is approximately $41.7 million,
consisting of (i) approximately $26.3 million in cash and (ii) approximately
$15.4 million of Common Stock (1,184,468 shares based on an assumed initial
public offering price of $13.00 per share). In addition, based upon the June 30,
1997 relevant account balances, the Company will repay approximately $6.0
million of indebtedness assumed by the Company in the Acquisitions,
substantially all of which is guaranteed by the respective shareholders of the
Founding Companies. See "Use of Proceeds."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,100,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $36.2 million
($41.8 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, approximately $34.5 million will be used to fund the
Acquisitions, including the $26.3 million cash portion of the purchase price for
the Founding Companies, indebtedness to be assumed from the Founding Companies
and repaid in the aggregate amount of $6.0 million as of June 30, 1997 and
approximately $2.2 million to pay the Acquisitions' transaction fees.
The remaining net proceeds will be used for general corporate purposes,
which are expected to include future acquisitions. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing investment grade
securities. The Company intends to enter into the Credit Facility to assist in
the funding of future acquisitions and operating activities. The Company also
may utilize Common Stock to fund future acquisitions. There can be no assurance
that the Credit Facility or the Common Stock will be sufficient to fund the
Company's needs. As of the date of this Prospectus, the Company has no
commitments or agreements with respect to any acquisitions other than of the
Founding Companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pro Forma Combined Liquidity and Capital
Resources."
Of the cash portion of the purchase price, approximately $7.4 million
represents the purchase price to be paid for certain Founding Companies which
are affiliated with persons who are or will become officers, directors or 5%
shareholders of the Company. Of the assumed indebtedness (which was used for
working capital, equipment purchases and general corporate purposes),
approximately $3.1 million (as of June 30, 1997) is an obligation of a Founding
Company whose shareholder is a Director of the Company and approximately $0.2
million (as of June 30, 1997) is an obligation of a Founding Company whose
shareholder is to be elected as a Director of the Company upon consummation of
the Offering. See "The Company" and "Certain Transactions." The indebtedness to
be repaid from the proceeds of the Offering bears effective interest rates
ranging from approximately 4% to 12%. Such indebtedness would otherwise mature
at various dates through 2010. The consideration to be paid for the Founding
Companies was determined through arm's length negotiations among ImageMAX and
representatives of the Founding Companies. See "Certain Transactions."
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes and therefore does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
19
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization at June 30, 1997 of ImageMAX on a
pro forma combined basis giving effect to (i) the issuance of 63,462 shares of
Common Stock in the September Financing, (ii) the conversion of all outstanding
shares of Series A Preferred Stock into an aggregate of 443,490 shares of Common
Stock (including 227,721 shares of Common Stock upon conversion of Series A
Preferred Stock issued in the September Financing) and (iii) the consummation of
the Acquisitions and the issuance of 1,184,468 shares of Common Stock in
connection therewith (based on an assumed initial public offering price of
$13.00 per share); and as further adjusted to reflect the issuance and sale of
the 3,100,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom, based on an assumed initial public offering
price of $13.00 per share. See "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company, including the Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO FORMA
PRO FORMA COMBINED,
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term $ 4,434 $ --
obligations...............................................
Pro forma cash due Founding Companies....................... 26,276 --
------- -------
$30,710 $ --
======= =======
Long-term obligations, less current maturities.............. $ 1,356 $ --
Shareholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; no shares issued or outstanding, pro forma
combined and pro forma combined, as adjusted........... -- --
Common Stock, no par value, 40,000,000 shares authorized;
2,338,727 shares issued and outstanding pro forma
combined; and 5,438,727 shares issued and outstanding,
pro forma combined, as adjusted (1).................... 14,879 51,108
Accumulated deficit....................................... (4,190) (4,690)
------- -------
Total shareholders' equity............................. 10,689 46,418
------- -------
Total capitalization................................... $12,045 $46,418
======= =======
</TABLE>
- ------------------
(1) Includes 1,184,468 shares of Common Stock to be issued in connection with
the Acquisitions (based on an assumed initial public offering price of
$13.00 per share) and 443,489 shares of Common Stock issuable upon the
conversion of all outstanding shares of Series A Preferred Stock. Excludes
(i) 302,500 shares of Common Stock which will be issuable upon the exercise
of stock options to be granted in connection with the Offering at an
exercise price per share equal to the initial public offering price, (ii)
297,500 shares of Common Stock available for future grants under the
Company's 1997 Incentive Plan and (iii) 250,000 shares available for future
issuances under the Company's Employee Stock Purchase Plan. See "Management
- Stock Incentive Plans."
20
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company at
June 30, 1997 was $23.1 million or $9.89 per share of Common Stock. The deficit
in pro forma combined net tangible book value per share represents the amount by
which the Company's pro forma combined total liabilities exceeds the Company's
pro forma combined tangible assets, divided by the number of shares of Common
Stock to be outstanding after giving effect to the September Financing and the
Acquisitions. After giving effect to the sale of 3,100,000 shares of Common
Stock in the Offering and after deduction of the underwriting discounts and
commissions and estimated expenses associated with the Offering, the pro forma
combined net tangible book value of the Company at June 30, 1997 would have been
approximately $12.6 million or $2.32 per share. This represents an immediate
increase in pro forma combined net tangible book value of $12.21 per share to
existing shareholders and an immediate dilution of $10.68 per share to
purchasers of Common Stock in the Offering. The following table illustrates this
pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma combined deficit in net tangible book value
per share
before the Offering................................. $ (9.89)
Increase in pro forma combined net tangible book value
per share attributable to new investors.............. 12.21
-------
Pro forma combined net tangible book value per share after
the Offering.............................................. 2.32
------
Dilution per share to new investors......................... $10.68
======
</TABLE>
The following table sets forth, on a pro forma combined basis to give
effect to the September Financing and the Acquisitions, the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing shareholders and the new investors
purchasing shares of Common Stock from the Company in the Offering, before
deducting underwriting discounts and commissions and estimated expenses
associated with the Offering and the Acquisitions:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
------------------------ TOTAL PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
----------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Existing shareholders................. 2,338,727 43.0% $14,885,000(1) $ 6.36
New investors......................... 3,100,000 57.0% 40,300,000 13.00
----------- ----- -----------
Total............................ 5,438,727 100.0% $55,185,000 $10.15
=========== ===== ===========
</TABLE>
- ------------------
(1) Total consideration paid by existing shareholders includes the cash
consideration paid by the existing shareholders and the fair value of the
shares of Common Stock to be issued in connection with the Acquisitions
(based on an assumed initial public offering price of $13.00 per share).
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ImageMAX will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, ImageMAX has been identified as the "accounting
acquiror." ImageMAX was formed in November 1996 and its operating activity
through June 30, 1997 has been limited principally to negotiating the agreements
to acquire the Founding Companies. ImageMAX's historical statement of operations
data include a net loss of $23,134 and $167,157 for the period from inception
(November 1996) to December 31, 1996 and for the six months ended June 30, 1997,
respectively. These losses consist of general and administrative expenses.
ImageMAX's statement of operations data discussed above and the historical June
30, 1997 balance sheet data presented below have been derived from the audited
financial statements of ImageMAX appearing elsewhere in this Prospectus. The
selected unaudited pro forma combined financial data present data for the
Company, adjusted for (i) the effect of the Acquisitions, (ii) the effects of
certain pro forma adjustments to the historical financial statements described
below and (iii) the consummation of the Offering and the application of the net
proceeds therefrom. See the Unaudited Pro Forma Combined Financial Statements,
including the Notes thereto, and the historical Financial Statements of
ImageMAX's and the Founding Companies, including the Notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
--------------------------------------------
YEAR SIX MONTHS
ENDED ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
STATEMENT OF OPERATIONS:(1) ------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Services................................................ $ 31,576 $ 14,923 $ 17,960
Products................................................ 11,680 6,234 6,630
--------- ---------- ----------
43,256 21,157 24,590
--------- ---------- ----------
Cost of revenues:(2)
Services................................................ 20,292 9,604 10,990
Products................................................ 8,948 4,739 4,703
Depreciation............................................ 1,408 699 695
--------- ---------- ----------
30,648 15,042 16,388
--------- ---------- ----------
Gross profit.......................................... 12,608 6,115 8,202
Selling, general, and administrative expenses(3).......... 11,216 5,633 5,396
Amortization of intangible assets(4)...................... 1,246 621 621
--------- ---------- ----------
Operating income (loss)................................. 146 (139) 2,185
Interest income (expense), net(5)......................... (2) 8 8
--------- ---------- ----------
Income (loss) before income taxes....................... 144 (131) 2,193
Income tax provision(6)................................... 386 113 1,024
--------- ---------- ----------
Net income (loss)......................................... $ (242) $ (244) $ 1,169
========= ========== ==========
Pro forma net income (loss) per share..................... $ (.05) $ (.05) $ .23
========= ========== ==========
Shares used in computing pro forma net income (loss) per
share(7)................................................ 5,091,419 5,091,419 5,091,419
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COMBINED COMPANIES
JUNE 30, 1997
IMAGEMAX -------------------------------
-------- PRO FORMA
JUNE 30, PRO FORMA COMBINED
1997 COMBINED(8) AS ADJUSTED(9)
-------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 15 $ 3,243 $ 4,466
Working capital (deficit)................................ 200 (26,642)(10) 7,731
Total assets............................................. 270 52,643 53,866
Long-term debt, less current portion..................... -- 1,356 --
Shareholders' equity..................................... 225 10,689 46,418
</TABLE>
22
<PAGE>
- ------------------
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1996 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.
(2) Includes the Rent Differential.
(3) Includes the Compensation Differential. Includes compensation costs
associated with positions eliminated or which will be eliminated in
connection with the Acquisitions, including the retirement of four senior
Founding Companies' executives and other identified head-count reductions
totalling approximately $650,000, $400,000 and $250,000 for the year ended
December 31, 1996 and for the six months ended June 30, 1996 and 1997,
respectively. Excludes compensation of $610,000 annually based upon
employment agreements with the Company's executive management (see
"Management - Employment Agreements") and other costs associated with being
a public company. See Unaudited Pro Forma Combined Financial Statements.
(4) Represents amortization of $33.0 million of goodwill to be recorded as a
result of the Acquisitions over an estimated life of principally 30 years
and amortization of acquired developed technology of $0.8 million over an
estimated life of seven years. Excludes a charge of $4.0 million for
acquired non-recurring in process research and development and a $0.5
million charge related to a fee payable in the fourth quarter upon the
closing of the Offering. See Unaudited Pro Forma Combined Financial
Statements.
(5) Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the repayment of debt paid from the net proceeds of
the Offering. See "Use of Proceeds."
(6) Reflects an estimated corporate income tax rate of 39.2% before considering
the non-deductibility of approximately $840,000 of annual amortization of
intangible assets.
(7) Includes (i) 710,770 shares of Common Stock issued and outstanding at
September 11, 1997, (ii) 1,184,468 shares to be issued in the Acquisitions
(based on an assumed initial public offering price of $13.00 per share),
(iii) 443,489 shares to be issued upon the conversion of all outstanding
shares of Series A Preferred Stock outstanding as of September 11, 1997
upon the consummation of the Offering, and (iv) 2,752,692 of the 3,100,000
shares being sold in the Offering (at an assumed initial public offering
price of $13.00 per share) necessary to pay the cash portion of the
consideration for the Acquisitions, Founding Companies' indebtedness as
described in "Use of Proceeds" and expenses of the Acquisitions and the
Offering.
(8) The pro forma combined balance sheet data (i) assume that the Acquisitions
were consummated on June 30, 1997 and (ii) reflect the September Financing.
(9) Adjusted for the sale of the 3,100,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $13.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(10) Includes $26.3 million payable to the owners of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions,
which is to be paid from the net proceeds of the Offering.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. This and other sections of this
Prospectus contain certain forward-looking statements that involve substantial
risks and uncertainties. When used, the words "anticipate," "believe,"
"estimate," "expect," and similar expressions as they relate to the Company or
its management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors."
INTRODUCTION
ImageMAX was founded in November 1996 to become a leading, national
single-source provider of integrated document management solutions. ImageMAX has
entered into agreements to acquire the Founding Companies, simultaneously with
and as a condition to consummation of the Offering. The Founding Companies have
been in business an average of over 20 years, have operations in 13 states,
employ over 950 people and in the last year provided services to over 5,000
clients from 18 business locations. The Company's net revenues will be derived
from a broad range of media conversion, storage and retrieval services, the sale
of proprietary, open-architecture software products which support digital
imaging and indexing services and the sale and service of a variety of document
management equipment.
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), 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.
ImageMAX, 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 the Founding Companies 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, but will also necessitate
additional costs and expenditures for corporate management and administration
(including costs related to the hiring of additional management personnel),
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.
The Company's revenues consist of service revenues which are generally
recognized on a percentage of completion basis, and product revenues which are
recognized when the products are shipped to clients. Service revenues are
primarily derived from media conversion, storage and retrieval, imaging and
indexing of documents, and the service of products sold. Product revenues are
derived from equipment sales and software sales and support. Cost of revenues
consists principally of the costs of products sold and wages and related
benefits, supplies, facilities and equipment expenses associated with providing
the Company's services. Selling, general and administrative ("SG&A") expenses
include salaries and related benefits associated with the Company's executive
and senior management, marketing and selling activities (principally salaries
and related costs), and financial and other administrative expenses. The pro
forma combined statement of operations data reflect the Compensation
Differential and the Rent Differential. Operating expenses in the pro forma
combined statement of operations include compensation costs associated with
certain positions at the Founding Companies eliminated or which will be
eliminated in connection with the Acquisitions, including the retirement of four
senior Founding Company executives and other identified head-count reductions
totalling approximately $400,000 and $250,000 for the six months ended June 30,
1996 and 1997, respectively,
24
<PAGE>
but exclude compensation of $610,000 annually based upon employment agreements
with the Company's executive management (see "Management - Employment
Agreements") and other costs associated with being a public company. See
Unaudited Pro Forma Combined Financial Statements.
In July 1996, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 97 ("SAB 97") relating to business
combinations immediately prior to an initial public offering. SAB 97 requires
that these combinations be accounted for using the purchase method of
acquisition accounting. Under the purchase method, one of the companies must be
designated as the accounting acquirer. In this transaction, ImageMAX has been
identified as the accounting acquirer. Accordingly, the sum of $33.0 million
will be recorded as "goodwill" on the Company's balance sheet. Goodwill will be
amortized as a non-cash charge to the income statement over a principally
30-year period. The annual pro forma impact of this amortization expense is $1.2
million, of which $0.8 million is non-deductible for tax purposes. Accordingly,
the Company will have an effective tax rate higher than the statutory rate.
Prior to the issuance of SAB 97, goodwill and related amortization expense were
not required to be recorded for most business combinations similar to the
Acquisitions. See "Certain Transactions - Acquisition Transactions."
Upon consummation of the Acquisitions, the Company will incur a one-time
charge in the fourth quarter of 1997 against income of $4.5 million, consisting
of a $4.0 million charge for acquired non-recurring in-process research and
development relating to certain software products acquired from DDS and a $0.5
million charge related to a fee payable in the fourth quarter. See "Certain
Transactions - Acquisitions Transactions."
PRO FORMA COMBINED RESULTS
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
The following table sets forth the pro forma combined results of operations
for the six months ended June 30, 1996 and June 30, 1997 and such results as a
percentage of the total revenue. (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
1996 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Services......................................... $14,923 70.5% $17,960 73.0%
Products......................................... 6,234 29.5 6,630 27.0
------- ----- ------- -----
21,157 100.0 24,590 100.0
------- ----- ------- -----
Cost of revenues
Services......................................... 9,604 45.4 10,990 44.7
Products......................................... 4,739 22.4 4,703 19.1
Depreciation..................................... 699 3.3 695 2.8
------- ----- ------- -----
15,042 71.1 16,388 66.6
------- ----- ------- -----
Gross profit..................................... 6,115 28.9 8,202 33.4
Selling, general and administrative expenses....... 5,633 26.6 5,396 21.9
Amortization of intangibles........................ 621 2.9 621 2.6
------- ----- ------- -----
Operating income (loss).......................... (139) (0.6) 2,185 8.9
Interest expense................................... 39 0.2 36 0.2
Interest (income).................................. (47) (0.2) (44) (0.2)
------- ----- ------- -----
Income (loss) before income taxes................ (131) (0.6) 2,193 8.9
Income tax provision............................... 113 0.6 1,024 4.1
------- ----- ------- -----
Net income (loss).................................. $ (244) (1.2)% $ 1,169 4.8%
======= ===== ======= =====
</TABLE>
25
<PAGE>
Revenues
Total Revenues. Total revenues increased approximately $3.4 million, or
16.2%, from approximately $21.2 milliion in the six months ended June 30, 1996
to approximately $24.6 million in the six months ended June 30, 1997. Service
revenues increased 20.4% and comprised 73.0% of total revenues in the six months
ended June 30, 1997. Product revenues increased 6.4% and comprised 27.0% of
total revenues in the six months ended June 30, 1997.
Service Revenues. Service revenues increased approximately $3.0 million
from approximately $14.9 million in the six months ended June 30, 1996 to
approximately $18.0 million in the six months ended June 30, 1997. This increase
was largely due to: (i) an increase in the CodaLex Group revenues of
approximately $1.0 million primarily attributable to increased conversion
service capacity in the CodaLex facility in Columbia, South Carolina, (ii) an
increase in IDS revenues of approximately $1.0 million attributable to new major
offshore data entry projects, (iii) an increase in TPS revenues of $0.6 million
primarily attributable to the addition of several major recurring micrographics
and digital accounts, and (iv) an increase in IMS revenues of approximately $0.3
million from a variety of projects reflecting the development of an in-house
sales function established in 1996.
Product Revenues. Product revenues increased $0.4 million from
approximately $6.2 million in the six months ended June 30, 1996 to $6.6 million
in the six months ended June 30, 1997. This increase was primarily due to: (i)
an increase in DocuTech revenues of approximately $0.3 million attributable to
higher digital imaging software sales to other document management companies and
end-users; (ii) an increase in OMI product revenues of approximately $0.3
million and (iii) an increase in TPS product revenues of $0.2 million. This
increase was partially offset by a decrease in product revenues of $0.2 million
at IMS and $0.2 million at the CodaLex Group which, in each case, reflects a
shift in sales emphasis to service revenues. The software sales increase at
DocuTech represents a 56% gain over its revenues from software sales in the six
months ended June 30, 1996.
Cost of Revenues
Cost of Services. Cost of services increased approximately $1.4 million,
or 14.4%, from approximately $9.6 million in the six months ended June 30, 1996
to approximately $11.0 million in the six months ended June 30, 1997. Cost of
services as a percentage of service revenues was 64.4% in the six months ended
June 30, 1996 and 61.2% in the six months ended June 30, 1997. Cost of services
decreased as a percentage of service revenues primarily because: (i) AMMCORP's
percentage decreased from 64.4% to 60.6% as a result of improved conversion
efficiencies; (ii) IMS's percentage declined from 78.5% to 52.3% due to
economies of scale and improved conversion methods; (iii) IDS's percentage
declined from 74.7% to 56.5% due to higher revenues and largely fixed project
management costs; (iv) DataLink's percentage declined from 72.0% to 61.9% due to
greater conversion efficiencies obtained in a new facility and an increased
sales mix to higher margin digital imaging services; and (v) TPS's percentage
declined from 67.0% to 62.8% primarily due to economies of scale obtained as
volume increased. Included in both six month periods are approximately $56,000
in compensation costs associated with positions at Spaulding that will be
eliminated in connection with the Acquisition.
Cost of Products. Cost of products was relatively constant at $4.7 million
in the six months ended June 30, 1996 and six months ended June 30, 1997. Cost
of products as a percentage of product revenues was 76.0% in the six months
ended June 30, 1996 and 70.9% in the six months ended June 30, 1997. Cost of
products decreased as a percentage of product revenues primarily because: (i)
Spaulding's percentage decreased from 78.5% to 74.3% as a result of higher
product sales, and (ii) DocuTech's percentage decreased from 59.2% to 33.0%
primarily due to the low incremental cost of additional software sales spread
over an increased revenue base.
Depreciation. Depreciation was approximately $0.7 million in the six
months ended June 30, 1996 and $0.7 million in the six months ended June 30,
1997.
26
<PAGE>
Gross Profit
As a result of the higher revenues and declining service and product cost
as a percentage of revenues described above, gross profit increased
approximately $2.1 million, or 34.1%, from approximately $6.1 million in the six
months ended June 30, 1996 to approximately $8.2 million in the six months ended
June 30, 1997. As a percentage of revenues, gross profit increased from 28.9% in
the six months ended June 30, 1996 to 33.4% in the six months ended June 30,
1997. Gross profit reflects pro forma adjustments which increased cost of
revenues by $125,000 and $141,000 for the six months ended June 30, 1996 and
June 30, 1997, respectively. These pro forma adjustments relate principally to
the Rent Differential.
Selling, General and Administrative Expenses
SG&A expenses decreased approximately $0.2 million, or 4.2%, from
approximately $5.6 million in the six months ended June 30, 1996 to
approximately $5.4 million in the six months ended June 30, 1997. As a
percentage of total revenues, SG&A expenses declined from 26.6% to 21.9%,
largely as a result of cost reductions at Spaulding and the proportion of SG&A
costs that remained relatively fixed as revenues increased. At Spaulding, SG&A
expenses declined approximately $0.5 million, or 28.0%, from approximately $1.8
million in the six months ended June 30, 1996 to approximately $1.3 million in
the six months ended June 30, 1997. The decrease reflects $0.2 million in
non-recurring severance costs in the six months ended June 30, 1996 as well as
payroll, benefits and other cost reduction measures implemented by management to
improve profitability. In each of the six month periods, Spaulding's SG&A
expense included approximately $100,000 in compensation costs associated with
positions that will be eliminated in connection with the Acquisitions, including
the retiring Chairman of the Board and positions associated with a
recently-closed office. Both periods also include approximately $97,000 in
specific costs at other Founding Companies that will be eliminated as a result
of the Acquisitions, including an administrative position, a consulting
agreement with a relative of a Founder, and certain pay reductions. The Company
incurred additional SG&A expenses of $0.2 million for the Company's corporate
function in the six months ended, June 30, 1997 as compared to no expenses in
the prior period. Other net increases in SG&A expenses amounting to
approximately $0.3 million relate primarily to additional commission expense and
incremental administrative payroll.
SG&A expenses reflect pro forma adjustments which reduced SG&A expenses as
reported by approximately $0.2 million for the six months ended June 30, 1996
and approximately $0.7 million in the six months ended June 30, 1997. Pro forma
adjustments for the Compensation Differential, which decreased SG&A expenses,
were approximately $0.3 million in the six months ended June 30, 1996 and
approximately $0.7 million in the six months ended June 30, 1997.
Amortization of Intangible Assets
Amortization of approximately $0.6 million in the six months ended June 30,
1996 and 1997 consists primarily of the estimated amortization of intangible
assets related to the Acquisitions as though they had taken place on January 1,
1996.
Operating Income
Operating income increased approximately $2.3 million from an operating
loss of $139,000 in the six months ended June 30, 1996 to approximately $2.2
million, or 8.9% of total revenues, in the six months ended June 30, 1997.
Interest Expense (Income)
Interest income net of interest expense was $8,000 in each of the six
months ended June 30, 1996 and June 30, 1997.
Income Tax Provision
The income tax provision increased approximately $0.9 million from $113,000
in the six months ended June 30, 1996 to approximately $1.0 million in the six
months ended June 30, 1997. The effective tax rate for the six months ended June
30, 1997 was 46.7%. In each period, the effective tax
27
<PAGE>
rate exceeds the statutory rate primarily due to non-deductible amortization of
intangibles. As income before income taxes increases, the impact of
non-deductible amortization of intangibles on the effective tax rate will tend
to diminish. The Founding Companies were operated as separate entities for tax
purposes for all periods presented.
Net Income (Loss)
Net income increased approximately $1.4 million from a loss of
approximately $0.2 million in the six months ended June 30, 1996 to income of
approximately $1.2 million, or 4.8% of total revenues, in the six months ending
June 30, 1997.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements relate to the implementation of
its acquisition strategy and, to a lesser extent, working capital and capital
expenditures. The Company intends to fund these capital requirements primarily
through: (i) the net proceeds of the Offering; (ii) cash flow from operations;
(iii) borrowing under the Company's proposed Credit Facility; and (iv) the
issuance of Common Stock to the sellers of acquired businesses.
At June 30, 1997, on a pro forma combined basis, the Company would have a
cash balance of $4.5 million, working capital of $7.7 million and no long-term
debt outstanding. Cash balances of the Company will be invested in short-term,
interest-bearing investment grade securities.
Prior to the consummation of the Offering, the Company intends to enter
into the proposed Credit Facility. There can be no assurance that such Credit
Facility will be obtained or that, if obtained, will be on terms that are
favorable to the Company or sufficient for the Company's needs. Additionally,
the Company intends to file a shelf Registration Statement for 2.0 million
shares of Common Stock promptly after consummation of the Offering for issuance
to sellers of acquired companies in connection with future acquisitions. The
amount of capital available for future acquisitions will depend in part on the
willingness of sellers to accept Common Stock as partial consideration.
The Company anticipates that it will make approximately $1.1 million of
capital expenditures for the Founding Companies during fiscal year ended
December 31, 1998, in addition to its anticipated acquisition and working
capital requirements. The Company believes that the capital sources described
above will be sufficient to meet the Company's liquidity requirements for its
operations and acquisition program for approximately 12 months following the
Offering.
RESULTS OF OPERATIONS -- COMBINED
The combined results of operations of the Founding Companies for the
periods presented as fiscal years 1994, 1995, and 1996 do not represent combined
results of operations presented in accordance with generally accepted accounting
principles, but are only a summation of the total revenues, cost of revenues,
and SG&A expenses (including historical intangible amortization) of the
individual Founding Companies on a historical basis. The combined results also
exclude the effect of pro forma adjustments and, therefore, may not be
indicative of the Company's post-combination results of operations for a number
of reasons, including the following: (i) the Founding Companies were not under
common control or management during the periods presented; (ii) the Founding
Companies had different fiscal year ends for the periods presented; (iii) the
Founding Companies used different tax structures ("S Corporations" or "C
Corporations") during the periods presented; (iv) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company; (v) the Company will use the purchase method of accounting to
record the Acquisitions, resulting in the recording and amortization of
goodwill; and (vi) the combined data do not reflect the Compensation
Differential, the Rent Differential or the potential benefits and cost savings
the Company expects to realize once ImageMAX and the Founding Companies begin
operating as a combined entity.
28
<PAGE>
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and such results as a percentage of
total revenues (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED (1)
-----------------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Services...................................... $30,096 75.2% $30,470 74.7% $31,987 71.2%
Product....................................... 9,929 24.8 10,311 25.3 12,938 28.8
------- ----- ------- ----- ------- -----
$40,025 100.0 40,781 100.0 44,925 100.0
------- ----- ------- ----- ------- -----
Cost of Revenues
Services...................................... 18,951 47.3 20,273 49.7 20,231 45.1
Product....................................... 7,769 19.4 7,484 18.4 9,620 21.4
Depreciation.................................. 1,230 3.1 1,379 3.4 1,460 3.2
------- ----- ------- ----- ------- -----
27,950 69.8 29,136 71.5 31,311 69.7
------- ----- ------- ----- ------- -----
Gross profit................................ 12,075 30.2 11,645 28.5 13,614 30.3
Selling, general and administrative expenses
(including intangible asset amortization)..... 11,041 27.5 11,887 29.1 12,038 26.8
------- ----- ------- ----- ------- -----
Operating income (loss)......................... $ 1,034 2.7% $ (242) (0.6)% $ 1,576 3.5%
======= ===== ======= ===== ======= =====
</TABLE>
- ------------------
(1) The years presented are as follows: AMMCORP - fiscal years ended July 31,
1994, 1995 and 1996; IDS - fiscal years ended August 31, 1994, 1995 and
1996; I(2)Solutions - fiscal years ended October 31, 1994, 1995 and 1996;
OMI - fiscal years ended October 31, 1994, 1995 and 1996; IMS - fiscal years
ended November 30, 1994, 1995 and 1996; TIMCO, DataLink and DocuTech -
fiscal years ended December 31, 1994, 1995 and 1996; TPS - fiscal years
ended March 31, 1995, 1996 and 1997; Spaulding - fiscal years ended June 30,
1995, 1996 and 1997. The CodaLex Group includes two accounting groups: (i)
CMC - fiscal years ended June 30, 1995, 1996 and 1997; and (ii) Laser
Graphics - fiscal years ended October 31, 1994, 1995 and 1996.
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenues
Total Revenues. Revenues increased $4.1 million, or 10.2%, from $40.8
million for fiscal year 1995 to $44.9 million for fiscal year 1996. Service
revenues increased 5.0% and represented 71.2% of combined revenues in fiscal
year 1996. Product revenues increased 25.5% and represented 28.8% of combined
revenues in fiscal year 1996.
Service Revenues. Service revenues increased $1.5 million from $30.5
million for fiscal year 1995 to $32.0 million for fiscal year 1996. This
increase was largely due to (i) an increase in the CodaLex Group revenues of
$0.8 million primarily attributable to the opening of a new office in Atlanta
and increased digital imaging services sales at Laser Graphics, (ii) an increase
in TPS revenues of $0.6 million primarily attributable to the addition of new
client accounts, (iii) an increase in TIMCO revenues of $0.6 million primarily
attributable to increases in sales volume generated by three newly-hired sales
representatives, (iv) an increase in OMI revenues of $0.5 million primarily
attributable to growth in both digital imaging and micrographic services, and
(v) an increase in DocuTech revenues of $0.4 million primarily attributable to
growth in digital imaging services. There were offsetting decreases in revenues
at AMMCORP of $0.7 million due primarily to the loss of customer accounts when
AMMCORP closed a document management facility located in Anderson, Indiana, at
IDS of $0.6 million due primarily to the completion of two large projects in
fiscal year 1995 and at IMS of $0.6 million due primarily to the termination of
an outside sales agent.
Product Revenues. Product revenues increased $2.6 million from $10.3
million for fiscal year 1995 to $12.9 million for fiscal year 1996. This
increase was largely due to (i) an increase in DocuTech revenues of $0.9 million
primarily attributable to increases in software and related hardware product
sales, (ii) an increase in the CodaLex Group revenues of $1.5 million primarily
attributable to increases in equipment sales through the new Atlanta office,
(iii) an increase in DataLink revenues of $0.3 million primarily attributable to
increased sales of film and disk media, (iv) an increase in OMI revenues of $0.3
million primarily attributable to growth in product sales, and (v) offsetting
decreases
29
<PAGE>
in revenues at IMS and Spaulding of $146,000 and $142,000, respectively as a
result of sales force reductions at IMS and reduced supplies demand at
Spaulding.
Cost of Revenues
Cost of Services. Cost of services remained relatively constant at $20.3
million for fiscal year 1995 and $20.2 million for fiscal year 1996. Cost of
services as a percentage of service revenues was 66.5% for fiscal year 1995 and
63.2% for fiscal year 1996. Cost of services as a percentage of service revenues
decreased primarily because: (i) the CodaLex Group's percent declined from 70.2%
to 69.1% due to increases in conversion efficiency on higher volume; (ii) TPS's
percent declined from 68.1% to 62.6% due to increases in margins on higher
volume; (iii) AMMCORP's percent declined from 74.9% to 59.8% due to lower
production cost and reductions in overhead related to the closing of the
Anderson facility, offset by (iv) OMI's percent increased from 82.8% to 86.6%
due to higher compensation expense.
Cost of Products. Cost of products increased $2.1 million or 28.5% from
$7.5 million for fiscal year 1995 to $9.6 million for fiscal year 1996. Cost of
products as a percentage of product revenues was 72.6% for fiscal year 1995 and
74.4% for fiscal year 1996. Cost of products as a percentage of product revenue
increased because: (i) the CodaLex Group's percent increased from 70.5% to 74.9%
primarily due to decreases in product margins at Laser Graphics; (ii) DocuTech's
percent increased from 33.8% to 54.4% primarily due to higher software
production and support costs; and (iii) IMS's percent decreased from 78.2% to
59.5% primarily due to lower volume offset by higher software production costs.
Depreciation. Depreciation was approximately $1.4 million for fiscal 1995
versus $1.5 million for fiscal 1996.
Gross Profit
As a result of a 10.2% increase in revenues and a 7.5% increase in cost of
revenues resulting from a more favorable mix of higher margin products, combined
gross profit increased $2.0 million or 16.9% from $11.6 million for fiscal year
1995 to $13.6 million for fiscal year 1996. Gross profit as a percentage of
revenues increased from 28.5% for fiscal year 1995 to 30.3% for fiscal year
1996.
Selling General and Administrative Expenses.
SG&A expenses were approximately $11.9 million in fiscal year 1995 and
$12.0 million in fiscal year 1996. As a percentage of combined revenues, SG&A
expenses decreased from 29.1% in fiscal year 1995 to 26.8% in fiscal year 1996.
SG&A administrative expenses increased $0.1 million at OMI primarily due to
increases in owners' compensation and increases in selling costs related to
higher sales volume. SG&A expenses increased $0.3 million at DocuTech primarily
due to increases in personnel, marketing, and software development costs. SG&A
costs increased $0.3 million at the CodaLex Group primarily due to adding staff
personnel at the Atlanta location and higher sales commission expenses. Overall,
six of the Founding Companies reported increases in SG&A expenses from fiscal
year 1995 to fiscal year 1996, offset by a similar amount of decreases at the
remaining five companies.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Revenues. Revenues increased $0.8 million, or 1.9%, from $40.0 million for
fiscal year 1994 to $40.8 million for fiscal year 1995. Service revenues
increased 1.2% and represented 74.7% of combined revenues in fiscal year 1995.
Product revenues increased 3.9% and represented 25.3% of combined revenues in
fiscal year 1995.
Service Revenues. Service revenues increased $0.4 million from $30.1
million for fiscal year 1994 to $30.5 million for fiscal year 1995. This
increase was largely due to (i) an increase in AMMCORP revenues of $0.7 million
primarily attributable to the acquisition of a document management business in
Anderson, Indiana, (ii) an increase in IDS revenues of $0.4 million primarily
attributable to the addition of two large projects from a new and an existing
client, (iii) an increase in TPS revenues of $0.3 million primarily attributable
to the addition of several large service accounts
30
<PAGE>
from health care, financial and government clients, (iv) an increase in TIMCO
revenues of $0.3 million primarily attributable to the acquisition of a document
management company in northern California in the middle of fiscal year 1994, and
(v) offsetting decreases in revenues at the CodaLex Group of $1.0 million due
primarily to a shift in the mix to lower margin product sales and diversion of
management attention required by the establishment of the Atlanta facility and
at DataLink of $0.3 million due primarily to the loss of three significant COM
customers.
Product Revenues. Product revenues increased $0.4 million from $9.9
million for fiscal year 1994 to $10.3 million for fiscal year 1995. This
increase was largely due to (i) an increase in IMS revenues of $0.5 million
primarily attributable to increases in sales of large document scanning
hardware, (ii) an increase in I(2) Solutions' revenues of $0.4 million primarily
attributable to a large equipment order, and (iii) an offsetting decrease in
revenues at Spaulding of $0.6 million as a result of reduced regional demand for
equipment.
Cost of Revenues
Cost of Services. Cost of services increased $1.3 million or 7.0% from
$19.0 million for fiscal year 1994 to $20.3 million for fiscal year 1995. Cost
of services as a percentage of service revenues was 63.0% for fiscal year 1994
and 66.5% for fiscal year 1995. This increase was primarily due to: (i) a
decrease in the CodaLex Group cost of services of $0.6 million, with cost of
services as a percentage of service revenues increasing from 66.1% in fiscal
year 1994 to 70.2% in fiscal year 1995, primarily attributable to a decrease in
sales volume without a similar overhead cost decrease, (ii) an increase in IMS
cost of services of $0.3 million, with cost of services as a percentage of
service revenues increasing from 66.5% in fiscal year 1995 to 72.2% in fiscal
year 1996, primarily attributable to higher labor costs, (iii) an increase in
IDS cost of services of $0.3 million, with cost of services as a percentage of
services revenues increasing from 54.3% in fiscal year 1994 to 56.2% in fiscal
year 1995, primarily attributable to decreases in margins on higher volume,
offset by (iv) a decrease in DataLink cost of services of $0.3 million primarily
attributable to decreases in labor costs and overhead.
Cost of Products. Cost of products decreased $0.3 million or 3.7% from
$7.8 million for fiscal year 1994 to $7.5 million for fiscal year 1995. Cost of
products as a percentage of product revenues was 78.3% for fiscal year 1994 and
72.6% for fiscal year 1995. The major fluctuations in cost of products included
(i) a decrease in Spaulding's cost of products of $0.6 million, with cost of
products as a percentage of product revenues decreasing from 75.3% in fiscal
year 1994 to 72.4% in fiscal year 1995 primarily attributable to lower sales
volume, (ii) an increase in IMS cost of products of $0.4 million, with cost of
products decreasing as a percentage of product revenues from 88.9% in fiscal
year 1994 to 78.2% in fiscal year 1995 primarily attributable to increases in
sales volume, (iii) an increase in I(2) Solutions cost of products of $0.2
million, with cost of product as a percentage of product revenues decreasing
from 83.9% in fiscal year 1994 to 76.1% in fiscal year 1995, primarily
attributable to higher volume of product sold and some pricing improvement.
Depreciation Depreciation was approximately $1.2 million for fiscal year
1994 versus $1.4 million for fiscal year 1995, as the asset base of the combined
companies increased.
Gross Profit
As a result of generally flat revenues and increased cost of revenues,
combined gross profit decreased $0.4 million or 3.6% from $12.1 million for
fiscal year 1994 to $11.6 million for fiscal year 1995. Gross profit as a
percentage of revenues decreased from 30.2% for fiscal year 1994 to 28.5% for
fiscal year 1995.
Selling, General and Administrative Expenses
SG&A expenses increased $0.8 million or 7.7% from approximately $11.0
million in fiscal year 1994 to $11.9 million in fiscal year 1995. SG&A expenses
increased $0.5 million at TIMCO primarily due to increases in one time expenses
related to the retirement of the former co-founder. Seven of the Founding
Companies reported increases in SG&A expenses from fiscal year 1994 to fiscal
year 1995, offset by a decline in SG&A expenses at OMI, I(2) Solutions, AMMCORP,
and the CodaLex Group.
31
<PAGE>
FOUNDING COMPANIES -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL
FINANCIAL CONDITION AND RESULTS OF HISTORICAL OPERATIONS
The following discussion should be read in conjunction with the Founding
Companies' Financial Statements and related notes thereto appearing elsewhere in
this Prospectus. The information presented below is based upon the respective
fiscal periods for each Founding Company and excludes all pro forma adjustments.
SG&A expenses include, where applicable, intangible asset amortization.
AMMCORP RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, NINE MONTHS ENDED APRIL 30,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $5,586 100.0% $6,276 100.0% $5,550 100.0% $4,122 100.0% $4,264 100.0%
Cost of revenues.................. 3,579 64.1 5,033 80.2 3,730 67.2 2,834 68.8 2,750 64.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 2,007 35.9 1,243 19.8 1,820 32.8 1,288 31.2 1,514 35.5
Selling, general and
administrative expenses......... 1,850 33.1 1,835 29.2 1,593 28.7 1,172 28.4 1,357 31.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ 157 2.8% $ (592) (9.4)% $ 227 4.1% $ 116 2.8% $ 157 3.7%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Nine Months Ended April 30, 1997 Compared to Nine Months Ended April 30, 1996
Revenues. Revenues increased approximately $142,000 or 3.4% from
approximately $4.1 million for nine months ended April 30, 1996 to approximately
$4.3 million for nine months ended April 30, 1997. This increase was primarily
due to the addition of new customer accounts.
Cost of Revenues. Cost of revenues remained unchanged at approximately
$2.8 million during the comparable periods. Gross profit as a percentage of
revenues was approximately 31.2% for nine months ended April 30, 1996 and
approximately 35.5% for nine months ended April 30, 1997. This increase was
primarily attributable to the increase in revenues and a decrease in production
overhead.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.2 million or 15.6% from approximately $1.2 million for nine
months ended April 30, 1996 to approximately $1.4 million for nine months ended
April 30, 1997. As a percentage of revenues, SG&A expenses increased from 28.4%
to 31.8%. This increase was primarily due to the addition of sales and digital
imaging management personnel.
Fiscal Year Ended July 31, 1996 Compared to Fiscal Year Ended July 31, 1995
Revenues. Revenues decreased approximately $0.7 million or 11.6% from
approximately $6.3 million for fiscal year ended July 31, 1995 to approximately
$5.6 million for fiscal year ended July 31, 1996. This decrease was primarily
due to the loss of customer accounts that occurred when AMMCORP closed a
document management facility located in Anderson, Indiana in August 1995. The
Anderson facility had been acquired from a third party in March 1994.
Cost of Revenues. Cost of revenues decreased approximately $1.3 million,
or 25.9%, from approximately $5.0 million for the fiscal year ended July 31,
1995 to approximately $3.7 million for the fiscal year ended July 31, 1996. This
decrease was primarily due to lower production costs and the elimination of
overhead resulting from the closing of the Anderson facility. Gross profit as a
percentage of revenues was approximately 19.8% for the fiscal year ended July
31, 1995 and 32.7% for fiscal year ended July 31, 1996, as a result of the cost
savings related to closing the Anderson facility in August 1995.
Selling, General and Administrative Expenses. SG&A expenses decreased $0.2
million or 13.2% from approximately $1.8 million for fiscal year ended July 31,
1995 to approximately $1.6 million for fiscal year ended July 31, 1996, and, as
a percentage of revenues, from 29.2% to 28.7% as a result of cost savings
realized through closing the Anderson facility.
32
<PAGE>
Fiscal Year Ended July 31, 1995 Compared to Fiscal Year Ended July 31, 1994
Revenues. Revenues increased approximately $0.7 million or 12.4% from
approximately $5.6 million for fiscal year ended July 31, 1994 to approximately
$6.3 million for fiscal year ended July 31, 1995. This increase was primarily
due to the commencement of operations at the Anderson facility.
Cost of Revenues. Cost of revenues increased $1.5 million or 40.6% from
approximately $3.6 million for fiscal year ended July 31, 1994 to approximately
$5.0 million for fiscal year ended July 31, 1995. This increase was primarily
due to higher production costs associated with higher sales volume and the
additional overhead and depreciation related to the Anderson facility. Gross
profit as a percentage of revenues was approximately 35.9% for fiscal year ended
July 31, 1994 and 19.8% for fiscal year ended July 31, 1995. This reduction in
gross profit was a result of the inefficiencies encountered in, and the
anticipated closing of, the Anderson facility.
Selling, General and Administrative Expenses. SG&A expenses remained
unchanged at approximately $1.8 million during the comparable periods but
decreased as a percentage of revenues from 33.1% to 29.2%.
AMMCORP LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of AMMCORP (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JULY 31, APRIL 30,
------------------ -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $380 $152 $703 $585 $407
Net cash flow (used in) investing activities................ (834) (266) (162) (43) (130)
Net cash provided by (used in) financing activities......... 452 106 (541) (493) (247)
---- ---- ---- ---- ----
Increase (decrease) in cash and cash equivalents............ $ (2) $ (8) $ -- $ 49 $ 30
==== ==== ==== ==== ====
</TABLE>
From August 1, 1993 through the nine months ended April 30, 1997 AMMCORP
generated approximately $1.6 million in net cash from operating activities. Cash
used in investing activities was primarily for purchases of digital imaging and
micrographics processing equipment including equipment purchased as part of the
Anderson facility. Cash used in financing activities consisted primarily of
payments on long-term debt and non-compete contracts associated with the
acquisition of AMMCORP in 1988 by a company controlled by David C. Utz, Jr. As
of April 30, 1997, the Company had a stockholders' deficit of $1.0 million and a
working capital deficit of $2.9 million. The Company intends to pay down
AMMCORP's debt simultaneous with the Acquisitions and, therefore, AMMCORP
believes that its acquisition will improve its working capital position.
CODALEX RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data for
CodaLex and such data as a percentage of revenues for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................... $2,340 100.0% $1,377 100.0% $2,865 100.0%
Cost of revenues................................... 1,551 66.3 971 70.5 2,092 73.0
------ ----- ------ ----- ------ -----
Gross profit....................................... 789 33.7 406 29.5 773 27.0
Selling, general and administrative expenses....... 748 31.9 551 40.0 761 26.6
------ ----- ------ ----- ------ -----
Operating income (loss)............................ $ 41 1.8% $ (145) (10.5)% $ 12 0.4%
====== ===== ====== ===== ====== =====
</TABLE>
33
<PAGE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Revenues. Revenues increased approximately $1.5 million or 108.1% from
approximately $1.4 million for fiscal year ended June 30, 1996 to approximately
$2.9 million for fiscal year ended June 30, 1997. This increase was primarily
due to a full fiscal year's contribution to revenues from a new facility in
Atlanta as well as increased product sales.
Cost of Revenues. Cost of revenues increased approximately $1.1 million or
115.4% from approximately $1.0 million for the fiscal year ended June 30, 1996
to approximately $2.1 million for fiscal year ended June 30, 1997. This increase
was primarily due to higher sales volume in both services and products. Gross
profit as a percentage of revenues was 29.5% for fiscal year ended June 30, 1996
and 27.0% for the fiscal year ended June 30, 1997 primarily due to a shift in
the mix to lower margin product sales.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.2 million or 38.1% from approximately $0.6 million for fiscal
year ended June 30, 1996 to approximately $0.8 million for fiscal year ended
June 30, 1997. This increase was primarily due to adding personnel at the
Atlanta location and an increase in sales commissions. However, as a percentage
of revenues, SG&A expenses decreased from 40.0% to 26.6%.
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Revenues. Revenues decreased approximately $0.9 million or 41.2% from
approximately $2.3 million for fiscal year ended June 30, 1995 to approximately
$1.4 million for fiscal year ended June 30, 1996. This decrease was primarily
due to a de-emphasis on conversion service sales and the attention of management
required in connection with the establishment of operations in Atlanta in
February 1995, partially offset by increased product sales.
Cost of Revenues. Cost of revenues decreased approximately $0.6 million or
37.4% from approximately $1.6 million for fiscal year ended June 30, 1995 to
approximately $1.0 million for fiscal year ended June 30, 1996. This decrease
was primarily due to decreases in sales volume in both services and products.
Gross profit as a percentage of revenues was 33.7% for fiscal year ended June
30, 1995 and 29.5% for fiscal year ended June 30, 1996 primarily due to the
decline in sales.
Selling, General and Administrative Expenses. SG&A expenses decreased
approximately $0.2 million or 26.3% from $0.7 million for fiscal year ended June
30, 1995 to $0.6 million for fiscal year ended June 30, 1996. This decrease was
primarily due to a reduction in sales force and other overhead. However, as a
percentage of revenues, SG&A expenses increased from 31.9% to 40.0% due to the
decline in sales.
CODALEX LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of CodaLex (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
--------------------
1995 1996 1997
---- ----- -----
<S> <C> <C> <C>
Net cash flow provided by (used in) operating activities.... $54 $(195) $ 47
Net cash flow (used in) investing activities................ (39) (30) (130)
Net cash provided by financing activities................... 7 218 83
--- ----- -----
Increase (decrease) in cash and cash equivalents............ $22 $ (7) $ --
=== ===== =====
</TABLE>
From July 1, 1994 through June 30, 1997 CodaLex used $94,000 in cash for
operating activities. Cash used in investing activities was primarily for
purchases of digital imaging and micrographics processing equipment relating to
the establishment of operations in Atlanta. Cash used in financing activities
consisted primarily of proceeds from long-term debt. At June 30, 1997, CodaLex
had a working capital deficit of $0.3 million. The Company intends to pay down
CodaLex's debt simultaneous with the Acquisitions and, therefore, CodaLex
believes that its acquisition will improve its working capital position.
34
<PAGE>
LASER GRAPHICS RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
------------------------------- -------------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................................... $1,648 100.0% $2,447 100.0% $1,921 100.0% $1,314 100.0%
Cost of revenues.................................. 1,231 74.7 1,831 74.8 1,437 74.8 910 69.3
------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................................... 417 25.3 616 25.2 484 25.2 404 30.7
Selling, general and administrative expenses...... 396 24.0 500 20.5 327 17.0 386 29.4
------ ----- ------ ----- ------ ----- ------ -----
Operating income.................................. $ 21 1.3% $ 116 4.7% $ 157 8.2% $ 18 1.3%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Revenues. Revenues decreased approximately $0.6 million or 31.6% from
approximately $1.9 million for nine months ended July 31, 1996 to approximately
$1.3 million for nine months ended July 31, 1997. This decrease was primarily
due to a decrease in product revenues of approximately $0.7 million related to
the loss of the general manager and key sales people in November 1996 partially
offset by an increase in service revenues.
Cost of Revenues. Cost of revenues decreased approximately $0.5 million or
36.6% from approximately $1.4 million for nine months ended July 31, 1996 to
approximately $0.9 million for nine months ended July 31, 1997. This decrease
was primarily due to a decrease in sales volume, improved margins associated
with service revenues and, to a lesser extent, higher margins on products sold.
Gross profit as a percentage of revenues was 25.2% for nine months ended July
31, 1996 and 30.7% for nine months ended July 31, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
$59,000 or 18.0% from approximately $0.3 million for nine months ended July 31,
1996 to approximately $0.4 million for nine months ended July 31, 1997. As a
percentage of revenues, SG&A expenses increased from 17.0% to 29.4%. This
increase was primarily due to severance and other one time costs related to the
departure of the former general manager.
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1995
Revenues. Revenues increased approximately $0.8 million or 48.5% from
approximately $1.7 million for fiscal year ended October 31, 1995 to
approximately $2.4 million for fiscal year ended October 31, 1996. This result
was primarily due to increased production volume.
Cost of Revenues. Cost of revenues increased approximately $0.6 million or
48.7% from approximately $1.2 million for fiscal year ended October 31, 1995 to
approximately $1.8 million for fiscal year ended October 31, 1996. This increase
was primarily due to higher service volume. Gross profit as a percentage of
revenues was 25.3% for fiscal year ended October 31, 1995 and 25.2% for fiscal
year ended October 31, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased $0.1
million or 26.3% from approximately $0.4 million for fiscal year ended October
31, 1995 to approximately $0.5 million for fiscal year ended October 31, 1996.
This increase was primarily due to higher commission expense. However, as a
percentage of revenues, SG&A expenses decreased from 24.0% to 20.5%.
35
<PAGE>
LASER GRAPHICS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Laser Graphics (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS
OCTOBER 31, ENDED JULY 31,
---------------- ----------------
1995 1996 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net cash flow provided by (used in) operating activities.... $ 67 $ 92 $ 47 $ (16)
Net cash flow (used in) investing activities................ (14) (53) (51) (31)
Net cash provided by (used in) financing activities......... (40) (46) (11) 35
----- ----- ----- -----
Increase (decrease) in cash and cash equivalents............ $ 13 $ (7) $ (15) $ (12)
===== ===== ===== =====
</TABLE>
From November 1, 1994 through July 31, 1997 Laser Graphics generated
$143,000 in net cash from operating activities. Cash used in investing
activities was primarily for purchases of property, plant and equipment. Cash
used in financing activities consisted primarily of payments on bank debt and
capital leases. The Company intends to pay down Laser Graphics' debt
simultaneous with the Acquisitions, and therefore Laser Graphics believes that
its acquisition will improve its working capital position.
DATALINK RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $3,028 100.0% $2,692 100.0% $3,151 100.0% $1,620 100.0% $1,712 100.0%
Cost of revenues.................. 2,660 87.8 2,226 82.7 2,584 82.0 1,351 83.4 1,256 73.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 368 12.2 466 17.3 567 18.0 269 16.6 456 26.6
Selling, general and
administrative expenses......... 331 10.9 339 12.6 467 14.8 213 13.2 232 13.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income.................. $ 37 1.3% $ 127 4.7% $ 100 3.2% $ 56 3.4% $ 224 13.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues increased $92,000 or 5.7% from approximately $1.6
million for six months ended June 30, 1996 to approximately $1.7 million for six
months ended June 30, 1997. This increase was primarily due to increased
scanning service revenues.
Cost of Revenues. Cost of revenues decreased $94,000 or 7.0% from
approximately $1.4 million for six months ended June 30, 1996 to approximately
$1.3 million for six months ended June 30, 1997. This decrease was primarily due
to increased operating efficiencies obtained when DataLink moved to a new
facility in the spring of 1996. Gross profit as a percentage of revenues was
16.6% for six months ended June 30, 1996 and 26.6% for six months ended June 30,
1997. This increase was primarily due to a more favorable product and service
mix and increased operating efficiencies.
Selling, General and Administrative Expenses. SG&A expenses were
approximately $0.2 million for both the six months ended June 30, 1996 and June
30, 1997. However, as a percentage of revenues, SG&A expenses increased from
13.2% to 13.6%.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Revenues. Revenues increased approximately $0.5 million or 17% from
approximately $2.7 million for fiscal year ended December 31, 1995 to
approximately $3.2 million for fiscal year ended December 31, 1996. This
increase was primarily due to increases in digital imaging service and media
sales.
36
<PAGE>
Cost of Revenues. Cost of revenues increased approximately $0.4 million or
16.1% from approximately $2.2 million for fiscal year ended December 31, 1995 to
approximately $2.6 million for fiscal year ended December 31, 1996. This
increase was primarily due to higher sales volume. Gross profit as a percentage
of revenues was 17.3% for fiscal year ended December 31, 1995 and 18.0% for
fiscal year ended December 31, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
$128,000 or 37.8% from $0.3 million for fiscal year ended December 31, 1995 to
$0.5 million for fiscal year ended December 31, 1996. As a percentage of
revenues, SG&A expenses increased from 12.6% to 14.8%. This increase was due to
increases in owners' compensation and the one-time costs associated with moving
to a new facility in the spring of 1996.
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Revenues. Revenues decreased approximately $0.3 million or 11.1% from
approximately $3.0 million for fiscal year ended December 31, 1994 to
approximately $2.7 million for fiscal year ended December 31, 1995. This
decrease was primarily due to the loss of three service accounts.
Cost of Revenues. Cost of revenues decreased approximately $0.5 million or
16.3% from approximately $2.7 million for fiscal year ended December 31, 1994 to
approximately $2.2 million for fiscal year ended December 31, 1995. This
decrease was primarily due to decreases in labor costs and production overhead.
Gross profit as a percentage of revenues was 12.2% for fiscal year ended
December 31, 1994 and 17.3% for fiscal year ended December 31, 1995. This
increase was primarily due to increases in product gross margin.
Selling, General and Administrative Expenses. SG&A expenses were
approximately $0.3 million for both fiscal years ended December 31, 1994 and
December 31, 1995. However as a percentage of revenues, SG&A expenses increased
from 10.9% to 12.6%.
DATALINK LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of DataLink (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ -------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $ 107 $ 217 $ 310 $ 126 $ 244
Net cash flow (used in) investing activities................ (238) (39) (99) (76) (20)
Net cash provided by (used in) financing activities......... 120 (135) (213) (37) (94)
------ ------ ------ ----- -----
Increase (decrease) in cash and cash equivalents............ $ (11) $ 43 $ (2) $ 13 $ 130
====== ====== ====== ===== =====
</TABLE>
From January 1, 1994 through the six months ended June 30, 1997 DataLink
generated approximately $0.9 million in net cash from operating activities. Cash
used in investing activities was primarily for purchases of digital imaging and
micrographics processing equipment. Cash used in financing activities consisted
primarily of payments on or proceeds from long term debt and distributions to
stockholders. DataLink believes it has adequate cash flow and financing
alternatives available to it to fund its operations and capital requirements for
the foreseeable future.
37
<PAGE>
DOCUTECH RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $600 100.0% $1,073 100.0% $2,322 100.0% $1,053 100.0% $1,407 100.0%
Cost of revenues.................... 389 64.8 577 53.8 1,116 48.1 555 52.7 558 39.7
---- ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit........................ 211 35.2 496 46.2 1,206 51.9 498 47.3 849 60.3
Selling, general and administrative
expenses.......................... 198 33.0 402 37.5 747 32.2 361 34.3 382 27.1
---- ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income.................... $ 13 2.2% $ 94 8.7% $ 459 19.7% $ 137 13.0% $ 467 33.2%
==== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues increased approximately $0.3 million or 33.6% from
approximately $1.1 million for the six months ended June 30, 1996 to
approximately $1.4 million for the six months ended June 30, 1997. This increase
was primarily due to an increase in higher margin software sales.
Cost of Revenues. Cost of revenues were approximately $0.6 million for
both the six months ended June 30, 1996 and June 30, 1997. Gross profit as a
percentage of revenues was 47.3% for the six months ended June 30, 1996 and
60.3% for the six months ended June 30, 1997. This increase was primarily due to
an increase in higher margin software sales.
Selling, General and Administrative Expenses. SG&A expenses were
approximately $0.4 million for the six months ended June 30, 1996 and for the
six months ended June 30, 1997. However, as a percentage of revenues, SG&A
expenses decreased from 34.3% to 27.1% primarily due to increased revenues.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Revenues. Revenues increased approximately $1.2 million or 116.4% from
approximately $1.1 million for fiscal year ended December 31, 1995 to
approximately $2.3 million for fiscal year ended December 31, 1996. This
increase was primarily due to increased sales of software and related scanning
hardware and increases in scanning services revenues.
Cost of Revenues. Cost of revenues increased approximately $0.5 million or
93.4% from approximately $0.6 million for fiscal year ended December 31, 1995 to
approximately $1.1 million for fiscal year ended December 31, 1996. This was
primarily due to increases in software costs attributable to higher software
product sales and consists primarily of support personnel, maintenance costs and
third party royalties and costs of equipment attributable to increased equipment
sales volume. Gross profit as a percentage of revenues was 46.2% for fiscal year
ended December 31, 1995 and 51.9% for fiscal year ended December 31, 1996. This
increase was primarily due to an increase in higher margin software products
sales.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.3 million or 85.8% from approximately $0.4 million for fiscal
year ended December 31, 1995 to $0.7 million for fiscal year ended December 31,
1996. This increase was primarily due to increased investment in personnel and
marketing and development of new software products. However, as a percentage of
revenues, SG&A expenses decreased from 37.5% to 32.2%.
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Revenues. Revenues increased approximately $0.5 million or 78.8% from
approximately $0.6 million for fiscal year ended December 31, 1994 to
approximately $1.1 million for fiscal year ended December 31, 1995. This
increase was primarily due to increases in scanning services revenue and the
initial commercial release of the DocuROM software in 1995.
38
<PAGE>
Cost of Revenues. Cost of revenues increased approximately $0.2 million or
48.3% from approximately $0.4 million for fiscal year ended December 31, 1994 to
approximately $0.6 million for fiscal year ended December 31, 1995. This
increase was primarily due to higher service volume and software product costs.
Gross profit as a percentage of revenues was 35.2% for fiscal year ended
December 31, 1994 and 46.2% for fiscal year ended December 31, 1995. This
increase was primarily due to higher margins generated from the release of the
DocuROM scanning software.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.2 million or 103% from approximately $0.2 million for fiscal
year ended December 31, 1994 to approximately $0.4 million for fiscal year ended
December 31, 1995. As a percentage of revenues, SG&A expenses increased from
33.0% to 37.5%. This increase was primarily due to increased investment in
personnel and marketing of new software products.
DOCUTECH LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of DocuTech (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $ 14 $113 $384 $184 $305
Net cash flow (used in) investing activities................ (22) (17) (31) (23) (13)
Net cash provided by (used in) financing activities......... 4 (88) (186) (57) (320)
---- ---- ---- ---- ----
Increase (decrease) in cash and cash equivalents............ $ (4) $ 8 $167 $104 $(28)
==== ==== ==== ==== ====
</TABLE>
From January 1, 1994 through the six months ended June 30, 1997 DocuTech
generated approximately $0.8 million in net cash from operating activities. Cash
used in investing activities was primarily for purchases of property, plant and
equipment. Cash used in financing activities consisted primarily of payments of
dividends to stockholders and payments on long term debt. DocuTech believes it
has adequate cash flow and financing alternatives available to it to fund its
operations and capital requirements for the foreseeable future.
I(2) SOLUTIONS RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $3,638 100.0% $4,013 100.0% $3,959 100.0% $3,138 100.0% $3,330 100.0%
Cost of revenues.................. 2,012 55.3 2,374 59.2 2,409 60.8 1,866 59.5 1,859 55.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 1,626 44.7 1,639 40.8 1,550 39.2 1,272 40.5 1,471 44.2
Selling, general and
administrative expenses......... 1,328 36.5 1,264 31.5 1,673 42.3 1,085 34.6 1,204 36.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ 298 8.2% $ 375 9.3% $ (123) (3.1)% $ 187 5.9% $ 267 8.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Revenues. Revenues increased $193,000 or 6.2% from approximately $3.1
million for the nine months ended July 31, 1996 to approximately $3.3 million
for the nine months ended July 31, 1997. This increase was primarily due to
increased capacity associated with the opening of a new facility.
Cost of Revenues. Cost of revenues remained the same at approximately $1.9
million for the nine months ended July 31, 1996 and the nine months ended July
31, 1997. Gross profit as a percentage of revenues was 40.5% for the nine months
ended July 31, 1996 and 44.2% for the nine months ended July 31, 1997.
39
<PAGE>
Selling, General and Administrative Expenses. SG&A expenses increased from
approximately $1.1 million for the nine months ended July 31, 1996 to
approximately $1.2 million for the nine months ended July 31, 1997. As a
percentage of revenues, SG&A expenses increased from 34.6% for the nine months
ended July 31, 1996 to 36.2% for the nine months ended July 31, 1997. This
increase is primarily due to higher owner compensation expenses.
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1995
Revenues. Revenues were approximately $4.0 million for both fiscal years
ended October 31, 1995 and October 31, 1996.
Cost of Revenues. Cost of revenues were approximately $2.4 million for
both fiscal years ended October 31, 1995 and October 31, 1996. Gross profit as a
percentage of revenues was 40.8% for fiscal year ended October 31, 1995 and
39.2% for fiscal year ended October 31, 1996, primarily due to higher spending
for retraining of employees for scanning operations and supply cost increases.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.4 million or 32.3% from approximately $1.3 million for fiscal
year ended October 31, 1995 to approximately $1.7 million for fiscal year ended
October 31, 1996. As a percentage of revenues, SG&A expenses increased from
31.5% to 42.3%. This increase was primarily due to a $0.4 million increase in
owner's compensation.
Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended October 31,
1994
Revenues. Revenues increased approximately $0.4 million or 10.3% from
approximately $3.6 million for fiscal year ended October 31, 1994 to
approximately $4.0 million for fiscal year ended October 31, 1995. This increase
was primarily due to higher product sales.
Cost of Revenues. Cost of revenues increased approximately $0.4 million or
18.0% from approximately $2.0 million for fiscal year ended October 31, 1994 to
approximately $2.4 million for fiscal year ended October 31, 1995. Gross profit
as a percentage of revenues was 44.7% for fiscal year ended October 31, 1994 and
40.8% for fiscal year ended October 31, 1995. This decrease was primarily due to
lower margins earned on service revenues.
Selling, General and Administrative Expenses. SG&A expenses were
approximately $1.3 million for fiscal year ended October 31, 1994 and for fiscal
year ended October 31, 1995. However, as a percentage of revenues, SG&A expenses
decreased from 36.5% to 31.5%.
I(2) SOLUTIONS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of I(2) Solutions (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
OCTOBER 31, JULY 31,
------------------- -----------
1994 1995 1996 1996 1997
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $718 $426 $ 1 $283 $130
Net cash flow (used in) investing activities................ (193) (229) (179) (110) (140)
Net cash (used in) financing activities..................... (194) (33) (31) (12) (59)
---- ---- ----- ---- ----
Increase (decrease) in cash and cash equivalents............ $331 $164 $(209) $161 $(69)
==== ==== ===== ==== ====
</TABLE>
From November 1, 1993 through the nine months ended July 31, 1997, I(2)
Solutions generated approximately $1.3 million in net cash from operating
activities. Cash used in investing activities was primarily for purchases of
property, plant and equipment. Cash used in financing activities consisted
primarily of payments on long term debt. I(2) Solutions believes it has adequate
cash flow and financing alternatives available to it to fund its operations and
capital requirements for the foreseeable future.
40
<PAGE>
IMS RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, SIX MONTHS ENDED MAY 31,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $2,434 100.0% $3,083 100.0% $2,374 100.0% $1,307 100.0% $1,310 100.0%
Cost of revenues.................. 1,777 73.0 2,370 76.9 1,996 84.1 1,041 79.6 791 60.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 657 27.0 713 23.1 378 15.9 266 20.4 519 39.6
Selling, general and
administrative expenses......... 616 25.3 708 23.0 580 24.4 306 23.4 299 22.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ 41 1.7% $ 5 0.1% $ (202) (8.5)% $ (40) (3.0)% $ 220 16.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended May 31, 1997 Compared to Six Months Ended May 31, 1996
Revenues. Revenues were approximately $1.3 million for both the six months
ended May 31, 1996 and May 31, 1997. For the six months ended May 31, 1997 a
$0.2 million increase in service revenues was offset by a $0.2 million decline
in product revenues.
Cost of Revenues. Cost of revenues decreased $0.2 million or 24.0% from
approximately $1.0 million for the six months ended May 31, 1996, to
approximately $0.8 million for the six months ended May 31, 1997. This decrease
was primarily due to a decrease in equipment service contract costs and lower
conversion services employment levels. Gross profit as a percentage of revenues
was approximately 20.4% for the six months ended May 31, 1996 and 39.6% for the
six months ended May 31, 1997. This increase was primarily due to the foregoing
cost reductions and the increased mix of higher margin scanning services.
Selling, General and Administrative Expenses. SG&A expenses were
approximately $0.3 million for the six months ended May 31, 1996 and for the six
months ended May 31, 1997 and as a percentage of revenues, decreased from 23.4%
to 22.8%.
Fiscal Year Ended November 30, 1996 Compared to Fiscal Year Ended November 30,
1995
Revenues. Revenues decreased approximately $0.7 million or 23.0% from
approximately $3.1 million for fiscal year ended November 30, 1995 to
approximately $2.4 million for fiscal year ended November 30, 1996. This
decrease was primarily due to the termination of an outside sales agent and
lower service volume.
Cost of Revenues. Cost of revenues decreased approximately $0.4 million or
15.8% from approximately $2.4 million for fiscal year ended November 30, 1995 to
approximately $2.0 million for fiscal year ended November 30, 1996. This
decrease was primarily due to lower sales volume offset by increased software
development costs related to the ImageMAX software product. Gross profit as a
percentage of revenues was approximately 23.1% for fiscal year ended November
30, 1995 and 15.9% for fiscal year ended November 30, 1996. This decrease was
primarily due to a decline in gross margin from services attributable to the
decrease in sales volume.
Selling, General and Administrative Expenses. SG&A expenses decreased
approximately $128,000 or 18.1% from approximately $0.7 million for fiscal year
ended November 30, 1995 to approximately $0.6 million for fiscal year ended
November 30, 1996. This decrease was primarily due to decreases in sales
commissions and lower contributions to the IMS profit-sharing plan. However, as
a percentage of revenues, SG&A expenses increased from 23.0% to 24.4%.
41
<PAGE>
Fiscal Year Ended November 30, 1995 Compared to Fiscal Year Ended November 30,
1994
Revenues. Revenues increased approximately $0.6 million or 26.7% from
approximately $2.4 million for fiscal year ended November 30, 1994 to
approximately $3.1 million for fiscal year ended November 30, 1995. This
increase was primarily due to the addition of a large aperture card conversion
project and an increase in equipment sales.
Cost of Revenues. Cost of revenues increased approximately $0.6 million or
33.4% from approximately $1.8 million for fiscal year ended November 30, 1994 to
approximately $2.4 million in fiscal year ended November 30, 1995. This increase
was primarily due to increases in service labor costs. Gross profit as a
percentage of revenues was approximately 27.0% for fiscal year ended November
30, 1994 and 23.1% for fiscal year ended November 30, 1995. This decrease was
primarily due to a decline in service gross margin.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $92,000 or 14.9% from approximately $0.6 million for fiscal year
ended November 30, 1994 to approximately $0.7 million for fiscal year ended
November 30, 1995. This increase was primarily due to increases in sales
commissions and an increased contribution to the IMS profit-sharing plan.
However, as a percentage of revenues, SG&A expenses decreased from 25.3% to
23.0%.
IMS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of IMS (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
NOVEMBER 30, MAY 31,
------------------------- --------------
1994 1995 1996 1996 1997
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by (used in) operating activities.... $ (12) $68 $67 $142 $ 7
Net cash flow provided by (used in) investing activities.... (125) (85) (13) (21) 10
Net cash provided by (used in) financing activities......... 137 17 (54) (121) (4)
----- --- --- ---- ---
Increase in cash and cash equivalents....................... $ -- $-- $-- $ -- $13
===== === === ==== ===
</TABLE>
From December 1, 1993 through the six months ended May 31, 1997 IMS
generated approximately $130,000 in net cash from operating activities. Cash
generated from operating activities for the six months ended May 31, 1997
decreased as compared to the six months ended May 31, 1996 due to increased
working capital requirements. Cash used in investing activities was primarily
for purchases of property, plant and equipment. Cash used in financing
activities consisted primarily of payments on long term debt. IMS believes it
has adequate cash flow and financing alternatives available to it to fund its
operations and capital requirements for the foreseeable future.
IDS RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $1,375 100.0% $1,776 100.0% $1,203 100.0% $ 829 100.0% $1,829 100.0%
Cost of revenues.................. 750 54.5 1,009 56.8 823 68.4 566 68.3 1,167 63.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 625 45.5 767 43.2 380 31.6 263 31.7 662 36.2
Selling, general and
administrative expenses......... 566 41.2 733 41.3 435 36.2 337 40.7 558 30.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ 59 4.3% $ 34 1.9% $ (55) (4.6)% $ (74) (9.0)% $ 104 5.7%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
42
<PAGE>
Nine Months Ended May 31, 1997 Compared to Nine Months Ended May 31, 1996
Revenues. Revenues increased $1.0 million or 120.6% from approximately
$0.8 million for the nine months ended May 31, 1996 to $1.8 million for the nine
months ended May 31, 1997. This increase was primarily attributable to higher
revenues from new and existing customers.
Cost of Revenues. Cost of revenues increased $0.6 million or 106.2% from
$0.6 million for the nine months ended May 31, 1996 to $1.2 million for the nine
months ended May 31, 1997. This increase was primarily due to higher contract
labor costs associated with higher sales volume. Gross profit as a percentage of
revenues was approximately 31.7% for the nine months ended May 31, 1996 and
36.2% for the nine months ended May 31, 1997. This increase is primarily due to
higher revenues supported by the same number of personnel.
Selling, General and Administrative Expenses. SG&A expenses increased $0.2
million or 65.6% from approximately $0.3 million for the nine months ended May
31, 1996 to $0.6 million for the nine months ended May 31, 1997. This increase
was primarily due to increased owners' compensation expense.
Fiscal Year Ended August 31, 1996 Compared to Fiscal Year Ended August 31, 1995
Revenues. Revenues decreased approximately $0.6 million or 32.3% from
approximately $1.8 million for fiscal year ended August 31, 1995 to
approximately $1.2 million for fiscal year ended August 31, 1996. This decrease
was primarily due to the completion of two large projects in fiscal year ended
August 31, 1995.
Cost of Revenues. Cost of revenues decreased approximately $0.2 million or
18.4% from approximately $1.0 million for fiscal year ended August 31, 1995 to
approximately $0.8 million for fiscal year ended August 31, 1996. This decrease
was primarily due to lower contract labor costs associated with lower sales
volume. Gross profit as a percentage of revenues was 43.2% for fiscal year ended
August 31, 1995 and 31.6% for fiscal year ended August 31, 1996. This decline is
primarily due to the hiring of an additional project manager during fiscal year
ended August 31, 1996 in anticipation of future revenue growth and the
completion of two higher margin projects in fiscal year ended August 31, 1995.
Selling, General and Administrative Expenses. SG&A expenses decreased
approximately $0.3 million or 40.7% from approximately $0.7 million for fiscal
year ended August 31, 1995 to approximately $0.4 million for fiscal year ended
August 31, 1996. This decrease was primarily due to decreased owners'
compensation expense. As a percentage of revenues, SG&A expenses decreased from
41.3% to 36.2%.
Fiscal Year Ended August 31, 1995 Compared to Fiscal Year Ended August 31, 1994
Revenues. Revenues increased approximately $0.4 million or 29.2% from
approximately $1.4 million for fiscal year ended August 31, 1994 to
approximately $1.8 million for fiscal year ended August 31, 1995. This increase
was primarily due to the addition of two large data entry projects from a new
and an existing client.
Cost of Revenues. Cost of revenues increased approximately $0.3 million or
34.5% from approximately $0.8 million for fiscal year ended August 31, 1994 to
approximately $1.0 million for fiscal year ended August 31, 1995. This increase
was primarily due to higher contract labor costs associated with higher volume.
Gross profit as a percentage of revenues was 45.5% for fiscal year ended August
31, 1994 and 43.2% for fiscal year ended August 31, 1995.
Selling, General and Administrative Expenses. SG&A expenses increased
$167,000 or 29.5% from approximately $0.6 million for fiscal year ended August
31, 1994 to approximately $0.7 million for fiscal year ended August 31, 1995.
This increase was primarily due to increased owners' compensation expense. As a
percentage of revenues, SG&A expenses remained relatively constant.
43
<PAGE>
IDS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of IDS (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
AUGUST 31, MAY 31,
------------------- ------------
1994 1995 1996 1996 1997
---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities before owners
compensation.............................................. $159 $750 $ 342 $ 282 $474
==== ==== ===== ===== ====
Net cash flow provided by (used in) operating activities.... $(42) $199 $(185) $(169) $251
Net cash flow (used in) investing activities................ (32) (18) (13) (5) (20)
Net cash provided by (used in) financing activities......... 14 (28) 56 36 (56)
---- ---- ----- ----- ----
Increase (decrease) in cash and cash equivalents............ $(60) $153 $(142) $(138) $175
==== ==== ===== ===== ====
</TABLE>
From September 1, 1993 through the nine months ended May 31, 1997, IDS
generated $1.7 million in net cash from operating activities before owners'
compensation. Cash used in investing activities was for purchases of property
and equipment. Cash used in financing activities consisted primarily of net
borrowings and repayments of amounts due to stockholders and on the line of
credit. IDS believes it has adequate cash flow and financing alternatives
available to fund its operations and capital requirements for the foreseeable
future.
OMI RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
------------------------------- -------------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................................... $2,972 100.0% $3,746 100.0% $2,937 100.0% $3,146 100.0%
Cost of revenues.................................. 2,242 75.4 2,885 77.0 2,172 74.0 2,304 73.2
------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................................... 730 24.6 861 23.0 765 26.1 842 26.8
Selling, general and administrative expenses...... 591 19.9 688 18.4 508 17.3 528 16.8
------ ----- ------ ----- ------ ----- ------ -----
Operating income.................................. $ 139 4.7% $ 173 4.6% $ 257 8.8% $ 314 10.9%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Revenues. Revenues increased approximately $0.2 million or 7.1% from
approximately $2.9 million for the nine months ended July 31, 1996, to
approximately $3.1 million for the nine months ended July 31, 1996. This
increase was primarily due to increased service and equipment sales and related
service contract and supply revenue.
Cost of Revenues. Cost of revenues increased $132,000 or 6.1% from
approximately $2.2 million for the nine months ended July 31, 1996 to
approximately $2.3 million for the nine months ended July 31, 1997. This
increase was due to higher sales volume. Gross profit as a percentage of
revenues was 26.1% for the nine months ended July 31, 1996 and 26.8% for the
nine months ended July 31, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
$20,000 or 4.0% from $508,000 for the nine months ended July 31, 1996 to
$528,000 for the nine months ended July 31, 1997. This was primarily due to
increases in leasehold improvements, rent and utilities associated with expanded
scanning operations. Payroll increased primarily due to increased commissions on
equipment sales. As a percentage of revenues, SG&A expenses decreased from 17.3%
to 16.8%.
44
<PAGE>
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1995
Revenues. Revenues increased approximately $0.7 million or 26.0% from
approximately $3.0 million for fiscal year ended October 31, 1995 to
approximately $3.7 million for fiscal year ended October 31, 1996. This increase
was primarily due to increased sales of Canon micrographics and imaging system
sales, micrographic service sales increases and the growth of the scanning
operation.
Cost of Revenues. Cost of revenues increased approximately $0.6 million or
28.7% from approximately $2.2 million for fiscal year ended October 31, 1995 to
approximately $2.9 million for fiscal year ended October 31, 1996. This increase
was primarily due to higher cost or increased volume of equipment sales. Gross
profit as a percentage of revenues was 24.6% for fiscal year ended October 31,
1995 and 23.0% for fiscal year ended October 31, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.1 million or 16.4% from approximately $0.6 million for fiscal
year ended October 31, 1995 to approximately $0.7 million for fiscal year ended
October 31, 1996. As a percentage of revenues, SG&A expenses decreased from
19.9% to 18.4%. This decrease was primarily due to increases in owners'
compensation expense.
OMI LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of OMI (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
OCTOBER 31, JULY 31,
-------------- ----------------
1995 1996 1996 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $197 $212 $ 94 $ 195
Net cash flow (used in) investing activities................ (117) (239) (104) (109)
Net cash provided by (used in) financing activities......... (80) 34 11 (93)
---- ---- ----- -----
Increase (decrease) in cash and cash equivalents............ $ -- $ 7 $ 1 $ (7)
==== ==== ===== =====
</TABLE>
From November 1, 1994 through the nine months ended July 31, 1997 OMI
generated $0.6 million in net cash from operating activities. Cash used in
investing activities was primarily for purchases of property, plant and
equipment. Cash used or provided by financing activities consisted primarily of
payments or draws on current lines of credit. OMI believes it has adequate cash
flow and financing alternatives available to it to fund its operations and
capital requirements for the foreseeable future.
SPAULDING RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................. $9,539 100.0% $8,704 100.0% $8,833 100.0%
Cost of revenues......................................... 6,471 67.8 5,821 66.9 5,874 66.5
------ ----- ------ ----- ------ -----
Gross profit............................................. 3,068 32.2 2,883 33.1 2,959 33.5
Selling, general and administrative expenses............. 2,826 29.7 3,018 34.7 2,631 29.8
------ ----- ------ ----- ------ -----
Operating income (loss).................................. $ 242 2.5% $ (135) (1.6)% $ 328 3.7%
====== ===== ====== ===== ====== =====
</TABLE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Revenues. Revenues increased $129,000 or 1.5% from approximately $8.7
million for fiscal year ended June 30, 1996 to approximately $8.8 million for
fiscal year ended June 30, 1997. This increase was due to higher service sales
partially offset by a decrease in product sales.
45
<PAGE>
Cost of Revenues. Cost of revenues was approximately $5.8 million for
fiscal year ended June 30, 1996 and $5.9 million for fiscal year ended June 30,
1997. Gross profit as a percentage of revenues was approximately 33.1% for
fiscal year ended June 30, 1996 and 33.5% for fiscal year ended June 30, 1997.
Selling, General and Administrative Expenses. SG&A expenses decreased
$387,000 or 12.8% from approximately $3.0 million for fiscal year ended June 30,
1996 to approximately $2.6 million for fiscal year ended June 30, 1997. As a
percentage of revenues, SG&A expenses decreased from 34.7% to 29.8%. This
decrease was primarily due to lower medical claims experience and lower
employment levels.
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Revenues. Revenues decreased $0.8 million or 8.8% from approximately $9.5
million for fiscal year ended June 30, 1995 to approximately $8.7 million for
fiscal year ended June 30, 1996. This decrease was primarily due to decreased
demand for micrographic equipment and service.
Cost of Revenues. Cost of revenues decreased $650,000 or 10.0% from
approximately $6.5 million for fiscal year ended June 30, 1995 to approximately
$5.8 million for fiscal year ended June 30, 1996. This decrease was primarily
due to decreased sales volume. Gross profit as a percentage of revenues was
32.2% for fiscal year ended June 30, 1995 and 33.1% for fiscal year ended June
30, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
$192,000 or 6.8% from approximately $2.8 million for fiscal year ended June 30,
1995 to approximately $3.0 million for fiscal year ended June 30, 1996. As a
percentage of revenues, SG&A expenses increased from 29.7% to 34.7%. This
increase was primarily due to severance costs and higher medical insurance
claims experience offset by lower employment levels.
SPAULDING LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Spaulding (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
-------------------------
1995 1996 1997
---- ---- -----
<S> <C> <C> <C>
Net cash flow provided by operating activities.............. $337 $459 $ 273
Net cash flow (used in) investing activities................ (27) (131) (141)
Net cash (used in) financing activities..................... (238) (268) (188)
---- ---- -----
Increase (decrease) in cash and cash equivalents............ $ 72 $ 60 $ (56)
==== ==== =====
</TABLE>
From July 1, 1994 through the year ended June 30, 1997 Spaulding generated
approximately $1.1 million in net cash from operating activities. Cash generated
from operations decreased for fiscal year ended June 30, 1997 as compared to
fiscal year ended June 30, 1996 due to increased working capital requirements.
Cash used in investing activities was primarily for purchases of property, plant
and equipment. Cash used in financing activities consisted primarily of
purchases of treasury stock and repayments of long-term debt. Spaulding believes
it has adequate cash flow and financing alternatives available to it to fund its
operations and capital requirements for the foreseeable future.
46
<PAGE>
TIMCO RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $4,132 100.0% $4,420 100.0% $4,991 100.0% $2,306 100.0% $2,160 100.0%
Cost of revenues.................. 3,099 75.0 3,206 72.5 3,352 67.2 1,581 68.6 1,436 66.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 1,033 25.0 1,214 27.5 1,639 32.8 725 31.4 724 33.5
Selling, general and
administrative expenses......... 973 23.5 1,445 32.7 1,223 24.5 545 23.6 497 23.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ 60 1.5% $ (231) (5.2)% $ 416 8.3% $ 180 7.8% $ 227 10.5%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased $146,000 or 6.3% from approximately $2.3
million for the six months ended June 30, 1996 to approximately $2.2 million for
the six months ended June 30, 1997. This decrease was primarily due to the loss
of a major customer that was acquired by a third-party buyer, partially offset
by increased sales to other customers.
Cost of Revenues. Cost of revenues decreased $145,000 or 9.2% from
approximately $1.6 million for the six months ended June 30, 1996, to
approximately $1.4 million for the six months ended June 30, 1997. Gross profit
as a percentage of revenues was 31.4% for the six months ended June 30, 1996 and
33.5% for the six months ended June 30, 1997. This increase was primarily due to
increased employee productivity as well as reduced costs.
Selling, General and Administrative Expenses. SG&A expenses decreased
$48,000 or 8.8% from approximately $0.5 million for the six months ended June
30, 1996 to approximately $0.5 million for the six months ended June 30, 1997.
As a percentage of revenues, SG&A expenses decreased from 23.6% to 23.0%. This
decrease was primarily due to reduced legal costs related to the retirement of
TIMCO's co-founder and lower sales commissions.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Revenues. Revenues increased approximately $0.6 million or 12.9% from
approximately $4.4 million for fiscal year ended December 31, 1995 to
approximately $5.0 million for fiscal year ended December 31, 1996. This
increase was primarily due to increases in sales volume generated by three newly
hired sales representatives and selective price increases.
Cost of Revenues. Cost of revenues increased approximately $146,000 or
4.6% from approximately $3.2 million for fiscal year ended December 31, 1995 to
approximately $3.4 million for fiscal year ended December 31, 1996. This
increase was primarily due to increases in employee costs associated with higher
sales volume. Gross profit as a percentage of revenues was 27.5% for fiscal year
ended December 31, 1995 and approximately 32.8% for fiscal year ended December
31, 1996. This increase was primarily due to improved employee productivity.
Selling, General and Administrative Expenses. SG&A expenses decreased $0.2
million or 15.4% from approximately $1.4 million for fiscal year ended December
31, 1995 to approximately $1.2 million for fiscal year ended December 31, 1996.
As a percentage of revenues, SG&A expenses decreased from 34.6% to 24.5%. This
decrease was primarily due to the expenses related to the retirement of TIMCO's
co-founder which occurred in fiscal year ended December 31, 1995. This was
partially offset by increased sales commissions in fiscal year ended December
31, 1996.
47
<PAGE>
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Revenues. Revenues increased approximately $0.3 million or 7.0% from
approximately $4.1 million for fiscal year ended December 31, 1994 to
approximately $4.4 million for fiscal year ended December 31, 1995. This
increase was primarily due to the acquisition of a document management company
in northern California in May 1994.
Cost of Revenues. Cost of revenues increased approximately $0.1 million or
3.5% from approximately $3.1 million for fiscal year ended December 31, 1994 to
approximately $3.2 million for fiscal year ended December 31, 1995. This
increase was primarily due to increases in employee costs associated with higher
sales volume. Gross profit as a percentage of revenues was 25.0% for fiscal year
ended December 31, 1994 and 27.5% for fiscal year ended December 31, 1995.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.5 million or 48.5% from approximately $1.0 million for fiscal
year ended December 31, 1994 to approximately $1.4 million for fiscal year ended
December 31, 1995. As a percentage of revenues, SG&A expenses increased from
23.5% to 32.7%. This increase was primarily due to the one-time expenses related
to the retirement of the co-founder of the business and the costs associated
with the hiring of three additional sales people.
TIMCO LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of TIMCO (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by operating activities.............. $ 24 $ 90 $305 $114 $427
Net cash flow (used in) investing activities................ (323) (100) (120) (71) (39)
Net cash provided by (used in) financing activities......... 305 45 (219) (42) (366)
---- ---- ---- ---- ----
Increase (decrease) in cash and cash equivalents............ $ 6 $ 35 $(34) $ 1 $ 22
==== ==== ==== ==== ====
</TABLE>
From January 1, 1994 through the six months ended June 30, 1997 TIMCO
generated approximately $0.8 million in net cash from operating activities.
Increases in cash generated by operating activities for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996 were due
primarily to decreased working capital. Cash used in investing activities was
primarily for purchases of property, plant and equipment. Cash used in financing
activities consisted primarily of draw downs or payments on current lines of
credit and a distribution to shareholders for the six months ended June 30,
1997. TIMCO believes it has adequate cash flow and financing alternatives
available to it to fund its operations and capital requirements for the
foreseeable future.
TPS RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
------------------------------------------------ -------------------------------
1995 1996 1997 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $2,233 100.0% $2,747 100.0% $3,484 100.0% $ 809 100.0% $1,284 100.0%
Cost of revenues.................. 1,704 76.3 2,076 75.6 2,579 74.0 603 74.5 932 72.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit...................... 529 23.7 671 24.4 905 26.0 206 25.5 352 27.4
Selling, general and
administrative expenses......... 531 23.8 604 22.0 799 22.9 162 20.0 245 19.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss)........... $ (2) (0.1)% $ 67 2.4% $ 106 3.1% $ 44 5.5% $ 107 8.3%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
48
<PAGE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. Revenues increased approximately $0.5 million or 58.7% from
approximately $0.8 million for the three months ended June 30, 1996 to
approximately $1.3 million for the three months ended June 30, 1997. This
increase was primarily due to the addition of two large service accounts as well
as increased product sales.
Cost of Revenues. Cost of revenues increased approximately $0.3 million or
54.6% from approximately $0.6 million for the three months ended June 30, 1996,
to approximately $0.9 million for the three months ended June 30, 1997. This
increase was primarily due to increases in sales volume. Gross profit as a
percentage of revenues was 25.5% for the three months ended June 30, 1996 and
27.4% for the three months ended June 30, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
$83,000 or 51.2% from $162,000 for the three months ended June 30, 1996 to
$245,000 for the three months ended June 30, 1997 primarily due to staff
increases. As a percentage of revenues, SG&A expenses decreased from 20.0% to
19.1%.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Revenues. Revenues increased approximately $0.7 million or 26.8% from
approximately $2.7 million for fiscal year ended March 31, 1996 to approximately
$3.5 million for fiscal year ended March 31, 1997. This increase was primarily
due to the addition of new service client accounts.
Cost of Revenues. Cost of revenues increased approximately $0.5 million or
24.2% from approximately $2.1 million for fiscal year ended March 31, 1996 to
approximately $2.6 million for fiscal year ended March 31, 1997. This increase
was primarily due to increases in sales volume. Gross profit as a percentage of
revenues was 24.4% for fiscal year ended March 31, 1996 and 26.0% for the fiscal
year ended March 31, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $0.2 million or 32.3% from approximately $0.6 million for fiscal
year ended March 31, 1996 to approximately $0.8 million for fiscal year ended
March 31, 1997. As a percentage of revenues, SG&A expenses increased from 22.0%
to 22.9%. This increase was primarily due to one-time expenses related to the
start-up of the Richmond office and higher employment levels.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995
Revenues. Revenues increased approximately $0.5 million or 23.0% from
approximately $2.2 million for fiscal year ended March 31, 1995 to approximately
$2.8 million for fiscal year ended March 31, 1996. This increase was primarily
due to the addition of several large service accounts and higher product
revenue.
Cost of Revenues. Cost of revenues increased approximately $0.4 million or
21.8% from approximately $1.7 million for fiscal year ended March 31, 1995 to
approximately $2.1 million for fiscal year ended March 31, 1996. This increase
was primarily due to increases in sales volume. Gross profit as a percentage of
revenues was 23.7% for fiscal year ended March 31, 1995 and 24.4% for fiscal
year ended March 31, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
approximately $73,000 or 13.8% from approximately $0.5 million for fiscal year
ended March 31, 1995 to approximately $0.6 million for fiscal year ended March
31, 1996. This increase was primarily due to increased sales commission expenses
and promotion expenses related to new imaging services and systems. However, as
a percentage of revenues, SG&A expenses decreased from 23.8% to 22.0%.
49
<PAGE>
TPS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of TPS (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, JUNE 30,
------------------------- ---------------
1995 1996 1997 1996 1997
---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net cash flow provided by (used in) operating activities.... $ 56 $(174) $104 $(82) $(154)
Net cash flow (used in) investing activities................ (58) (121) (139) (3) (2)
Net cash provided by financing activities................... 2 295 35 85 156
---- ----- ---- ---- -----
Increase (decrease) in cash and cash equivalents............ $ -- $ -- $ -- $ -- $ --
==== ===== ==== ==== =====
</TABLE>
From April 1, 1994 through the three months ended June 30, 1997 TPS used
$0.2 million in net cash from operating activities. The growth experienced for
fiscal year ended March 31, 1997 required large increases in working capital.
Cash used in investing activities was primarily for purchases of property, plant
and equipment. Cash used in financing activities consisted primarily of
refunding of long term debt. TPS believes it has adequate cash flow and
financing alternatives available to it to fund its operations and capital
requirements for the foreseeable future.
50
<PAGE>
BUSINESS
ImageMAX was founded in November 1996 to become a leading national,
single-source provider of integrated document management solutions. Prior to the
Offering, ImageMAX has not conducted any operations. ImageMAX has entered into
agreements to acquire the Founding Companies, simultaneously with and as a
condition to the consummation of the Offering. The Founding Companies, which
have been in business an average of over 20 years, have operations in 13 states,
employ over 950 people and provided services to over 5,000 clients in the last
year from 18 locations. The Company's pro forma combined revenues for the
twelve-month period ended December 31, 1996 were $43.3 million. Pro forma
combined revenues for the six months ended June 30, 1997 were $24.6 million, an
increase of 16.2% over the comparable 1996 period. Pro forma operating income
for the six months ended June 30, 1997 was $2.2 million, an increase of $2.3
million over the comparable 1996 period.
The Company's strategy is to work with clients to develop the best solution
to their document management needs, including solutions involving both
outsourced and in-house document capture, conversion, storage and retrieval. The
majority of current document management industry revenue is derived from the
management of film and paper media. However, advances in digital and other
technologies continue to provide organizations with increasing document
management options. As a result, the Company believes the most successful
service providers will be those that can offer a complete spectrum of document
management services and products encompassing solution design and expertise in
the management of digital, film and paper media. Accordingly, the Company has
initially targeted a broad variety of services and products, as well as
technical and vertical market expertise, in order to create a platform from
which it can become a leading national, single-source option for clients with
intensive document management needs. The Company's services include document
management consulting, media conversion consisting of electronic imaging,
micrographics and document indexing, information storage and retrieval, and
document management system maintenance. The Company's products include
proprietary, open-architecture digital imaging and indexing software as well as
document management systems and supplies.
MARKET AND INDUSTRY OVERVIEW
Document management businesses provide services and products to capture,
convert, index, store and retrieve documents, whether such documents exist on
paper, microfilm or digital media. According to AIIM, the U.S. market for
document management services and products exceeded $6.5 billion in 1996. The
Company believes that this market has been growing at an annual rate of
approximately 11% since 1994. The Company believes that there is a large
unvended component of the service market not contained in the AIIM data because
most document management service for large organizations are still performed
in-house. The document management services industry is highly fragmented. The
Company estimates that there are over 2,000 companies engaged in a wide variety
of business-to-business services and product sales and that a substantial
majority of these companies are small businesses, selling to a single geographic
market, offering a limited range of services or serving a limited number of
client market segments.
The Company believes that the following principal factors will drive the
continued growth of the document management industry:
Technological Change. The improvement of digital technology (i.e.,
CD-ROM, personal computers and computer networking) has dramatically
reduced the cost of imaging, storing, indexing and retrieving documents
while improving users' ability to manage documents more efficiently. This
has resulted in many organizations developing new applications for these
documents. Often these applications entail enterprise-wide access to
documents that previously had been too costly or inconvenient to access
rapidly in multiple locations. Evolving technology has also resulted in a
greater need by end users for specialized expertise in both new and
traditional document management systems and in integrating such systems.
51
<PAGE>
Growth in Document Management Needs. Many organizations, especially
those in document-intensive industries such as health care, financial
service and engineering, have focused attention on their document
management processes and systems as part of a wider effort to manage their
information more efficiently in order to improve productivity,
competitiveness and client service. In addition, organizations must manage
the ever increasing volume of information facilitated by
document-generating technologies such as facsimile, high-speed printing,
the internet and computer networking.
Outsourcing. The Company believes that, while a majority of document
management services are currently being performed by large organizations
in-house, these organizations will increasingly outsource such services.
Outsourcing provides an organization with a means to improve the management
of its documents while allowing the organization to: (i) focus on its core
competencies and revenue generating activities; (ii) reduce fixed costs,
including labor and equipment; (iii) benefit from the expertise and
economies of scale of outside providers; and (iv) gain access to new
technologies without the risk and expense of near-term obsolescence. The
Company believes that, as businesses strive to improve competitiveness
through rapid access to information, service demands for outsourced
document management functions will outstrip the capabilities and geographic
coverage of smaller, capital constrained document management service
providers.
The Company believes the document management service industry is highly
fragmented. The Company believes there are over 2,000 companies serving the
document management needs of industry and government, with a majority of these
companies generating annual revenues less than $10 million. The Company believes
that many of the small businesses with which it competes are candidates for
consolidation because they presently lack the capital for expansion, cannot keep
abreast of rapidly changing technologies, are unable to effectively manage large
complex projects, have not developed marketing and sales programs, do not have
the volume buying power needed to negotiate favorable supply contracts, and are
unable to meet the needs of large, geographically dispersed customers. In
addition, increasing consolidation within two of the largest document-intensive
industries, financial services and health care, has provided an additional
impetus for document management companies to consolidate in order to grow with
their clients. The continuing migration from paper and film to digital media has
broken down many geographic barriers to the provision of document management
services and has increased client demands for integrated operations across the
nation. As a result, the Company believes that many owners of competing service
providers will be receptive to being acquired by a document management company
with a national presence, a solutions orientation and an integration strategy in
order to remain competitive and as a means of providing the owners of such firms
with liquidity.
COMPANY STRENGTHS
The Company believes that its acquisition and integration of the Founding
Companies create the following strengths:
Broad Service and Product Offerings. The Company provides clients
with a wide range of in-house and outsourced document management services
and products. Services include imaging, micrographics, data indexing,
electronic and film and paper storage and retrieval. Products include
software for scanning, indexing and retrieval applications as well as
systems and other equipment from leading document management hardware
manufacturers. The Company's core media conversion services are
complemented by its cost-effective offshore data entry capabilities. The
Company provides these services individually or in combination to provide
solutions to a wide range of clients' document management needs.
Technical Expertise. The Company has developed substantial technical
and systems expertise in the area of digital document management. Two of
the Founding Companies have developed commercial software products for
digital scanning and retrieval applications which the Company licenses to
other service providers and to end users. DocuROM is a scanning and
52
<PAGE>
retrieval software product for general, high-volume applications, and the
ImageMAX software is a product for engineering and other large format
document applications. Approximately 18% of the Company's pro forma
combined 1996 revenues were attributable to digital imaging services and
products. The Company intends to capitalize on this base of knowledge by
establishing company-wide technology centers that will focus on software
product development, enhancement of systems integration expertise and new
product development such as data warehousing services and inter/intranet
document management solutions.
Diversified Client Base; Broad Geographic Coverage. The Company has
over 5,000 active clients in a range of vertical markets, including health
care, financial services and engineering. None of the Company's clients
accounted for more than 5% of its revenues for either the year ended
December 31, 1996 or the six months ended June 30, 1997. With operations in
the metropolitan markets of Atlanta, Boston, Chicago, New York and San
Francisco as well as several large regional markets, the Company has an
extensive service and product distribution network in place and the ability
to provide selected services and products on a national basis.
Management Expertise. Senior management of the Founding Companies
includes well-known industry professionals with an average of 14 years of
experience in the industry. A program to share the best management
practices of the Founding Companies throughout the Company is currently
being established. Senior managements' substantial industry relationships
will also serve as a means of generating future acquisition candidates.
Acquisition execution and integration, operating and financial oversight
and strategic planning will be handled by the experienced executive
management team.
BUSINESS STRATEGY
The Company's goal is to become a leading national, single-source provider
of integrated document management solutions. The Company intends to implement a
business strategy focused on the following key elements:
Become a Leading Single-Source Provider. The Company intends to
become an industry leading single-source provider of integrated document
management solutions. Building upon the expertise of the Founding Companies
in a variety of digital, film and paper-based document management services
and products, the Company will seek to further develop consultative
relationships with clients to assess their document management needs and to
recommend and provide cost-effective combinations of services and products.
In many cases the Company will customize packages of services and products
for specific vertical markets such as health care, financial services and
engineering. As it broadens its geographic network, the Company will expand
national account coverage to service clients who wish to work with a single
vendor.
Capitalize on Business Integration. The Company will seek to achieve
internal revenue and margin growth by efficiently integrating the
operations of the Founding Companies and will seek additional growth by
effectively integrating future acquisitions. Strategic, operational and
financial planning will be directed by executive management in order to
articulate clear and common objectives, implement strategy and measure
performance. Key marketing activities will be conducted under the corporate
name in order to build a national brand. The centralization of
administration and acquisition support, and the integration of internal
financial, administrative, information and communications systems, are
intended to enable business unit management to devote increased resources
to business generation and client service.
Expand Sales and Marketing Efforts. The Company intends to hire
additional salespersons at the Founding Companies promptly after the
Offering and to build a national account sales force at the corporate
level. Training of current and new salespersons will emphasize digital
imaging applications, and the Company intends to institute profit-based
sales compensation plans. The Company intends to leverage existing client
relationships by cross-selling additional services and products and by
coordinating and making available throughout the Company vertical market
expertise already developed within the organization. In addition, the
Company will seek to extend
53
<PAGE>
throughout its operations the marketing programs used by certain of the
Founding Companies, utilizing direct marketing, telemarketing, seminar
selling and internet marketing programs.
Make Selective Acquisitions. The document management industry is
highly fragmented. The Company estimates that there are over 2,000 document
management companies, a substantial majority of which generate annual
revenues of $10.0 million or less and provide limited service offerings and
sell to a single geographic market. An important element of the Company's
growth strategy is to make selected acquisitions to consolidate its
position as a provider of complete document management solutions.
Accordingly, the Company will continue its aggressive acquisition program
promptly following the Offering in order to increase geographic coverage
and market share, expand service and product capabilities, obtain key human
resources and technical expertise, and generate critical mass and economies
of scale nationally and in regional markets.
The Company believes that it will be a preferred acquiror of other
companies in the highly-fragmented document management industry as a result of
the Company's technical capabilities, the industry reputation of the Founding
Companies' management personnel, its solutions orientation and integration
strategy, the benefits expected to flow from the Company's integration strategy,
and the Company's financial capabilities and visibility as a public company.
Moreover, the Company believes that the relationships developed through its
licensing of software products and provision of offshore data entry services to
over 100 independent document management service providers yield a valuable
source of potential future acquisitions for the Company.
Based on its acquisition activities and contacts since its inception in
November 1996, the Company believes it is well positioned to continue its
acquisition program promptly following the Offering, under the direction of
Andrew R. Bacas, its Senior Vice President - Corporate Development and Bruce M.
Gillis, its Chief Executive Officer. As of the date of this Prospectus, the
Company has no commitments or agreements with respect to any acquisitions other
than of the Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of Common Stock, cash and notes, and to emphasize Common
Stock when continuing management is a key factor in the acquisition decision.
The Company plans to register initially an additional 2,000,000 shares of its
Common Stock with the Commission under the Securities Act promptly after
completion of the Offering for use in future acquisitions.
SERVICES AND PRODUCTS
The Company generates revenues from the sale of services and products.
Services accounted for approximately 70% of pro forma revenues for both the six
months ended June 30, 1997 and the twelve months ended December 31, 1996, with
products accounting for the remainder.
Services
The Company offers a broad range of document management services across a
variety of media types and formats. This broad range of services, together with
the Company's technical capabilities and experience in selected vertical
markets, enables the Company to tailor document management solutions for its
clients based on their specific needs. The current document management services
that are currently provided in certain geographic locations through one or more
of the Founding Companies include:
Media Conversion Services
Digital Imaging. The Company's digital imaging services involve the
conversion of paper or microfilm documents into digital format through the
use of optical scanners and the conversion of computer output to digital
images typically stored on optical media or to microfilm. Once converted,
digital images can be returned for client use on a CD-ROM or optical disk
or stored by the Company in a data warehouse for subsequent retrieval and
distribution. The Company believes that digital images are becoming the
preferred format of storage due to benefits such as
54
<PAGE>
high speed retrieval, multiple indexing capabilities and the ability to
support and distribute digital, film or paper output to multiple locations.
Micrographics. The Company performs micrographic services, including
the conversion of paper documents into microfilm images, indexing of film
for computer-aided retrieval systems and COM. Micrographic media are
selected as an alternative to paper or digital media for one or more of the
following reasons: (i) film archives are more accessible, longer-lived and
cheaper to store than paper; (ii) film is eye-readable and not subject to
technological obsolescence; (iii) converting paper to film is currently
more cost-effective than scanning paper for most documents where ease of
accessibility is not needed; and (iv) there is a large base of
organizations with existing film archives and reader-printer equipment.
Data Indexing. The creation of index files for the rapid retrieval of
images is a critical part of most value-added document management
solutions. The Company provides specialized indexing services to a variety
of clients for both film and digital-format documents. These labor-
intensive services are often contracted for outside the U.S. as a means to
utilize qualified personnel at generally lower cost than is available
domestically.
Storage and Retrieval Services
Digital Storage and Retrieval. Digital storage of documents enables
customers to retrieve large volumes of documents immediately, which would
not be possible using conventional filing systems. Digital storage on
CD-ROM, optical disk, magnetic disk or tape also allows for the rapid
distribution of archival information to multiple destinations and removes
the logistical burden and cost of storing paper documents. These storage
systems may reside in one or more locations, either within a client's
organization or at a Company-maintained data warehouse. Users may access
images via a client-server network, a modem or an intra/internet. Because
digitally-stored documents can be indexed according to several criteria, a
client can use simple but exacting computer search techniques to rapidly
access individual documents or groups of documents. The Company currently
provides a variety of services and proprietary software products that
support clients' digital storage and retrieval needs. See "- Products -
Software" below.
Film and Paper Storage and Retrieval. The Company manages the
archiving of client documents, including processing (i.e., indexing and
formatting), storage, retrieval, delivery and return to storage of
documents within a rapid time frame. Typical archival documents include
medical and legal case files, business records and financial transaction
documents. Service fees generally include billing for storage space, plus
activity charges for retrieval, delivery and return to storage, and
ultimately for document destruction. The Company currently maintains three
storage facilities in the Chicago area, the San Francisco Bay area, and in
Monroe, Louisiana. The Company may seek to enter a relationship with one or
more national providers of paper storage services in order to provide wider
geographic coverage.
The Company believes that client demand in the areas of document management
solution integration, data warehousing and facilities management is growing
rapidly, and the Company intends to expand its current capabilities in these
areas.
Products
The Company develops proprietary, open-architecture software products which
support electronic imaging and indexing services. In addition, the Company
offers a wide range of digital imaging, scanning and viewing hardware,
micrographic reader-printers, micrographic film and supplies and other
equipment.
Software. The Company develops, markets and supports a suite of
proprietary open-architecture software products that support and enhance
the scanning, indexing and retrieval of digital images for its own use and
for sale to other document management companies and end-users. Versions of
these software products can be run on Microsoft Windows-equipped networks
55
<PAGE>
or personal computers, and simplify the process of scanning, indexing and
retrieving electronic images of documents. The DocuROM product was
initially developed for use by document management companies in their
digital conversion operations. The ScanTRAX and FileTRAX products were
developed for marketing to end-users. These software products are marketed
by the Company through a network of approximately 70 other document
management companies acting as value-added resellers and also directly
through the Company's own sales force to end-users including, in some
cases, other document management companies.
The Company has also developed and markets a high-end scanning and
viewing software package for the aperture card market. This product is
utilized by both service companies and end-users to convert and index
micrographic images of large format documents (in the form of 35 millimeter
aperture cards) into digital images.
Hardware and Other Equipment. The Company maintains broker or dealer
relationships with a number of document management equipment suppliers,
including Bell & Howell, Canon, Kodak, Minolta, Photomatrix, 3M and Xerox.
These relationships allow the Company to provide clients with the latest
micrographic and digital image viewing, printing and conversion equipment.
Several of the Founding Companies provide extensive field maintenance and
repair services for the equipment they sell. Technical hardware expertise
is expected to be shared across the Company's operations following the
Offering. The Company expects that it will be able to achieve certain
purchasing efficiencies with equipment manufacturers and that it will be an
attractive dealer to equipment manufacturers seeking to achieve broad
geographic coverage with a single company. The Company also provides its
clients a wide range of micrographic film products, digital media and other
graphic supplies.
CLIENTS AND KEY MARKETS
The Company had a broad base of over 5,000 clients in the last year, none
of which accounted for more than 5% of pro forma combined revenue for either the
year ended December 31, 1996 or the six months ended June 30, 1997. The
Company's clients are primarily in the health care, financial services and
engineering industries, as well as certain other vertical markets.
The major markets for document management services providers are
transaction-intensive industries in which the core business processes involve
documents or industries for which there are legal or regulatory considerations
requiring the processing and storage of documents in a controlled manner. While
maintaining its diversified client base, the Company intends to increase its
expertise in certain core vertical markets. An overview of the Company's major
target markets follows:
The Health Care Market: consists of health care providers, healthcare
insurers and pharmaceutical companies.
The Financial Services Market: consists of commercial banks, mortgage
banking companies, insurance companies, brokerage companies and credit card and
loan processing companies.
The Engineering Market: consists of manufacturers, architectural and
engineering consultants, utilities and telecommunications companies.
Other Vertical Markets include the retail and transportation markets,
government entities and litigation support.
56
<PAGE>
<TABLE>
<CAPTION>
REPRESENTATIVE CLIENTS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE FINANCIAL SERVICES ENGINEERING OTHER VERTICAL MARKETS
- ---------------------------- ------------------------- -------------------------- ----------------------
Abbott Laboratories CIT Group The Boeing Company Avis Rent a Car, Inc.
Novartis AG First Union National Bank General Electric Company DHL International Ltd.
University of Nebraska Nordstrom Credit, Inc. General Motors Corporation Waste Management, Inc.
Medical Center Honeywell, Inc. State of California
Virginia Department of State of Louisiana
Health State of Mississippi
</TABLE>
The Founding Companies have historically provided services to most of these
markets, as well as to governmental entities, universities and litigation
support clients. The Company believes that it will enjoy a national reputation
as a leading service provider for the engineering market, which utilizes
large-format drawings and aperture cards. In addition, the Company provides
document management services for a variety of non-industry-specific functions
including accounts receivable and payable processing, shipping, human resources
and management information systems reporting.
SALES AND MARKETING
Historically, the Company's sales efforts have been implemented separately
by each Founding Company. Sales efforts will initially be conducted by the
Company's 30-person sales force supplemented by the sales activities of the
Founding Companies' senior management. The Company plans to hire ten or more
additional local territory salespersons promptly after the Offering and to hire
a Vice President of Sales and Marketing as part of its national sales effort.
The Company will seek to attract customers away from smaller industry providers
through its ability to offer a broader range of solutions and products for
clients' document management needs. The Company will also leverage existing
client relationships by cross-selling its services, products and expertise
throughout each client's organization.
The Founding Companies have succeeded in expanding their client base by
pro-actively selling the benefits of outsourcing document management functions
to clients which, at the time, were in-house operators. The Company believes
that its proactive, solution-based approach can be broadly effective with
potential clients and will enable the Company to increase its market position.
In contrast to other market participants who traditionally have been reactive in
their approach to selling, the Company intends to pursue unvended accounts
actively in addition to competing for existing outsourced business. Methods such
as seminar selling, telemarketing and internet marketing that are utilized at
certain of the Founding Companies will be implemented at the Company.
The Company believes that its ability to attract and retain additional
clients will depend on its ability to offer the broad range of services and
products necessary to satisfy such clients' document management needs and
maintain a high level of customer satisfaction.
57
<PAGE>
COMPETITION
The document management services industry is competitive. A significant
source of competition is the in-house document management capability of the
Company's target client base. Additionally, the Company competes with
single-market, independent document management companies. The Company's larger
competitors include Dataplex Corp. (a subsidiary of Affiliated Computer
Services, Inc.), F.Y.I. Incorporated, IKON Office Solutions and Lason, Inc. Many
of these competitors are presently larger than the Company and have greater
financial and other resources and operate in broader geographic areas than the
Company. Due to consolidation in the document management services industry,
there is significant competition in acquiring such businesses, and the prices
for attractive acquisition candidates may be bid up to higher levels,
particularly in cases where competitors with greater financial and other
resources than the Company compete for the same acquisition targets.
Additionally, other potential competitors may choose to enter the Company's
areas of operation in the future. Moreover, because the Company intends to enter
new geographic areas, the Company expects to encounter significant competition
from established competitors in each of such new areas. As a result of this
competitive environment, the Company may lose clients or have difficulty in
acquiring new clients and its revenues and margins may be adversely affected.
The Company believes that the principal competitive factors in document
management services include the breadth, accuracy, speed, reliability and
security of service, technical expertise, industry specific knowledge and price.
The Company competes primarily on the basis of the breadth and quality of
service, technical expertise and industry specific knowledge, and believes that
it competes favorably with respect to these factors.
INTELLECTUAL PROPERTY
The Company regards certain of its software systems, information and
know-how underlying its services as proprietary and relies primarily on a
combination of contracts, trademarks, copyrights, trade secrets and
confidentiality agreements to protect its proprietary rights. The Company's
business is not materially dependent on any patents. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
obtain and use information that the Company regards as proprietary, and policing
unauthorized use of the Company's proprietary information may be difficult.
Litigation may be necessary for the Company to protect its proprietary
information and could result in substantial cost to, and diversion of efforts
by, the Company.
The Company does not believe that any of its proprietary rights infringe
the proprietary rights of third parties. Any infringement claims, whether with
or without merit, can be time consuming and expensive to defend or may require
the Company to enter into royalty or licensing agreements or cease the allegedly
infringing activities. The failure to obtain such royalty agreements, if
required, and the Company's involvement in such litigation could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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FACILITIES AND EQUIPMENT
The Company's headquarters offices are in Bala Cynwyd, Pennsylvania which
it maintains under a lease expiring in December 1997. In addition, the Company
conducts operations through one owned and 22 other leased facilities in 13
states containing, in the aggregate, approximately 341,000 square feet. The
Company's principal facilities are summarized in the following table:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE PRINCIPAL USE(S)
- -------- -------------- ----------------
<S> <C> <C>
Tempe, AZ 8,800 document management operations, offices
Emeryville, CA 24,000 document management operations, offices
Emeryville, CA 16,000 warehouse
Sacramento, CA 6,000 document management operations
Marietta, GA 3,200 document management operations, offices
Chesterton, IN* 41,000 offices, document management operations
Chesterton, IN 11,000 warehouse
Monroe, LA 65,000 retail, document management operations, offices
Shreveport, LA 4,000 offices
Stoughton, MA 47,000 document management operations, offices
Worcester, MA 4,800 document management operations, offices
Lincoln, NE 4,300 document management operations, offices
Lincoln, NE 6,900 warehouse, offices
Millwood, NY 1,000 offices
Dayton, OH 12,500 document management operations, offices
Eugene, OR 11,400 document management operations, offices
Eugene, OR 2,300 warehouse
Portland, OR 13,500 document management operations, offices
Portland, OR 2,200 document management operations, offices
Cayce, SC 20,000 document management operations, offices
Cleveland, TN 12,000 document management operations, offices
Forest, VA 21,500 document management operations, offices
Richmond, VA 1,300 offices
</TABLE>
- ------------------
* owned facility
The Company believes that its properties are generally well maintained, in
good condition and adequate for its present needs, and that suitable additional
or replacement space will be available when needed. The Company owns or leases
under both operating and capital leases substantial computer, scanning and
imaging equipment which it believes to be adequate for its current needs.
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ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for hazardous substances and solid and liquid wastes; and
(ii) impose liability for the costs of cleaning up, and certain damages
resulting from, sites of past spills, disposal or other releases of solid and
liquid wastes.
The Company is not currently aware of any environmental conditions relating
to present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on the business, financial condition or
results of operations of the Company. However, there can be no assurances that
environmental liabilities will not have a material adverse effect on the
business, financial condition or results of operations of the Company.
EMPLOYEES
On a pro forma combined basis, as of August 1, 1997, the Company had
approximately 950 employees, approximately 160 of whom were employed primarily
in management and administration. The Company considers its relations with its
employees to be good.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of its business. The Company is not subject to any pending
material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND PERSONS SELECTED TO BECOME DIRECTORS
The Company's executive officers and directors and their respective ages
and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce M. Gillis................... 40 Chief Executive Officer and Chairman of the
Board of Directors
S. David Model.................... 40 President and Chief Operating Officer
James D. Brown.................... 39 Senior Vice President - Finance, Chief Financial
Officer and Treasurer
Andrew R. Bacas................... 38 Senior Vice President - Corporate Development,
Secretary and Director
David C. Utz, Jr.................. 41 Director
Rex Lamb.......................... 39 Director*
John E. Semasko................... 52 Director*
Steven N. Kaplan.................. 37 Director*
</TABLE>
- ------------------
* To be elected upon completion of the Offering.
Bruce M. Gillis is a founder of the Company and has been the Company's
Chief Executive Officer and Chairman of the Board since inception. From
September 1996 through the present, Mr. Gillis has been President of GBL Capital
Corp., an investment concern which has a management agreement with the Company.
See "Certain Transactions." Mr. Gillis has served as a director since 1989 of
Liebhardt Mills, Inc., a national bedding manufacturer, for which he has also
served as Vice President - Finance from 1989 to 1994. From 1994 to 1996, Mr.
Gillis was President of Villanova Investment Corp., a strategy consulting and
investment management company. From 1980 to 1983 and 1985 to 1988, Mr. Gillis
served as a consultant with McKinsey & Co., Inc., a global strategy consulting
firm. Mr. Gillis has an undergraduate degree in economics from Yale and an MBA
from Stanford University.
S. David Model has been the Company's President and Chief Operating Officer
since he joined the Company in August 1997. From 1987 to August 1997, Mr. Model
was employed by Teleflex Incorporated and has held several management positions
in various subsidiaries of Teleflex Incorporated's Aerospace Group, from Sales
and Engineering Manager of the Airfoil Management Division to Executive Vice
President, Airfoil Technologies International, LLC. Mr. Model has an
undergraduate degree in engineering from Yale University and an MBA from the
Wharton School of the University of Pennsylvania.
James D. Brown has been the Chief Financial Officer of the Company since he
joined the Company in August 1997. From March 1996 to August 1997, Mr. Brown was
the Chief Financial Officer of LMR Holdings, Inc., a textile component
manufacturer. In 1995, Mr. Brown was a consultant specializing in accounting
controls and financing. From 1990 to 1994, Mr. Brown was a controller and chief
financial officer of various operating companies of Joseph Littlejohn & Levy, a
merchant bank. Mr. Brown has an undergraduate degree in economics from Hamilton
College and a masters degree in accounting from New York University. Mr. Brown
is a certified public accountant.
Andrew R. Bacas is a founder of the Company and has been a Director since
inception. Mr. Bacas joined GBL Capital Corporation in May 1997 and will serve
as the Company's Senior Vice President - Corporate Development after the
Offering. From 1992 to May 1997, Mr. Bacas was an Associate and later a Vice
President - Corporate Finance of Simmons & Company International, an investment
bank to the international oil service and equipment industry. From 1991 to 1992
Mr. Bacas was a Financial
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<PAGE>
Analyst for the Upstream Business Unit at Exxon Company, USA. From 1984 to 1991
Mr. Bacas was a Naval Flight Officer in the United States Navy. Mr. Bacas has an
undergraduate degree in engineering from Yale University and an MBA from the
Wharton School of the University of Pennsylvania.
David C. Utz, Jr. has served as a member of the Board of Directors of the
Company since its inception in November 1996. Mr. Utz has been the Chairman of
the Board and Chief Executive Officer of AMMCORP since August 1988. Mr. Utz
previously worked in administrative and financial capacities for Fairview Health
System, a multi-hospital holding company, located in Minneapolis, Minnesota. Mr.
Utz has an undergraduate degree in Business Administration from the University
of Minnesota.
Rex Lamb founded DTI in 1991 and has served as its President since
inception. He co-founded DDS in 1994 and has served as its President since
inception. Following the Offering, Mr. Lamb will become a director of the
Company. Mr. Lamb has an undergraduate degree in Education from the University
of Nebraska.
John E. Semasko acquired OMI in 1975 and has served as its President since
its acquisition. Mr. Semasko has an undergraduate degree in Forestry from
Rutgers University. Following the Offering, Mr. Semasko will become a director
of the Company.
Steven N. Kaplan is the Leon Carroll Marshall Professor of Finance at the
University of Chicago Graduate School of Business. Dr. Kaplan joined the faculty
of the University of Chicago originally in 1988 as an Assistant Professor.
Previously, Dr. Kaplan was an associate at Booz Allen Hamilton, Inc. and an
analyst with Kidder Peabody and Company. Dr. Kaplan holds an A.B. degree in
Applied Mathematics, an A.M. and a Ph.D. in Business Economics from Harvard
University.
FOUNDING COMPANY MANAGEMENT
The key executives of the Founding Companies are as follows:
Gary D. Blackwelder, age 41, has been President of I(2) Solutions
since 1989.
James E. Bunker, age 58, co-founded TIMCO in 1980 and has served as
its Chairman since that time.
Mark Creglow, age 39, co-founded DDS in 1994 and has served as its
Vice President since inception. Prior to founding DDS, Mr. Creglow was
Regional Sales Manager for Distribution Management Systems, Inc.
David L. Crowder, age 41, has served as President of TPS since 1990
and has been with TPS for 19 years.
Judith K. DeMott, age 58, co-founded DataLink in 1984, and has served
as President since its inception.
Carmen DiMatteo, age 62, joined Spaulding in 1960 and has served as
its President since 1996.
Jeffry P. Kalmon, age 48, has served as President of TIMCO since 1996.
He joined TIMCO in 1984 as a sales representative.
Ovidio Pugnale, age 63, joined IMS's predecessor originally in 1980 as
General Manager and became IMS's President in 1986. Prior to joining IMS,
Mr. Pugnale served 26 years as an officer in the United States Air Force.
Ellen Rothschild-Taube, age 40, co-founded IDS in 1989 and has served
as IDS's Vice President since its inception.
Mary Jane Semasko, age 50, has served as Vice President of OMI since
its acquisition in 1975.
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<PAGE>
Theodore J. Solomon, age 73, has served as Chairman of the Board and
Chief Executive Officer of CMC, Laser Graphics and I(3) since 1992, 1994
and 1995, respectively.
Mitchell J. Taube, age 40, co-founded IDS in 1989 and has served as
IDS's President since its inception. Mr. Taube currently serves on the AIIM
Service Company Executive Committee.
David C. Yezbak, age 31, has served as President of CodaLex, Laser
Graphics and I(3) since 1995. Previously, he served as Vice President of
CodaLex from 1992 to 1995.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. The Board of Directors currently
consists of three members. The Company expects to add Messrs. Lamb and Semasko
and Dr. Kaplan to its Board of Directors following the consummation of the
Offering and, at that time, the Board of Directors will include six Directors
divided into three classes as follows: Class I Directors (Messrs. Gillis and
Utz); Class II Directors (Messrs. Bacas and Semasko); and Class III Directors
(Mr. Lamb and Dr. Kaplan). Following the Offering, the Company intends to
recruit up to three additional outside directors, adding one to each class. At
each annual meeting of shareholders, the appropriate number of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The initial terms of the Class I Directors, Class II
Directors and Class III Directors will be one, two and three years, respectively
and will expire upon the election and qualification of successor directors at
the annual meetings of shareholders held in calendar years 1998, 1999 and 2000,
respectively. There is no family relationship between any director or executive
officer of the Company.
BOARD COMMITTEES
Upon completion of the Offering, the Company intends to establish Audit and
Compensation Committees of the Board of Directors comprised of independent
directors. The Audit Committee will review the qualifications of the Company's
independent auditors, make recommendations to the Board of Directors regarding
the selection of independent auditors, review the scope, fees and results of any
audit and review non-audit services and related fees provided by the independent
auditors.
The Compensation Committee will be responsible for the administration of
all salary and incentive compensation plans, including the Stock Incentive
Plans, for the executive officers and directors who are or will become employees
of the Company, including bonuses.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $500 for
each board and committee meeting attended in person and all directors are
reimbursed for travel expenses as incurred. Pursuant to the terms of the
Incentive Plan, each director of the Company who is not employed by the Company
will be granted an option to purchase 15,000 shares of Common Stock. The options
will have an exercise price equal to the fair market value of the Common Stock
on the date of grant, and will vest in equal annual installments over three
years.
EXECUTIVE COMPENSATION
The Company was incorporated in 1996 and neither conducted operations nor
paid any compensation in that year. The Company has utilized its initial
capitalization in 1997 to pay start-up expenses, primarily associated with
identifying and negotiating the Acquisitions. The Company anticipates that, for
1997, its most highly compensated executive officers and their annualized base
salaries will be: Mr. Gillis ($200,000); Mr. Model ($150,000); Mr. Brown
($130,000); and Mr. Bacas ($130,000) (collectively, the "Named Executive
Officers"). Each Named Executive Officer has entered into an employment
agreement with the Company commencing in August 1997. See "-Employment
Agreements."
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with the Named Executive
Officers in August 1997, the initial terms of which expire on December 31, 2000,
except for Mr. Gillis' agreement which expires on December 31, 2002. Mr. Gillis
will serve as Chief Executive Officer at a base annual salary of $200,000, plus
benefits. Mr. Model will serve as Chief Operating Officer at a base annual
salary of $150,000, plus benefits. Mr. Brown will serve as Chief Financial
Officer at a base annual salary of $130,000, plus benefits. Mr. Bacas will serve
as Senior Vice President - Corporate Development at a base annual salary of
$130,000, plus benefits. The base annual salary of each of the Named Executive
Officers is subject to increases periodically at the discretion of the Board,
and each Named Executive Officer may receive an annual bonus as determined by
the Board. Each of the employment agreements provides that if the employee is
terminated without cause he is entitled to severance pay of between six months'
and one year's base salary and benefits. In the event he is terminated in
connection with a change of control (as defined therein), he is entitled to
receive 18 months base salary and benefits.
STOCK INCENTIVE PLANS
1997 INCENTIVE PLAN
The Company's 1997 Incentive Plan (the "Incentive Plan") provides for the
award of up to 600,000 shares of its Common Stock to its employees, directors,
consultants and other individuals who perform services for the Company.
The Compensation Committee of the Board of Directors administers the
Incentive Plan. Under the terms of the Incentive Plan, the Compensation
Committee is required to be composed of two or more directors. The Compensation
Committee has the authority to interpret the Incentive Plan and to determine and
designate the persons to whom options or awards shall be made and the terms,
conditions and restrictions applicable to each option or award (including, but
not limited to, the price, any restriction or limitation, any vesting schedule
or acceleration thereof, and any forfeiture restrictions).
Pursuant to the Incentive Plan, upon the completion of the Offering,
nonqualified options to purchase an aggregate of 287,500 shares of Common Stock
at the initial public offering price set forth on the cover page of this
Prospectus will be granted to the Named Executive Officers as follows: Mr.
Gillis (100,000), Mr. Model (62,500), Mr. Brown (62,500) and Mr. Bacas (62,500).
Additionally, Dr. Kaplan will receive a nonqualified option to purchase 15,000
shares of Common Stock at the initial public offering price in his capacity as
outside director. The grants will vest in equal annual installments over three
years. For information as to option grants to directors, see "Management -
Director Compensation."
The Incentive Plan contains provisions for granting various stock-based
awards, including incentive stock options, as defined in Section 422 of the
Code, nonqualified stock options, restricted stock, performance shares and
performance units (as further described below). The term of the Incentive Plan
is ten years, subject to earlier termination or amendment, but options and other
rights may remain exercisable after the Incentive Plan expires or is terminated.
Except with respect to awards of stock options to outside directors, as
described above, the Compensation Committee has the power to select award
recipients and their allotments and to determine the price, term and vesting
schedule for awards granted. While there are no predetermined performance
formulas or measures or other specific criteria used to determine recipients of
awards under the Incentive Plan, awards are based generally upon consideration
of the grantee's position and responsibilities, the nature of services provided
and accomplishments, the value of the services to the Company, the present and
potential contribution of the grantee to the success of the Company, the
anticipated number of years of service remaining and other factors the Board of
the Compensation Committee may deem relevant.
Stock Options. The Incentive Plan provides for the grant of incentive
stock options to employees of the Company. The Incentive Plan also provides for
the grant of nonqualified stock options to
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<PAGE>
employees of the Company, directors of the Company, and consultants and other
individuals who perform services for the Company but are not employed by the
Company. The exercise price of any incentive stock option granted under the
Incentive Plan may not be less than 100% of the fair market value of the
Company's Common Stock on the date of grant (110% of fair market value in the
case of an option holder who is a 10% owner). Options granted under the
Incentive Plan may be exercised for cash or in exchange for shares of Common
Stock owned by the option holder having a fair market value on the date of
exercise equal to the option exercise price. The aggregate fair market value,
determined on the date of grant, of the shares with respect to which incentive
stock options are exercisable for the first time by an employee during any
calendar year may not exceed $100,000. Any option that does not meet the
requirements or limits applicable to incentive stock options is treated as a
nonqualified stock option.
Under the Incentive Plan, each option is exercisable for the full amount of
the shares subject to option or for any part thereof at such intervals or in
such installments as the Compensation Committee shall determine at the time it
grants the option. However, no option shall be exercisable with respect to any
shares of Common Stock later than ten years after the date of the grant of such
option (five years in the case of an incentive stock option granted to a 10%
owner). All options are nontransferable, except upon death, by the optionee. The
shares subject to expired options or terminated options which remain unexercised
become available for future grants.
If an optionee ceases to be employed by, or to render services to, the
Company for any reason other than death, disability or termination for cause,
any option exercisable on the date of such termination generally may be
exercised for a period of one month from the date of such termination or until
the expiration of the stated term of the option, whichever period is shorter. In
the event of termination of employment or service by reason of death or
disability, any option exercisable at the date of such termination generally may
be exercised for a period of one year from the date of termination or until the
expiration of the stated term of the option, whichever period is shorter. If a
participant's employment or service is terminated for cause, any option not
exercised prior to the date of such termination shall be immediately canceled.
In the event of a change of control (as defined in the Incentive Plan) of the
Company, the Incentive Plan provides that all outstanding options will become
immediately exercisable, and also provides for the cancellation of options and a
cash payment to the holders of such canceled options upon the occurrence of
certain of the events constituting a change in control.
Restricted Stock. "Restricted Stock" are shares of the Company's Common
Stock granted to an employee for no cash consideration, which will be forfeited
to the Company if the grantee ceases to be an employee of the Company during a
restriction period specified by the Compensation Committee at the time it grants
the Restricted Stock. In the event of death or disability, the restrictions will
lapse with respect to that percentage of Restricted Stock held by the grantee
that is equal to the percentage of the restriction period that had elapsed as of
the date of death or commencement of disability. In the event of a change of
control of the Company, all restrictions on shares of Restricted Stock will
lapse. Shares of Restricted Stock that are forfeited become available for future
grants.
Performance Shares. A "Performance Share" is an award of the right to
receive stock or cash, at the election of the recipient, at the end of a
specified period upon the attainment of performance goals specified by the
Compensation Committee at the time of grant. Performance Shares generally will
be forfeited if the grantee ceases to be an employee of the Company during the
performance period for any reason other than death or disability. In the event
of death or disability, the participant or his or her estate will be entitled to
receive, at the expiration of the performance period, a percentage of his or her
Performance Shares equal to the percentage of the performance period that had
elapsed at the time of death or commencement of disability, provided that the
Compensation Committee determines that the applicable performance goals have
been met. In the event of a change of control of the Company, all conditions
applicable to each Performance Share award will terminate, and cash having a
value equal to the full number of shares of Common Stock subject to the
Performance Share award will be issued to the grantee. Performance Shares that
are forfeited or not delivered to the grantee become available for future
grants.
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<PAGE>
Performance Units. A "Performance Unit" is an award of the right to
receive cash at the end of a specified period upon the attainment of performance
goals specified by the Compensation Committee at the time of the grant. The
amount payable under a Performance Unit is equal to the increase in value of a
Unit from the date of award to the date of attainment of the performance goals.
Performance Units generally will be forfeited if the grantee ceases to be an
employee of the Company during the performance period for any reason other than
death or disability. In the event of death or disability, the grantee or his or
her estate will be entitled to receive, at the expiration of the performance
period, a cash payment for a percentage of his or her Performance Units equal to
the percentage of the performance period that elapsed at the time of death or
commencement of disability, provided that the Compensation Committee determines
that the applicable performance goals have been met. In the event of a change of
control of the Company, all conditions applicable to the Performance Units will
terminate and a cash payment for the full amount of the Performance Units will
be made to the grantee.
EMPLOYEE STOCK PURCHASE PLAN
Prior to the completion of the Offering, the Company intends to adopt an
Employee Stock Purchase Plan (the "Purchase Plan"), which will allow all
full-time employees of the Company, subject to certain limitations, to purchase
shares of the Company's Common Stock at a discount from the prevailing market
price at the time of purchase. Such shares may either be issued by the Company
from its authorized and unissued Common Stock or purchased by the Company on the
open market. Any employee owning five percent or more of the voting power or
value of the Company is not eligible to participate in the Purchase Plan. A
maximum of 250,000 shares of the Company's Common Stock will be available for
purchase under the Purchase Plan.
An eligible employee will be able to specify, before the commencement of
each semi-annual period, an amount to be withheld from his or her paycheck and
credited to an account established for him or her (the "Participation Account").
Amounts in the Participation Account will be applied to the purchase of shares
of the Company's Common Stock on the last day of each semi-annual period. The
price of such shares will be equal to 90% of the average of the high and low
sales prices per share of the Company's Common Stock on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if not listed or traded on any such exchange, on the Nasdaq National Market.
Only whole shares of Common Stock may be purchased. Amounts withheld from an
employee's paycheck and not applied to the purchase of whole shares of Common
Stock will, at the election of the employee, either remain credited to the
employee's Participation Account or be returned to the employee.
Upon termination of an employee's employment for any reason other than
death, or upon a leave of absence beyond 90 days, all amounts credited to such
employee's Participation Account shall be returned to him or her. Upon
termination of an employee's employment because of death, his or her
successor-in-interest shall have the right to elect before the earlier of the
end of that calendar quarter or the 60th day following the employee's date of
death either to withdraw the amount credited to his or her Participation Account
or to apply such amounts to the purchase of Common Stock.
The Purchase Plan will be administered by the Compensation Committee of the
Board of Directors. The Board of Directors may amend or terminate the Purchase
Plan. The Purchase Plan is intended to comply with the requirements of Section
423 of the Code.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Since inception and prior to the Offering, the Company issued Common Stock
and Series A Preferred Stock (1,154,259 shares of Common Stock on an
as-converted basis) for an aggregate purchase price of approximately $1.8
million, including 642,724 shares issued to persons who are officers or director
nominees of the Company as follows: Bruce M. Gillis, Chief Executive Officer and
Chairman of the Board, purchased an aggregate of 295,448 shares for an aggregate
purchase price of $67,953; David Model, President and Chief Operating Officer,
purchased an aggregate of 68,750 shares for an aggregate purchase price of
$190,438; James D. Brown, Senior Vice President - Finance, Chief Financial
Officer and Treasurer, purchased an aggregate of 33,846 shares for an aggregate
purchase price of $84,615; Andrew R. Bacas, Senior Vice President - Corporate
Development, purchased an aggregate of 223,526 shares for an aggregate purchase
price of $60,352; and John E. Semasko, a director nominee, purchased an
aggregate of 21,154 shares for an aggregate purchase price of $84,616. Messrs.
Gillis, Model, Brown and Bacas may be considered promoters of the Company. See
"Management."
ACQUISITION TRANSACTIONS
The consideration to be paid for the Founding Companies was determined
through arm's-length negotiations among ImageMAX, Inc. and representatives of
the Founding Companies. The factors considered by the parties in determining the
consideration to be paid include, among others, the historical operating
results, the levels of indebtedness and the future prospects of the Founding
Companies.
The general terms of each of the Acquisitions are as follows (assuming (i)
an initial public offering price of $13.00 per share and (ii) levels of
indebtedness existing as of June 30, 1997, the reduction of which will generally
increase the applicable cash portion of the purchase price by a corresponding
amount):
AMMCORP. ImageMAX, Inc. will acquire the parent of AMMCORP by merger
for approximately $0.7 million in cash and 71,923 shares of Common Stock,
plus the assumption of approximately $3.1 million of outstanding debt.
David C. Utz, Jr., a Director of the Company owns the parent of AMMCORP.
The CodaLex Group. ImageMAX, Inc. will acquire the assets and assume
certain liabilities of I(3) and will acquire Laser Graphics and CMC by
merger for approximately $1.3 million in cash, the assumption of
approximately $1.0 million of indebtedness and 78,412 shares of Common
Stock. In addition, the Company will enter into five-year leases for two
facilities with affiliates of the CodaLex Group.
DataLink. ImageMAX, Inc. will acquire the assets of DataLink and
assume certain of its liabilities for approximately $3.1 million in cash,
the assumption of approximately $0.2 million of indebtedness and 38,462
shares of Common Stock. In addition, the Company will enter into a
five-year lease for a facility with an affiliate of DataLink.
DocuTech. ImageMAX, Inc. will acquire the assets of DTI and assume
certain of its liabilities for approximately $2.7 million in cash.
ImageMAX, Inc. will acquire DDS by merger for approximately $2.7 million in
cash and 288,750 shares of Common Stock. Rex Lamb beneficially owns 100% of
DTI and 51% of DDS. It is contemplated that Mr. Lamb will be appointed to
serve as a Director upon completion of the Offering.
I(2) Solutions. ImageMAX, Inc. will acquire I(2) Solutions by merger
for approximately $2.0 million in cash, the assumption of approximately
$28,000 of indebtedness and 261,538 shares of Common Stock. Included on
I(2) Solutions closing balance sheet will be approximately $0.8 million in
cash. In addition, the Company will enter into five-year leases for two
facilities with affiliates of I(2) Solutions.
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IMS. ImageMAX, Inc. will purchase all of the issued and outstanding
stock of IMS for approximately $2.0 million in cash, the assumption of
approximately $0.4 million of outstanding debt and 61,538 shares of Common
Stock. In addition, the Company will enter into a five year lease for a
facility with an affiliate of IMS.
IDS. ImageMAX, Inc. will acquire IDS by merger for approximately $1.7
million in cash and 165,000 shares of Common Stock.
OMI. ImageMAX, Inc. will acquire OMI by merger for approximately $1.3
million in cash, the assumption of approximately $0.2 million of
outstanding debt and 117,692 shares of Common Stock. In addition, the
Company will enter into a five-year lease for a facility with affiliates of
OMI. John E. Semasko is the owner of OMI. It is contemplated that Mr.
Semasko will be appointed to serve as a Director upon completion of the
Offering.
Spaulding. ImageMAX, Inc. will acquire the assets and assume certain
liabilities of Spaulding for $4.5 million in cash.
TIMCO. ImageMAX, Inc. will acquire the assets and assume certain
liabilities of TIMCO for approximately $2.7 million in cash and 59,615
shares of Common Stock.
TPS. ImageMAX, Inc. will purchase all of the issued and outstanding
stock of TPS for approximately $1.6 million in cash, the assumption of
approximately $1.1 million of outstanding debt and 41,538 shares of Common
Stock.
The Company has agreed to repay approximately $6.0 million of indebtedness
of the Founding Companies, of which approximately $3.1 million is indebtedness
of AMMCORP, whose shareholder, David C. Utz, Jr., is a Director of the Company
and $0.2 million is indebtedness of OMI, whose shareholder, John E. Semasko, is
expected to become a Director of the Company upon completion of the Offering.
The consummation of each Acquisition is subject to customary closing
conditions. These conditions include, among others, the continuing accuracy of
the representations and warranties of the Founding Companies, the principal
shareholders thereof and ImageMAX on the closing date of the Acquisitions, the
performance by each of them of all covenants included in the agreements relating
to the Acquisitions and the non-existence of a material adverse change in the
results of operations, financial condition or business of each Founding Company.
There can be no assurance that the conditions to the closing of the Acquisitions
will be satisfied or waived or that the Acquisition agreements will not be
terminated prior to consummation.
MANAGEMENT CONTRACT
The Company entered into a management contract with GBL Capital Corporation
in November 1996 whereby GBL Capital Corporation managed the operations of the
Company for an initial payment of $5,000 and a monthly fee ranging from $10,000
to $25,000 (aggregating $121,500 through July 31, 1997), plus expenses. The
monthly fee payments pursuant to the management contract were terminated on July
31, 1997. The management contract requires the payment of $500,000 to GBL
Capital Corporation upon completion of the Offering. Messrs. Gillis and Bacas
are both owners and controlling persons of GBL Capital Corporation and may be
considered promoters of the Company.
FUTURE TRANSACTIONS
The Company has adopted a policy that it will not enter into any material
transaction in which a Company director or officer has a direct or indirect
financial interest, unless the transaction is determined by the Company's Board
of Directors to be fair as to the Company or is approved by a majority of the
Company's disinterested directors or by the Company's shareholders, as provided
for under Pennsylvania law.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 12, 1997 giving pro forma effect to
the Acquisitions (based on an assumed initial public offering price of $13.00
per share) by: (i) each executive officer and director and persons who will
become a director upon consummation of the Offering; (ii) each person known by
the Company to beneficially own more than 5% of the Common Stock; and (iii) all
directors and executive officers as a group. Each person named below has an
address in care of the Company's principal executive offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
--------------------------------------------
PERCENT
--------------------------------
NAME NUMBER(1) BEFORE OFFERING AFTER OFFERING
- ---- --------- --------------- --------------
<S> <C> <C> <C>
Bruce M. Gillis (2)............................... 295,448 12.6% 5.4%
Andrew R. Bacas (3)............................... 223,526 9.5 4.1
S. David Model (3)................................ 68,750 2.9 1.3
James D. Brown (3)................................ 33,846 1.4 *
Rex Lamb.......................................... 191,250 8.1 3.5
David C. Utz, Jr.................................. 156,538 6.7 2.9
John E. Semasko................................... 138,846 5.9 2.6
Steven N. Kaplan(4)............................... 12,692 * *
Gary D. Blackwelder............................... 261,538 11.1 4.8
Mitchell J. Taube................................. 186,154 7.9 3.4
All executive officers and directors as a group
(8 persons)..................................... 1,120,896 47.1 20.6
</TABLE>
- ------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed as of any date to have
beneficial ownership of any security that such person has the right to
acquire within 60 days after such date.
(2) Excludes 100,000 shares issuable upon the exercise of stock options to be
granted on the date of this Prospectus which are not exercisable within 60
days of the date hereof.
(3) Excludes 62,500 shares issuable upon the exercise of stock options to be
granted on the date of this Prospectus which are not exercisable within 60
days of the date hereof.
(4) Excludes 15,000 shares issuable upon the exercise of stock options to be
granted on the date of this Prospectus which are not exercisable within 60
days of the date hereof.
69
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, no par value per share, and 10,000,000 shares of Preferred
Stock, no par value per share, of which 443,489 were shares of Series A
Preferred Stock and are not available for reissuance. Immediately prior to the
consummation of the Offering, the Company will have outstanding 2,338,701 shares
of Common Stock, including 1,184,468 shares to be issued in connection with the
Acquisition (based on an assumed initial public offering price of $13.00 per
share). Upon completion of the Offering and assuming the issuance of 3,100,000
shares of Common Stock pursuant to the Acquisitions, the Company will have
outstanding 5,438,727 shares of Common Stock (5,903,727 shares if the
over-allotment option is exercised in full), based on an assumed initial public
offering price of $13.00 per share. All shares of Series A Preferred Stock will
be converted into Common Stock upon completion of the Offering. As of September
11, 1997, there were 21 record holders of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Subject to applicable provisions of the BCL, shareholders holding a
majority of the shares of Common Stock constitute a quorum for the purposes of
convening a shareholders' meeting. Accordingly, a majority of the quorum may
elect all the directors standing for election. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared on the
Common Stock by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to receive ratably the net assets of the Company
available for distribution after the payment of all debts and other liabilities
of the Company, subject to prior and superior rights of holders of Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered hereby, when issued and paid for, will be, fully paid and nonassessable.
PREFERRED STOCK
After completion of the Offering, the Company may issue up to 9,556,511
shares of Preferred Stock in one or more series and to fix and determine the
relative rights, preferences and limitations of each class or series so
authorized without any further vote or action by the shareholders. The Board of
Directors may issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock and have
the effect of delaying or preventing a change in the control of the Company. As
of the date of this Prospectus, no shares of Preferred Stock are outstanding.
The Company has no current intention to issue any shares of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES, BYLAWS AND PENNSYLVANIA LAW
Articles of Incorporation and Bylaws. The Bylaws provide that the Board of
Directors will be divided into three classes of directors, each class
constituting approximately one-third of the total number of directors and with
the classes serving staggered three year terms. The Bylaws provide that the
Company's shareholders may call a special meeting of shareholders only upon a
request of shareholders owning at least 50% of the Company's capital stock.
These provisions of the Articles and Bylaws could discourage potential
acquisition proposals and could delay, defer or prevent a change in control of
the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of
70
<PAGE>
discouraging others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company.
Pennsylvania Anti-Takeover Laws. The BCL contains a number of statutory
"anti-takeover" provisions applicable to the Company. One of these BCL
provisions prohibits, subject to certain exceptions, a "business combination"
with a shareholder or group of shareholders (and certain affiliates and
associates of such shareholders) beneficially owning more than 20% of the voting
power of a public corporation (an "interested shareholder") for a five-year
period following the date on which the holder became an interested shareholder.
This provision may discourage open market purchases of a corporation's stock or
a non-negotiated tender or exchange offer for such stock and, accordingly, may
be considered disadvantageous by a shareholder who would desire to participate
in any such transaction. The BCL also provides that directors may, in
discharging their duties, consider the interests of a number of different
constituencies, including shareholders, employees, suppliers, customers,
creditors and the community in which it is located. Directors are not required
to consider the interests of shareholders to a greater degree than other
constituencies' interests. The BCL expressly provides that directors do not
violate their fiduciary duties solely by relying on poison pills or the anti-
takeover provisions of the BCL.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Company's Bylaws provide that a director shall not be liable to the
Company for monetary damages as such for any action taken or omitted unless the
director breaches or fails to perform a duty of his office and that breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
This limitation does not apply to criminal liability or liability for the
payment of taxes. The Company believes that this provision will assist it in
securing and maintaining the services of directors who are not employees of the
Company. The Company's Bylaws also provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law for expenses
(including attorneys' fees) incurred as a result of the officer's or director's
status as an officer or director of the Company.
The Company intends to purchase insurance to afford officers and directors
coverage for losses arising from claims based on breaches of duty, negligence,
error and other wrongful acts.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Stock Trans, Inc.,
Ardmore, Pennsylvania.
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,438,727 shares of
Common Stock outstanding. Of these shares, the 3,100,000 shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below.
The remaining 2,338,727 shares of Common Stock are deemed "restricted
shares" under Rule 144. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act,
contractual restrictions for one year after consummation of the Offering with
respect to shares issued in connection with the Acquisitions (except for
transfers to immediate family bound by such restrictions), and lock-up
agreements under which the holders of all shares issued prior to completion of
the Offering have agreed not to sell or otherwise dispose of any of their shares
publicly for a period of 180 days after the effective date of the Offering
without the prior written consent of William Blair & Company, L.L.C. Because of
these restrictions, on the date of this Prospectus, no shares other than the
3,100,000 shares offered hereby will be eligible for sale. Notwithstanding the
preceding, recipients of shares of Common Stock pursuant to the Acquisitions and
all current shareholders have been granted certain "piggyback" registration
rights permitting them to include their shares in certain future registration
statements filed by the Company.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the Offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an Affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 54,387 shares after giving effect to the Offering) or the average
weekly trading volume of the Common Stock as reported through the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales under
Rule 144 of the Securities Act are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
the Company. In addition, under Rule 144(k) of the Securities Act, a person who
is not an Affiliate of the Company at any time 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following the Offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act.
Promptly after consummation of the Offering, the Company intends to
register on a registration statement on Form S-8 a total of 850,000 shares of
Common Stock reserved for issuance under the Stock Incentive Plans and to
register on a registration statement a total of 2,000,000 shares of Common Stock
for use as consideration in future acquisitions. Such shares when issued and
registered will be eligible for resale in the public market.
72
<PAGE>
UNDERWRITING
The several Underwriters named below (the "Underwriters"), for whom William
Blair & Company, L.L.C. and Janney Montgomery Scott Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement by and among the
Company and the Representatives (the "Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the
respective number of shares of Common Stock (excluding the over-allotment
shares) set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
William Blair & Company, L.L.C..............................
Janney Montgomery Scott Inc.................................
---------
Total............................................ 3,100,000
=========
</TABLE>
The nature of the Underwriters' obligations under the Underwriting
Agreement is such that all shares of Common Stock being offered, excluding
shares covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased. In the event of a default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters pertaining to the Underwriting
Agreement may be increased or such Underwriting Agreement may be terminated.
The Representatives have advised the Company that they propose to offer the
Common Stock to the public initially at the public offering price set forth on
the cover page of this Prospectus and to selected dealers at such price less a
concession of not more than $ per share. Additionally, the Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the initial public offering of the Common
Stock, the public offering price and other selling terms may be changed by the
Representatives.
The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 465,000
shares of Common Stock at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any of such additional shares pursuant to this option, each Underwriter will be
committed to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the shares of Common Stock offered hereby.
The Company, the Company's directors and officers, and the existing
shareholders of the Company have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities exercisable
for or convertible into Common Stock for a period of 180 days after
73
<PAGE>
the effective date of the Registration Statement of which this Prospectus is a
part without the written consent of William Blair & Company, L.L.C., except for
the sale by the Company of shares of Common Stock in the Offering, in the
Acquisitions and in other acquisition transactions (so long as the persons
receiving such Common Stock agree to be similarly restricted for the remainder
of the 180 day lock-up period). The recipients of shares of Common Stock
pursuant to the Acquisitions have agreed not to offer, sell or otherwise dispose
of such shares until one year after the closing of the Acquisitions. See "Shares
Eligible for Future Sale."
There has been no public market for the shares of Common Stock prior to the
Offering. The initial public offering price for the Common Stock will be
determined by negotiations among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, revenues and earnings of the Company,
estimates of the Company's business potential and prospects, the present state
of the business operations of the Founding Companies, an assessment of the
Company's management and the consideration of the above factors in relation to
the market valuations of companies in related businesses.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
The Representatives have informed the Company that the Underwriters will
not confirm, without customer authorization, sales to their customer accounts as
to which they have discretionary authority.
Certain persons associated with William Blair & Company, L.L.C. purchased
an aggregate of 63,462 shares of Common Stock for an aggregate purchase price of
$300,000 in connection with the September Financing. Under applicable National
Association of Securities Dealers, Inc. rules governing compensation to
underwriters, the difference between the price paid for such shares of Common
Stock and the initial public offering price may be deemed to be compensation to
the Underwriters. These unregistered securities generally may not be sold,
assigned, pledged or otherwise transferred for a period of one year following
the Offering.
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include stabilizing and
over-allotment transactions and purchases to cover short positions created by
the Underwriters in connection with the Offering. Stabilizing transactions
consist of certain bids for, or the purchase of Common Stock on behalf of the
Underwriters for the purpose of stabilizing or retarding a decline in the market
price of the Common Stock. The Underwriters may over-allot or otherwise create a
short position in the Common Stock by selling a greater number of shares of
Common Stock than they are required to purchase from the Company pursuant to the
Underwriting Agreement. Syndicate covering transactions consist of certain bids
for, or the purchase of, Common Stock on behalf of the Underwriters to reduce a
short position incurred by the Underwriters in connection with the Offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the securities sold in the Offering may be
reclaimed by the Underwriters if such shares of Common Stock are repurchased by
the Underwriters in stabilizing or syndicate covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market or
otherwise.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper, Hamilton & Scheetz LLP. Certain legal matters
will be passed upon for the Underwriters by Sonnenschein Nath & Rosenthal,
Chicago, Illinois.
74
<PAGE>
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to their report on AMMCORP
which includes an explanatory paragraph regarding AMMCORP's ability to continue
as a going concern.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Securities and Exchange Act (the "Exchange Act"). As a result of the Offering,
the Company will be required to file reports and other information with the
Commission pursuant to the informational requirements of the Exchange Act. In
addition, the Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by an independent public
accounting firm.
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.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the Common Stock,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement. The Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of the Registration Statement may be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at such address, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's site
on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
-----
IMAGEMAX, INC. AND FOUNDING COMPANIES UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS:
Basis of Presentation.................................. F-3
Unaudited Pro Forma Combined Balance Sheet............. F-4
Unaudited Pro Forma Combined Statements of
Operations........................................... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements........................................... F-8
IMAGEMAX, INC. (IMAGEMAX):
Report of Independent Public Accountants............... F-17
Balance Sheets......................................... F-18
Statements of Operations............................... F-19
Statements of Shareholders' Equity..................... F-20
Statements of Cash Flows............................... F-21
Notes to Financial Statements.......................... F-22
FOUNDING COMPANIES:
UTZ MEDICAL ENTERPRISES, INC. (AMMCORP):
Report of Independent Public Accountants............... F-26
Consolidated Balance Sheets............................ F-27
Consolidated Statements of Operations.................. F-28
Consolidated Statements of Stockholders' Deficit....... F-29
Consolidated Statements of Cash Flows.................. F-30
Notes to Consolidated Financial Statements............. F-31
CODALEX MICROFILMING CORPORATION (CMC) AND IMAGING INFORMATION
INDUSTRIES, INC.(I(3)) (Together, CODALEX):
Report of Independent Public Accountants............... F-37
Combined Balance Sheets................................ F-38
Combined Statements of Operations...................... F-39
Combined Statements of Stockholders' Equity
(Deficit)............................................ F-40
Combined Statements of Cash Flows...................... F-41
Notes to Combined Financial Statements................. F-42
LASER GRAPHICS SYSTEMS & SERVICES, INC. (LASER GRAPHICS),
AN AFFILIATE OF CODALEX:
Report of Independent Public Accountants............... F-46
Balance Sheets......................................... F-47
Statements of Operations............................... F-48
Statements of Stockholders' Equity (Deficit)........... F-49
Statements of Cash Flows............................... F-50
Notes to Financial Statements.......................... F-51
DATALINK CORPORATION (DATALINK):
Report of Independent Public Accountants............... F-55
Balance Sheets......................................... F-56
Statements of Operations............................... F-57
Statements of Stockholders' Equity..................... F-58
Statements of Cash Flows............................... F-59
Notes to Financial Statements.......................... F-60
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC. (DOCUTECH)
Report of Independent Public Accountants............... F-65
Combined Balance Sheets................................ F-66
Combined Statements of Operations...................... F-67
Combined Statements of Stockholders' Equity............ F-68
Combined Statements of Cash Flows...................... F-69
Notes to Combined Financial Statements................. F-70
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
PAGE
-----
IMAGE & INFORMATION SOLUTIONS, INC. (I(2) Solutions):
Report of Independent Public Accountants............... F-75
Consolidated Balance Sheets............................ F-76
Consolidated Statements of Operations.................. F-77
Consolidated Statements of Stockholders' Equity........ F-78
Consolidated Statements of Cash Flows.................. F-79
Notes to Consolidated Financial Statements............. F-80
IMAGE MEMORY SYSTEMS, INC. (IMS):
Report of Independent Public Accountants............... F-85
Balance Sheets......................................... F-86
Statements of Operations............................... F-87
Statements of Shareholders' Equity..................... F-86
Statements of Cash Flows............................... F-89
Notes to Financial Statements.......................... F-90
INTERNATIONAL DATA SERVICES OF NEW YORK, INC. (IDS):
Report of Independent Public Accountants............... F-95
Balance Sheets......................................... F-96
Statements of Operations............................... F-97
Statements of Shareholders' Equity..................... F-98
Statements of Cash Flows............................... F-99
Notes to Financial Statements.......................... F-100
OREGON MICRO-IMAGING, INC. (OMI):
Report of Independent Public Accountants............... F-104
Balance Sheets......................................... F-105
Statements of Operations............................... F-106
Statements of Stockholders' Equity..................... F-107
Statements of Cash Flows............................... F-108
Notes of Financial Statements.......................... F-109
SEMCO INDUSTRIES, INC. (SPAULDING):
Report of Independent Public Accountants............... F-114
Consolidated Balance Sheets............................ F-115
Consolidated Statements of Operations.................. F-116
Consolidated Statements of Stockholders' Deficit....... F-117
Consolidated Statements of Cash Flows.................. F-118
Notes to Consolidated Financial Statements............. F-119
TOTAL INFORMATION MANAGEMENT CORPORTION (TIMCO):
Report of Independent Public Accountants............... F-123
Balance Sheets......................................... F-124
Statements of Operations............................... F-125
Statements of Stockholders' Equity..................... F-126
Statements of Cash Flows............................... F-127
Notes to Financial Statements.......................... F-128
TPS MICROGRAPHICS, INC. (TPS):
Report of Independent Public Accountants............... F-133
Balance Sheets......................................... F-134
Statements of Operations............................... F-135
Statements of Stockholder's Deficit.................... F-136
Statements of Cash Flows............................... F-137
Notes to Financial Statements.......................... F-138
</TABLE>
F-2
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisitions by ImageMAX, Inc. ("ImageMAX") of Utz Medical Enterprises,
Inc., the parent of AMMCORP, by merger, CMC by merger, Laser Graphics by
merger, I(3) by net asset acquisition, DDS by merger, DTI by net asset
acquisition, I(2) Solutions by merger, IMS by stock acquisition, IDS by merger,
OMI by merger, TPS by stock acquisition, DataLink by net asset acquisition,
Spaulding (a wholly-owned subsidiary of SEMCO Industries, Inc.) by net asset
acquisition, and TIMCO by net asset acquisition, (together, the "Founding
Companies"). These acquisitions (the "Acquisitions") will occur simultaneously
with and as a condition to the closing of ImageMAX's initial public offering
(the "Offering") and will be accounted for using the purchase method of
accounting. ImageMAX has been identified as the accounting acquirer for
financial statement presentation purposes.
The unaudited pro forma combined balance sheet as of June 30, 1997 gives
effect to the Acquisitions and the Offering as if they had occurred on June 30,
1997. The unaudited pro forma combined statements of operations give effect to
these transactions as if they had occurred on January 1, 1996.
ImageMAX has preliminarily analyzed the savings that it expects to realize
from reductions in salaries and certain benefits to the owners of the Founding
Companies. To the extent the owners have agreed prospectively to reductions in
salary, bonuses and benefits, these reductions have been reflected in the pro
forma combined statements of operations (the "Compensation Differential"). With
respect to other potential cost savings, the statements include the compensation
costs associated with positions eliminated or which will be eliminated in
connection with the Acquisitions, including the retirement of former Senior
Founding Company executives and other identified head-count reductions totalling
approximately $650,000, $400,000 and $250,000 for the year ended December 31,
1996 and for the six months ended June 30, 1996 and 1997, respectively. The
statements exclude compensation of $610,000 annually based upon employment
agreements with ImageMAX's executive management and other costs associated with
being a public company.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
ImageMAX's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and is not necessarily
representative of ImageMAX's financial position or results of operations for any
future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere herein.
F-3
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
----------------------------------------------------------------------
CODALEX I(2)
IMAGEMAX AMMCORP GROUP DATALINK DOCUTECH SOLUTIONS IMS
--------- ------- ------- -------- -------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................ $ 15 $ -- $ 41 $ 268 $152 $1,074 $ 77
Accounts receivable...................... -- 999 848 358 520 562 533
Inventories.............................. -- 138 230 37 6 437 11
Prepaid expenses and other............... 230 65 132 11 14 133 42
---- ------ ------ ------ ---- ------ ----
Total current assets................... 245 1,202 1,251 674 692 2,206 663
PROPERTY AND EQUIPMENT, net............... -- 1,798 452 979 114 698 129
INTANGIBLES, primarily goodwill........... 25 316 4 -- -- -- 54
OTHER..................................... -- 47 -- 31 -- -- 15
---- ------ ------ ------ ---- ------ ----
Total assets........................... $270 $3,363 $1,707 $1,684 $806 $2,904 $861
==== ====== ====== ====== ==== ====== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current portion of
long-term debt......................... $ -- $2,879 $ 600 $ 84 $ 10 $ 80 $192
Accounts payable......................... -- 386 501 113 59 127 90
Accrued expenses......................... 45 712 209 129 104 738 125
Deferred revenue......................... -- 147 33 -- 109 -- --
Deferred income taxes.................... -- -- -- -- -- -- --
Pro forma cash due Founding Companies.... -- -- -- -- -- -- --
Other current liabilities................ -- -- 190 -- -- -- --
---- ------ ------ ------ ---- ------ ----
Total current liabilities.............. 45 4,124 1,533 326 282 945 407
---- ------ ------ ------ ---- ------ ----
DEFERRED INCOME TAXES..................... -- -- -- -- -- 3 --
LONG-TERM DEBT............................ -- 268 190 833 5 384 169
OTHER LONG-TERM LIABILITIES............... -- -- -- -- -- -- --
---- ------ ------ ------ ---- ------ ----
Total liabilities...................... 45 4,392 1,723 1,159 287 1,332 576
---- ------ ------ ------ ---- ------ ----
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock.......................... 179 -- -- -- -- -- --
Common stock............................. 236 1 10 40 10 1 100
Additional paid-in-capital............... -- 98 139 -- -- -- --
Retained earnings (deficit).............. (190) (1,128) (165) 485 509 1,640 468
Treasury stock........................... -- -- -- -- -- (69) (283)
---- ------ ------ ------ ---- ------ ----
Total shareholders' equity (deficit)... 225 (1,029) (16) 525 519 1,572 285
---- ------ ------ ------ ---- ------ ----
Total liabilities and shareholders'
equity (deficit)..................... $270 $3,363 $1,707 $1,684 $806 $2,904 $861
==== ====== ====== ====== ==== ====== ====
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
-------------------------------------------
PRO FORMA PRO FORMA POST MERGER
IDS OMI SPAULDING TIMCO TPS ADJUSTMENTS COMBINED ADJUSTMENTS
---- ------ --------- ------ ------ ----------- --------- -----------
(NOTE 3) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................ $309 $ 1 $ 170 $ 35 $ -- $ 1,101 $ 3,243 $ 1,223
Accounts receivable...................... 452 448 1,544 749 868 -- 7,881 --
Inventories.............................. -- 413 580 -- 137 -- 1,989 --
Prepaid expenses and other............... 44 46 99 60 51 (133) 794 --
---- ------ ------ ------ ------ ------- ------- -------
Total current assets................... 805 908 2,393 844 1,056 968 13,907 1,223
PROPERTY AND EQUIPMENT, net............... 63 350 1,101 270 334 (1,651) 4,637 --
INTANGIBLES, primarily goodwill........... -- -- -- 130 21 33,269 33,819 --
OTHER..................................... 2 -- 136 -- 49 -- 280 --
---- ------ ------ ------ ------ ------- ------- -------
Total assets........................... $870 $1,258 $3,630 $1,244 $1,460 $32,586 $52,643 $ 1,223
==== ====== ====== ====== ====== ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current portion of
long-term debt......................... $ -- $ 142 $ 171 $ 93 $ 527 $ (344) $ 4,434 $(4,434)
Accounts payable......................... 145 175 513 91 389 29 2,618 --
Accrued expenses......................... 355 178 399 312 117 2,497 5,920 (2,250)
Deferred revenue......................... -- 178 624 -- 20 -- 1,111 --
Deferred income taxes.................... -- -- -- -- -- -- -- --
Pro forma cash due Founding Companies.... -- -- -- -- -- 26,276 26,276 (26,276)
Other current liabilities................ -- -- -- -- -- -- 190 (190)
---- ------ ------ ------ ------ ------- ------- -------
Total current liabilities.............. 500 673 1,707 496 1,053 28,458 40,549 (33,150)
---- ------ ------ ------ ------ ------- ------- -------
DEFERRED INCOME TAXES..................... 8 25 -- -- 13 -- 49 --
LONG-TERM DEBT............................ -- 35 -- 191 547 (1,266) 1,356 (1,356)
OTHER LONG-TERM LIABILITIES............... -- -- 2,337 -- -- (2,337) -- --
---- ------ ------ ------ ------ ------- ------- -------
Total liabilities...................... 508 733 4,044 687 1,613 24,855 41,954 (34,506)
---- ------ ------ ------ ------ ------- ------- -------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock.......................... -- -- 60 -- -- (239) -- --
Common stock............................. 10 10 696 46 1 13,718 14,879 36,229
Additional paid-in-capital............... -- -- 847 123 225 (1,432) -- --
Retained earnings (deficit).............. 352 515 138 388 171 (7,373) (4,190) (500)
Treasury stock........................... -- -- (2,155) -- (550) 3,057 -- --
---- ------ ------ ------ ------ ------- ------- -------
Total shareholders' equity (deficit)... 362 525 (414) 557 (153) 7,731 10,689 35,729
---- ------ ------ ------ ------ ------- ------- -------
Total liabilities and shareholders'
equity (deficit)..................... $870 $1,258 $3,630 $1,244 $1,460 $32,586 $52,643 $ 1,223
==== ====== ====== ====== ====== ======= ======= =======
<CAPTION>
AS
ADJUSTED
--------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................ $ 4,466
Accounts receivable...................... 7,881
Inventories.............................. 1,989
Prepaid expenses and other............... 794
-------
Total current assets................... 15,130
PROPERTY AND EQUIPMENT, net............... 4,637
INTANGIBLES, primarily goodwill........... 33,819
OTHER..................................... 280
-------
Total assets........................... $53,866
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current portion of
long-term debt......................... $ --
Accounts payable......................... 2,618
Accrued expenses......................... 3,670
Deferred revenue......................... 1,111
Deferred income taxes.................... --
Pro forma cash due Founding Companies.... --
Other current liabilities................ --
-------
Total current liabilities.............. 7,399
-------
DEFERRED INCOME TAXES..................... 49
LONG-TERM DEBT............................ --
OTHER LONG-TERM LIABILITIES............... --
-------
Total liabilities...................... 7,448
-------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock.......................... --
Common stock............................. 51,108
Additional paid-in-capital............... --
Retained earnings (deficit).............. (4,690)
Treasury stock........................... --
-------
Total shareholders' equity (deficit)... 46,418
-------
Total liabilities and shareholders'
equity (deficit)..................... $53,866
=======
</TABLE>
F-4
The accompanying notes are an integral part of this statement.
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
------------------------------------------------------------------------
CODALEX I(2)
IMAGEMAX AMMCORP GROUP DATALINK DOCUTECH SOLUTIONS IMS
--------- ------- ------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services........................ $ -- $2,781 $1,856 $1,285 $ 580 $1,285 $1,309
Products........................ -- -- 771 427 827 1,001 93
----- ------ ------ ------ ------ ------ ------
-- 2,781 2,627 1,712 1,407 2,286 1,402
----- ------ ------ ------ ------ ------ ------
COST OF REVENUES:
Services........................ -- 1,684 1,230 796 267 518 684
Products........................ -- -- 597 357 273 748 87
Depreciation.................... -- 172 49 104 18 84 35
----- ------ ------ ------ ------ ------ ------
-- 1,856 1,876 1,257 558 1,350 806
----- ------ ------ ------ ------ ------ ------
Gross profit.................. -- 925 751 455 849 936 596
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 167 692 410 232 380 855 286
AMORTIZATION OF INTANGIBLE
ASSETS.......................... -- 105 1 -- -- -- --
----- ------ ------ ------ ------ ------ ------
Operating income (loss)....... (167) 128 340 223 469 81 310
INTEREST EXPENSE................. -- 165 62 62 2 49 19
INTEREST INCOME.................. -- -- -- (1) -- (38) (1)
----- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes....................... (167) (37) 278 162 467 70 292
INCOME TAX PROVISION (BENEFIT)... -- 68 2 -- -- 27 19
----- ------ ------ ------ ------ ------ ------
NET INCOME (LOSS)................ $(167) $ (105) $ 276 $ 162 $ 467 $ 43 $ 273
===== ====== ====== ====== ====== ====== ======
PRO FORMA NET INCOME PER SHARE
(Note 8)........................
SHARES USED IN COMPUTING PRO
FORMA NET INCOME PER SHARE (Note
8)..............................
SUPPLEMENTAL PRO FORMA DATA (Note 9):
Operating income (loss), as
reported...................... $(167) $ 128 $ 340 $ 223 $ 469 $ 81 $ 310
Pro forma operating adjustments
(Note 9)...................... -- 182 -- 18 (74) 94 (1)
----- ------ ------ ------ ------ ------ ------
(167) 310 340 241 395 175 309
Pro forma amortization of
intangibles................... -- 48 38 51 135 66 43
----- ------ ------ ------ ------ ------ ------
Pro forma operating income
(loss)........................ $(167) $ 262 $ 302 $ 190 $ 260 $ 109 $ 266
===== ====== ====== ====== ====== ====== ======
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
---------------------------------------------
PRO FORMA PRO FORMA
IDS OMI SPAULDING TIMCO TPS ADJUSTMENTS COMBINED
------ ------ --------- ------ ------ ----------- --------------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services........................ $1,482 $1,166 $2,514 $2,160 $1,568 $ (26) $ 17,960
Products........................ -- 937 1,963 -- 659 (48) 6,630
------ ------ ------ ------ ------ ----- --------------
1,482 2,103 4,477 2,160 2,227 (74) 24,590
------ ------ ------ ------ ------ ----- --------------
COST OF REVENUES:
Services........................ 838 1,018 1,472 1,394 985 104 10,990
Products........................ -- 507 1,459 -- 595 80 4,703
Depreciation.................... 9 53 97 42 75 (43) 695
------ ------ ------ ------ ------ ----- --------------
847 1,578 3,028 1,436 1,655 141 16,388
------ ------ ------ ------ ------ ----- --------------
Gross profit.................. 635 525 1,449 724 572 (215) 8,202
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 362 368 1,371 481 469 (677) 5,396
AMORTIZATION OF INTANGIBLE
ASSETS.......................... -- -- -- 16 -- 499 621
------ ------ ------ ------ ------ ----- --------------
Operating income (loss)....... 273 157 78 227 103 (37) 2,185
INTEREST EXPENSE................. -- 11 113 28 50 (525) 36
INTEREST INCOME.................. (2) -- (2) -- -- -- (44)
------ ------ ------ ------ ------ ----- --------------
Income (loss) before income
taxes....................... 275 146 (33) 199 53 488 2,193
INCOME TAX PROVISION (BENEFIT)... -- 64 -- -- -- 844 1,024
------ ------ ------ ------ ------ ----- --------------
NET INCOME (LOSS)................ $ 275 $ 82 $ (33) $ 199 $ 53 $(356) $ 1,169
====== ====== ====== ====== ====== ===== ==============
PRO FORMA NET INCOME PER SHARE
(Note 8)........................ $ 0.23
==============
SHARES USED IN COMPUTING PRO
FORMA NET INCOME PER SHARE (Note
8).............................. 5,091,419
==============
SUPPLEMENTAL PRO FORMA DATA:
Operating income (loss), as
reported...................... $ 273 $ 157 $ 78 $ 227 $ 103 $ -- $ 2,222
Pro forma operating adjustments
(Note 9)...................... 305 (6) 12 38 16 -- 584
------ ------ ------ ------ ------ ----- --------------
578 151 90 265 119 -- 2,806
Pro forma amortization of
intangibles................... 57 37 54 53 39 -- 621
------ ------ ------ ------ ------ ----- --------------
Pro forma operating income
(loss)........................ $ 521 $ 114 $ 36 $ 212 $ 80 $ -- $ 2,185
====== ====== ====== ====== ====== ===== ==============
</TABLE>
F-5
The accompanying notes are an integral part of this statement.
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
------------------------------------------------------------------------
CODALEX I(2)
IMAGEMAX AMMCORP GROUP DATALINK DOCUTECH SOLUTIONS IMS
--------- ------- ------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services.................................... $ -- $2,727 $ 904 $1,163 $ 523 $1,249 $1,043
Products.................................... -- -- 965 457 530 899 256
----- ------ ------ ------ ------ ------ ------
-- 2,727 1,869 1,620 1,053 2,148 1,299
----- ------ ------ ------ ------ ------ ------
COST OF REVENUES:
Services.................................... -- 1,756 619 837 225 483 819
Products.................................... -- -- 725 410 314 690 186
Depreciation................................ -- 206 38 104 16 80 43
----- ------ ------ ------ ------ ------ ------
-- 1,962 1,382 1,351 555 1,253 1,048
----- ------ ------ ------ ------ ------ ------
Gross profit.............................. -- 765 487 269 498 895 251
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... -- 633 479 213 361 700 329
AMORTIZATION OF INTANGIBLE ASSETS............ -- 102 2 -- -- -- --
----- ------ ------ ------ ------ ------ ------
Operating income (loss)................... -- 30 6 56 137 195 (78)
INTEREST EXPENSE............................. -- 172 43 42 9 49 19
INTEREST INCOME.............................. -- -- -- (1) -- (42) --
----- ------ ------ ------ ------ ------ ------
Income (loss) before income taxes......... -- (142) (37) 15 128 188 (97)
INCOME TAX PROVISION (BENEFIT)............... -- 18 26 -- -- 71 (21)
----- ------ ------ ------ ------ ------ ------
NET INCOME (LOSS)............................ $ -- $ (160) $ (63) $ 15 $ 128 $ 117 $ (76)
===== ====== ====== ====== ====== ====== ======
PRO FORMA NET LOSS PER SHARE (NOTE 8)........
SHARES USED IN COMPUTING PRO FORMA NET LOSS
PER SHARE (NOTE 8)..........................
SUPPLEMENTAL PRO FORMA DATA (Note 9):
Operating income (loss), as reported........ $ -- $ 30 $ 6 $ 56 $ 137 $ 195 $ (78)
Pro forma operating adjustments (Note 9).... -- 199 (18) 19 (29) 32 (1)
----- ------ ------ ------ ------ ------ ------
-- 229 (12) 75 108 227 (79)
Pro forma amortization of intangibles....... -- 48 38 51 135 66 43
----- ------ ------ ------ ------ ------ ------
Pro forma operating income (loss)........... $ -- $ 181 $ (50) $ 24 $ (27) $ 161 $ (122)
===== ====== ====== ====== ====== ====== ======
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
--------------------------------------------
PRO FORMA PRO FORMA
IDS OMI SPAULDING TIMCO TPS ADJUSTMENTS COMBINED
----- ------ --------- ------ ------ ----------- ---------------
(NOTE 6)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services.................................... $ 502 $1,184 $2,357 $2,306 $ 995 $ (30) $ 14,923
Products.................................... -- 683 1,980 -- 487 (23) 6,234
----- ------ ------ ------ ------ ----- ---------------
502 1,867 4,337 2,306 1,482 (53) 21,157
----- ------ ------ ------ ------ ----- ---------------
COST OF REVENUES:
Services.................................... 375 911 1,309 1,525 667 78 9,604
Products.................................... -- 364 1,555 -- 410 85 4,739
Depreciation................................ 7 33 108 56 46 (38) 699
----- ------ ------ ------ ------ ----- ---------------
382 1,308 2,972 1,581 1,123 125 15,042
----- ------ ------ ------ ------ ----- ---------------
Gross profit.............................. 120 559 1,365 725 359 (178) 6,115
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 207 328 1,756 526 334 (233) 5,633
AMORTIZATION OF INTANGIBLE ASSETS............ -- -- -- 19 -- 498 621
----- ------ ------ ------ ------ ----- ---------------
Operating income (loss)................... (87) 231 (391) 180 25 (443) (139)
INTEREST EXPENSE............................. 8 10 106 52 38 (509) 39
INTEREST INCOME.............................. (1) -- (29) -- -- 26 (47)
----- ------ ------ ------ ------ ----- ---------------
Income (loss) before income taxes......... (94) 221 (468) 128 (13) 40 (131)
INCOME TAX PROVISION (BENEFIT)............... 5 76 -- -- -- (62) 113
----- ------ ------ ------ ------ ----- ---------------
NET INCOME (LOSS)............................ $ (99) $ 145 $ (468) $ 128 $ (13) $ 102 $ (244)
===== ====== ====== ====== ====== ===== ===============
PRO FORMA NET LOSS PER SHARE (NOTE 8)........ $ (.05)
===============
SHARES USED IN COMPUTING PRO FORMA NET LOSS
PER SHARE (NOTE 8).......................... 5,091,419
===============
SUPPLEMENTAL PRO FORMA DATA (NOTE 9):
Operating income (loss), as reported........ $ (87) $ 231 $ (391) $ 180 $ 25 $ -- $ 304
Pro forma operating adjustments (Note 9).... 21 (18) (94) 61 6 -- 178
----- ------ ------ ------ ------ ----- ---------------
(66) 213 (485) 241 31 -- 482
Pro forma amortization of intangibles....... 57 37 54 53 39 -- 621
----- ------ ------ ------ ------ ----- ---------------
Pro forma operating income (loss)........... $(123) $ 176 $ (539) $ 188 $ (8) $ -- $ (139)
===== ====== ====== ====== ====== ===== ===============
</TABLE>
F-6
The accompanying notes are an integral part of this statement.
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
------------------------------------------------------------------------
CODALEX I(2)
IMAGEMAX AMMCORP GROUP DATALINK DOCUTECH SOLUTIONS IMS
--------- ------- ------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services......................... $ -- $5,573 $2,404 $2,286 $1,249 $2,384 $1,935
Products......................... -- -- 1,653 865 1,073 1,575 357
---- ------ ------ ------ ------ ------ ------
-- 5,573 4,057 3,151 2,322 3,959 2,292
---- ------ ------ ------ ------ ------ ------
COST OF REVENUES:
Services......................... -- 3,381 1,814 1,593 501 1,023 1,564
Products......................... -- -- 1,193 773 584 1,229 258
Depreciation..................... -- 446 88 218 31 157 84
---- ------ ------ ------ ------ ------ ------
-- 3,827 3,095 2,584 1,116 2,409 1,906
---- ------ ------ ------ ------ ------ ------
Gross profit................... -- 1,746 962 567 1,206 1,550 386
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES......................... 23 1,419 1,082 467 747 1,673 604
AMORTIZATION OF INTANGIBLE
ASSETS........................... -- 208 2 -- -- -- --
---- ------ ------ ------ ------ ------ ------
Operating income (loss)........ (23) 119 (122) 100 459 (123) (218)
INTEREST EXPENSE.................. -- 344 76 107 16 95 37
INTEREST INCOME/OTHER............. -- -- -- (2) (3) (94) (2)
---- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes........................ (23) (225) (198) (5) 446 (124) (253)
INCOME TAX PROVISION (BENEFIT).... -- 44 45 -- -- (59) (53)
---- ------ ------ ------ ------ ------ ------
NET INCOME (LOSS)................. $(23) $ (269) $ (243) $ (5) $ 446 $ (65) $ (200)
==== ====== ====== ====== ====== ====== ======
PRO FORMA NET LOSS PER SHARE (NOTE
8)...............................
SHARES USED IN COMPUTING PRO FORMA
NET LOSS PER SHARE (NOTE 8)......
SUPPLEMENTAL PRO FORMA DATA:
Operating income (loss), as
reported....................... $(23) $ 119 $ (122) $ 100 $ 459 $ (123) $ (218)
Pro forma operating adjustments
(Note 9)....................... -- 409 (37) 40 (39) 386 1
---- ------ ------ ------ ------ ------ ------
(23) 528 (159) 140 420 263 (217)
Pro forma amortization of
intangibles.................... -- 97 77 102 270 131 86
---- ------ ------ ------ ------ ------ ------
Pro forma operating income
(loss)......................... $(23) $ 431 $ (236) $ 38 $ 150 $ 132 $ (303)
==== ====== ====== ====== ====== ====== ======
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
---------------------------------------------
PRO FORMA PRO FORMA
IDS OMI SPAULDING TIMCO TPS ADJUSTMENTS COMBINED
------ ------ --------- ------ ------ ----------- ----------
(NOTE 7)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Services......................... $1,431 $2,385 $4,862 $4,991 $2,137 $ (61) $ 31,576
Products......................... -- 1,281 3,831 -- 1,078 (33) 11,680
------ ------ ------ ------ ------ ------- ----------
1,431 3,666 8,693 4,991 3,215 (94) 43,256
------ ------ ------ ------ ------ ------- ----------
COST OF REVENUES:
Services......................... 1,017 1,996 2,583 3,276 1,371 173 20,292
Products......................... -- 748 3,044 -- 921 198 8,948
Depreciation..................... 15 107 190 76 77 (81) 1,408
------ ------ ------ ------ ------ ------- ----------
1,032 2,851 5,817 3,352 2,369 290 30,648
------ ------ ------ ------ ------ ------- ----------
Gross profit................... 399 815 2,876 1,639 846 (384) 12,608
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES......................... 518 675 3,017 1,181 752 (942) 11,216
AMORTIZATION OF INTANGIBLE
ASSETS........................... -- -- -- 42 -- 994 1,246
------ ------ ------ ------ ------ ------- ----------
Operating income (loss)........ (119) 140 (141) 416 94 (436) 146
INTEREST EXPENSE.................. 14 16 205 99 84 (993) 100
INTEREST INCOME/OTHER............. (2) 11 (32) -- -- 26 (98)
------ ------ ------ ------ ------ ------- ----------
Income (loss) before income
taxes........................ (131) 113 (314) 317 10 531 144
INCOME TAX PROVISION (BENEFIT).... 5 37 -- -- -- 367 386
------ ------ ------ ------ ------ ------- ----------
NET INCOME (LOSS)................. $ (136) $ 76 $ (314) $ 317 $ 10 $ 164 $ (242)
====== ====== ====== ====== ====== ======= ==========
PRO FORMA NET LOSS PER SHARE (NOTE
8)............................... $ (.05)
==========
SHARES USED IN COMPUTING PRO FORMA
NET LOSS PER SHARE (NOTE 8)...... 5,091,419
==========
SUPPLEMENTAL PRO FORMA DATA:
Operating income (loss), as
reported....................... $ (119) $ 140 $ (141) $ 416 $ 94 $ -- $ 582
Pro forma operating adjustments
(Note 9)....................... 78 18 (178) 105 27 -- 810
------ ------ ------ ------ ------ ------- ----------
(41) 158 (319) 521 121 -- 1,392
Pro forma amortization of
intangibles.................... 115 75 108 106 78 -- 1,246
------ ------ ------ ------ ------ ------- ----------
Pro forma operating income
(loss)......................... $ (156) $ 83 $ (427) $ 415 $ 43 $ -- $ 146
====== ====== ====== ====== ====== ======= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
ImageMAX was founded in November 1996 to become a leading national,
single-source provider of integrated document management solutions. ImageMAX has
conducted no operations to date and will acquire the Founding Companies
concurrently with and as a condition of the closing of this Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. The financial data for the
Founding Companies (excluding I(2) Solutions) included in the pro forma combined
balance sheet are as of June 30, 1997 and in the pro forma combined statements
of operations are for the year ended December 31, 1996 and for the six months
ended June 30, 1996 and 1997. The financial data for I(2) Solutions are as of
April 30, 1997 and for the year ended October 31, 1996 and the six months ended
April 30, 1996 and 1997. The historical financial data included in the pro forma
financial statements for DataLink, DocuTech and TIMCO as of December 31, 1996
and for the year ended December 31, 1996 are derived from audited financial
statements appearing elsewhere in this Prospectus. The historical financial data
included in the pro forma combined financial statements for I(2) Solutions as of
October 31, 1996 and for the year ended October 31, 1996 are also derived from
audited financial statements appearing elsewhere in this Prospectus. The
additional historical financial data included in the pro forma combined
financial statements for DataLink, Docutech, TIMCO, I(2) Solutions and the other
Founding Companies have been derived from unaudited financial statements. The
audited historical financial statements included elsewhere herein have been
included in accordance with Securities and Exchange Commission ("SEC")
Regulation S-X, Rule 3-05.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of this Offering,
ImageMAX will acquire by merger or purchase all of the outstanding capital stock
or substantially all of the net assets of the Founding Companies. The
acquisitions will be accounted for using the purchase method of accounting, with
ImageMAX treated as the accounting acquirer.
The following table sets forth the consideration to be paid (assuming the
Acquisitions occurred on June 30, 1997) in (a) cash and (b) shares of Common
Stock to each of the Founding Companies or their shareholders. For purposes of
computing the estimated purchase price for accounting purposes, the value of the
shares is determined using an estimated fair value of $11.05 per share (or $13.1
million), which represents a discount of 15% from the assumed initial public
offering price of $13.00 per share, due to restrictions on the sale and
transferability of the shares issued. The total estimated purchase price of
$41.6 million for the Acquisitions includes $2.2 million of transaction costs
and is based upon preliminary estimates, subject to certain purchase price
adjustments at and following closing. Based on the estimated purchase price of
$41.6 million, approximately $4.0 million will be allocated to acquired
in-process research and development and will be charged to expense upon the
consummation of the Acquisitions. The remaining amount of intangible assets of
approximately $33.8 million includes approximately $33.0 million of goodwill and
$0.8 million of developed technology.
F-8
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION OF FOUNDING COMPANIES: -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AMMCORP...................................... $ 668 71,923
CodaLex Group................................ 1,303 78,412
DataLink..................................... 3,053 38,462
DocuTech..................................... 5,446 288,750
I(2) Solutions............................... 2,000 261,538
IMS.......................................... 1,976 61,538
IDS.......................................... 1,755 165,000
OMI.......................................... 1,292 117,692
Spaulding.................................... 4,500 --
Timco........................................ 2,725 59,615
TPS.......................................... 1,587 41,538
------- ---------
$26,305 1,184,468
======= =========
</TABLE>
F-9
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. UNAUDITED PRO FORMA MERGER ADJUSTMENTS TO THE JUNE 30, 1997 BALANCE SHEET:
The following table summarizes the unaudited pro forma merger combined
adjustments to the June 30, 1997 balance sheet (in thousands):
<TABLE>
<CAPTION>
PRO FORMA MERGER ADJUSTMENTS PRO FORMA
------------------------------------------------ MERGER
(A) (B) (C) (D) (E) ADJUSTMENTS
ASSETS ------- -------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 1,377 $ -- $ -- $ (276) $ -- $ 1,101
Prepaids and other.............................. -- -- (133) -- -- (133)
------- -------- ------- ------- ------- -------
Total current assets...................... 1,377 -- (133) (276) -- 968
Property and equipment, net..................... -- -- (979) (672) -- (1,651)
Intangibles, net................................ -- -- 33,049 220 -- 33,269
------- -------- ------- ------- ------- -------
Total assets.............................. $ 1,377 $ -- $31,937 $ (728) $ -- $32,586
======= ======== ======= ======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current portion of long-term debt............... $ -- $ -- $ (251) $ (93) $ -- $ (344)
Accounts payable and accrued expenses........... -- -- 2,250 276 -- 2,526
Pro forma cash due Founding Companies........... -- 26,305 -- (29) -- 26,276
------- -------- ------- ------- ------- -------
Total current liabilities................. -- 26,305 1,999 (154) -- 28,458
Long-term debt, net of current maturities....... -- -- (355) (911) -- (1,266)
Other long-term liabilities..................... -- -- (2,337) -- -- (2,337)
------- -------- ------- ------- ------- -------
Total liabilities......................... -- 26,305 (693) (757) -- 24,855
------- -------- ------- ------- ------- -------
Shareholders' equity (deficit):
Preferred stock............................... 1,077 -- (60) -- (1,256) (239)
Common stock.................................. 300 -- 12,162 -- 1,256 13,718
Additional paid-in capital.................... -- (26,305) 24,844 29 -- (1,432)
Retained earnings (deficit)................... -- -- (7,373) -- -- (7,373)
Treasury stock................................ -- -- 3,057 -- -- 3,057
------- -------- ------- ------- ------- -------
Total shareholders' equity (deficit)...... 1,377 (26,305) 32,630 29 -- 7,731
------- -------- ------- ------- ------- -------
Total liabilities and shareholders' equity
(deficit).............................. $ 1,377 $ -- $31,937 $ (728) $ -- $32,586
======= ======== ======= ======= ======= =======
</TABLE>
- ------------------
(a) Reflects the net proceeds of $1.4 million from the September 1997 sale of
227,721 shares of Series A Preferred Stock and 63,462 shares of Common
Stock (September Financing).
(b) Reflects the liability for the cash portion of the consideration to be paid
to the Founding Companies or their shareholders in connection with the
Acquisitions.
(c) Reflects the Acquisitions and the allocation of the purchase price using the
purchase method of accounting. The purchase price is estimated at $41.6
million, consisting of (i) $26.3 million in cash, (ii) 1,184,468 shares of
Common Stock valued at $11.05 per share (or $13.1 million) and (iii)
estimated transaction costs of $2.2 million (see Note 2). Excluded from net
assets acquired are certain facilities and related debt and certain other
assets and liabilities.
(d) Reflects the purchase price adjustments associated with the Acquisitions,
including estimated closing adjustments based primarily on required amounts
of shareholders' equity and working capital. In addition, the entry
reflects the elimination of a previously capitalized lease, which will
become an operating lease upon the closing of one of the Acquisitions.
(e) Reflects the conversion of 443,489 shares of Series A Preferred Stock into
443,489 shares of Common Stock.
F-10
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA POST MERGER ADJUSTMENTS TO THE JUNE 30, 1997 BALANCE
SHEET:
The following table summarizes the unaudited pro forma post merger
adjustments (which reflects the offering activity) to the balance sheet as of
June 30, 1997 (in thousands).
<TABLE>
<CAPTION>
PRO FORMA POST MERGER ADJUSTMENTS
------------------------------------------
POST MERGER
(A) (B) (C) ADJUSTMENTS
ASSETS ------- -------- ------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................... $35,729 $(28,526) $(5,980) $ 1223
------- -------- ------- -------
Total assets.......................................... $35,729 $(28,526) $(5,980) $ 1223
======= ======== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current portion of long-term debt........................... $ -- $ -- $(4,434) $(4,434)
Accrued expenses............................................ -- (2,250) -- (2,250)
Pro forma cash due Founding Companies....................... -- (26,276) -- (26,276)
Payable to shareholder/affiliate............................ -- -- (190) (190)
------- -------- ------- -------
Total current liabilities............................. -- (28,526) (4,624) (33,150)
Long-term debt, net of current maturities................... -- -- (1,356) (1,356)
------- -------- ------- -------
Total liabilities..................................... -- (28,526) (3,980) (34,506)
------- -------- ------- -------
Shareholders' equity (deficit):
Preferred stock........................................... -- -- -- --
Common stock.............................................. 36,229 -- -- 36,229
Retained earnings (deficit)............................... (500) -- -- (500)
Treasury stock............................................ -- -- -- --
------- -------- ------- -------
Total shareholders' equity (deficit).................. 35,729 -- -- 35,729
------- -------- ------- -------
Total liabilities and shareholders' equity
(deficit).......................................... $35,729 $(28,526) $(5,980) $ 1,223
======= ======== ======= =======
</TABLE>
- ------------------
(a) Reflects the net cash of $36.2 million from the sale of 3,100,000 shares of
Common Stock, net of estimated offering costs of $1.2 million (based on an
assumed initial public offering price of $13.00 per share). Offering costs
primarily consist of underwriting discounts and commissions, accounting
fees, legal fees and printing expenses. Includes a $0.5 million fee paid to
an entity owned by two ImageMAX officers to be paid upon completion of
the Offering. Such fee will be charged to the statement of operations upon
the consummation of the Offering.
(b) Reflects the payment of the cash consideration for the Acquisitions,
including estimated transaction costs.
(c) Reflects the use of a portion of the net proceeds of the Offering to repay
debt incurred by the Founding Companies.
F-11
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS -- SIX
MONTHS ENDED JUNE 30, 1997:
The following table summarizes the unaudited pro forma combined statements
of operations adjustments for the six months ended June 30, 1997 (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------ PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
---- ---- ----- ----- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................................ $(74) $ -- $ -- $ -- $ -- $ -- $ (74)
Cost of revenues................................ (74) -- 215 -- -- -- 141
Selling, general and administrative expense..... -- (666) (11) -- -- -- (677)
Amortization.................................... -- -- -- 499 -- -- 499
---- ---- ----- ----- ---- ----- -----
Operating income (loss)................... -- 666 (204) (499) -- -- (37)
Interest income................................. -- -- -- -- -- -- --
Interest expense................................ -- -- (73) -- (452) -- (525)
---- ---- ----- ----- ---- ----- -----
Income (loss) before income taxes......... -- 666 (131) (499) 452 -- 488
Income tax provision (benefit).................. -- -- -- -- -- 844 844
---- ---- ----- ----- ---- ----- -----
Net income (loss)......................... $ -- $666 $(131) $(499) $452 $(844) $(356)
==== ==== ===== ===== ==== ===== =====
</TABLE>
- ------------------
(a) Reflects the elimination of intercompany activity among the Founding
Companies.
(b) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies from an aggregate total of $1.4 million to $0.7
million to which they have contractually agreed. These reductions in
salaries, bonuses and benefits are in accordance with the terms of
employment agreements to be entered into pursuant to the Acquisitions. Such
employment agreements are primarily for three years, contain restrictions
related to competition and provide severance upon termination in certain
circumstances. Excludes $0.6 million annually of compensation based upon
employment agreements entered into with ImageMAX's executive management.
(c) Reflects the reduction in depreciation at two of the Founding Companies'
facilities, the elimination of interest expense on a capital lease and an
increase in rent expense (Rent Differential), as a result of new operating
leases to be entered into upon the closing of the Acquisitions.
(d) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions, using an estimated life of principally 30 years, and the
amortization of acquired developed technology over a seven-year estimated
life. Excludes a nonrecurring charge for acquired in-process research and
development of $4 million (see Note 2).
(e) Reflects the elimination of interest expense resulting from the reduction of
debt utilizing the net proceeds of the Offering (see Note 4, Adjustment
(c)).
(f) Reflects the incremental provision for federal and state income taxes based
on the effective tax rate that would have resulted on a C Corporation basis.
F-12
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS -- SIX
MONTHS ENDED JUNE 30, 1996:
The following table summarizes the unaudited pro forma combined statements
of operations adjustments for the year ended June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
---- ---- ----- ----- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................................... $(53) $ -- $ -- $ -- $ -- $ -- $ (53)
Cost of revenues................................. (53) -- 178 -- -- -- 125
Selling, general and administrative expense...... -- (225) (8) -- -- -- (233)
Amortization..................................... -- -- -- 498 -- -- 498
---- ---- ----- ----- ---- ---- -----
Operating income (loss).................... -- 225 (170) (498) -- -- (443)
Interest income.................................. -- 26 -- -- -- -- 26
Interest expense................................. -- -- (54) -- (455) -- (509)
---- ---- ----- ----- ---- ---- -----
Income (loss) before income taxes.......... -- 199 (116) (498) 455 -- (40)
Income tax provision (benefit)................... -- -- -- -- -- (62) (62)
---- ---- ----- ----- ---- ---- -----
Net income (loss).......................... $ -- $199 $(116) $(498) $455 $ 62 $ 102
==== ==== ===== ===== ==== ==== =====
</TABLE>
- ------------------
(a) Reflects the elimination of intercompany activity among the Founding
Companies.
(b) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies from an aggregate total of $0.9 million to $0.7
million to which they have contractually agreed. These reductions in
salaries, bonuses and benefits are in accordance with the terms of
employment agreements to be entered into pursuant to the Acquisitions. Such
employment agreements are primarily for three years, contain restrictions
related to competition and provide severance upon termination in certain
circumstances. The adjustment also reflects a reduction in interest income
due to the elimination of the Spaulding employee stock ownership plan
benefit upon the Acquisition. Excludes ImageMAX executive management
compensation (Note 5).
(c) Reflects the reduction in depreciation at two of the Founding Companies'
facilities, the elimination of interest expense on a capital lease and the
Rent Differential.
(d) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions, using an estimated life of principally 30 years, and the
amortization of acquired developed technology over a seven-year estimated
life. Excludes a nonrecurring charge for acquired in-process research and
development of $4 million (see Note 2).
(e) Reflects the elimination of interest expense resulting from the reduction of
debt from the net proceeds of the Offering (see Note 4, Adjustment (c)).
(f) Reflects the incremental provision for federal and state income taxes based
on the effective tax rate that would have resulted on a C corporation basis.
F-13
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS -- YEAR
ENDED DECEMBER 31, 1996:
The following table summarizes the unaudited pro forma combined statements
of operations adjustments for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------ PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
---- ---- ----- ----- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................................ $(94) $ -- $ -- $ -- $ -- $ -- $ (94)
Cost of revenues................................ (94) -- 384 -- -- -- 290
Selling, general and administrative expenses.... -- (902) (40) -- -- -- (942)
Amortization.................................... -- -- -- 994 -- -- 994
---- ---- ----- ----- ---- ----- ------
Operating income (loss)................... -- 902 (344) (994) -- -- (436)
Interest income................................. -- 26 -- -- -- -- 26
Interest expense................................ -- -- (129) -- (864) -- (993)
---- ---- ----- ----- ---- ----- ------
Income (loss) before income taxes......... -- 876 (215) (994) 864 -- 531
Income tax provisions (benefit)................. -- -- -- -- -- 367 367
---- ---- ----- ----- ---- ----- ------
Net income (loss)......................... $ -- $876 $(215) $(994) $864 $(367) $ 164
==== ==== ===== ===== ==== ===== ======
</TABLE>
- ------------------
(a) Reflects the elimination of intercompany activity among the Founding
Companies.
(b) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies from an aggregate total of $2.3 million to $1.4
million to which they have contractually agreed. These reductions in
salaries, bonuses and benefits are in accordance with the terms of
employment agreements to be entered into pursuant to the Acquisitions. Such
employment agreements are primarily for three years, contain restrictions
related to competition and provide severance upon termination in certain
circumstances. The adjustment also reflects the reduction in interest income
due to the elimination of the Spaulding employee stock ownership benefit
plan upon the Acquisition. Excludes ImageMAX executive management
compensation (Note 5).
(c) Reflects the reduction in depreciation at two of the Founding Companies'
facilities, the elimination of interest expense on capital leases and the
Rent Differential.
(d) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions, using an estimated life of principally 30 years, and the
amortization of acquired developed technology over a seven-year estimated
life. Excludes a nonrecurring charge for acquired in-process research and
development of $4 million (see Note 2).
(e) Reflects the elimination of interest expense resulting from the reduction of
debt from the net proceeds of the Offering (see Note 4, Adjustment (c)).
(f) Reflects the incremental provision for federal and state income taxes based
on the effective tax rate that would have resulted on a C corporation basis.
Exclude any income tax penalties (see Note 6 of the Financial Statements of
I(2) Solutions).
F-14
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. PRO FORMA NET INCOME (LOSS) PER SHARE
The shares used in computing pro forma net income (loss) per share includes
the following:
<TABLE>
<S> <C>
Outstanding shares of ImageMAX Common Stock.............. 710,770
Outstanding shares of ImageMAX Series A Preferred Stock
to be converted into Common Stock prior
to the Offering........................................ 443,489
Shares issued to owners of the Founding Companies........ 1,184,468
Shares issued in the Offering necessary to pay the cash
portion of the Acquisitions' consideration (including
expenses), paying Founding Companies' indebtedness and
expenses of the Offering............................... 2,752,692
---------
5,091,419
=========
</TABLE>
The remaining shares to be sold in the Offering have been excluded.
Outstanding options have been excluded since all such options are exercisable at
the Offering price.
F-15
<PAGE>
IMAGEMAX, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. PRO FORMA OPERATING ADJUSTMENTS
Included in the pro forma statements of operations is supplemental pro
forma data which allocates each pro forma adjustment to each Founding Company.
The following pro forma operating adjustments are presented to provide
additional information to better understand the pro forma adjustments
components:
<TABLE>
<CAPTION>
CODALEX I(2)
PRO FORMA OPERATING ADJUSTMENTS DESCRIPTION IMAGEMAX AMMCORP GROUP DATALINK DOCUTECH SOLUTIONS IMS
- ------------------------------------------- --------- ------- ------- -------- -------- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1997
1. Elimination of Intercompany Activity (Note 5, adjustment
(a))......................................... $ -- $ 25 $ -- $ 6 $(48) $ -- $--
2. Compensation Differential (Note 5, adjustment (b))... -- 52 (1) 40 (26) 147 (1)
3. Rent Differential (Note 5, adjustment (c))... -- -- -- (28) -- (53) --
4. Elimination of Intangible Amortization (Note 5,
adjustment (d)).............................. -- 105 1 -- -- -- --
----- ---- ---- --- ---- ---- ---
$ -- $182 $ -- $18 $(74) $ 94 $(1)
===== ==== ==== === ==== ==== ===
SIX MONTHS ENDED JUNE 30, 1996
1. Elimination of Intercompany Activity (Note 6, adjustment
(a))......................................... $ -- $ -- $ -- $-- $(23) $ -- $--
2. Compensation Differential (Note 6, adjustment (b))... -- 97 (11) 15 (6) 72 (1)
3. Rent Differential (Note 6, adjustment (c))... -- -- (9) 4 -- (40) --
4. Elimination of Intangible Amortization (Note 6,
adjustment (d)).............................. -- 102 2 -- -- -- --
----- ---- ---- --- ---- ---- ---
$ -- $199 $(18) $19 $(29) $ 32 $(1)
===== ==== ==== === ==== ==== ===
YEAR ENDED DECEMBER 31, 1996
1. Elimination of Intercompany Activity (Note 7, adjustment
(a))......................................... $ -- $ -- $ -- $-- $(33) $ -- $--
2. Compensation Differential (Note 7, adjustment (b))... -- 201 (22) 64 (6) 442 1
3. Rent Differential (Note 7, adjustment (c))... -- -- (17) (24) -- (56) --
4. Elimination of Intangible Amortization (Note 7,
adjustment (d)).............................. -- 208 2 -- -- -- --
----- ---- ---- --- ---- ---- ---
$ -- $409 $(37) $40 $(39) $386 $1
===== ==== ==== === ==== ==== ===
<CAPTION>
PRO FORMA OPERATING ADJUSTMENTS DES IDS OMI SPAULDING TIMCO TPS TOTAL
- ----------------------------------- ---- ---- --------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1997
1. Elimination of Intercompany Acti
(a))............................. $(26) $-- $ -- $ 3 $40 $ --
2. Compensation Differential (Note 329 13 106 19 (12) 666
3. Rent Differential (Note 5, adjus 2 (19) (94) -- (12) (204)
4. Elimination of Intangible Amorti
adjustment (d)).................. -- -- -- 16 -- 122
---- ---- ----- ---- --- -----
$305 $(6) $ 12 $ 38 $16 $ 584
==== ==== ===== ==== === =====
SIX MONTHS ENDED JUNE 30, 1996
1. Elimination of Intercompany Acti
(a))............................. $(30) $-- $ -- $ 23 $30 $ --
2. Compensation Differential (Note 49 3 -- 19 (12) 225
3. Rent Differential (Note 6, adjus 2 (21) (94) -- (12) (170)
4. Elimination of Intangible Amorti
adjustment (d)).................. -- -- -- 19 -- 123
---- ---- ----- ---- --- -----
$ 21 $(18) $ (94) $ 61 $ 6 $ 178
==== ==== ===== ==== === =====
YEAR ENDED DECEMBER 31, 1996
1. Elimination of Intercompany Acti
(a))............................. $(61) $-- $ -- $ 23 $71 $ --
2. Compensation Differential (Note 135 57 10 40 (20) 902
3. Rent Differential (Note 7, adjus 4 (39) (188) -- (24) (344)
4. Elimination of Intangible Amorti
adjustment (d)).................. -- -- -- 42 -- 252
---- ---- ----- ---- --- -----
$ 78 $18 $(178) $105 $27 $ 810
==== ==== ===== ==== === =====
</TABLE>
F-16
<PAGE>
After the reverse stock split discussed in Note 8 to the Financial Statements is
effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
September 12, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ImageMAX, Inc.:
We have audited the accompanying balance sheets of ImageMAX, Inc. (a
Pennsylvania Corporation) as of December 31, 1996 and June 30, 1997, and the
related statements of operations, shareholders' equity and cash flows for the
period from inception (November 12, 1996) to December 31, 1996 and the six
months ended June 30, 1997. 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 ImageMAX, Inc. as of
December 31, 1996 and June 30, 1997, and the results of its operations and its
cash flows for the period from inception (November 12, 1996) to December 31,
1996 and the six months ended June 30, 1997, in conformity with generally
accepted accounting principles.
Philadelphia, Pa.,
September 11, 1997 (except with
respect to the matter discussed
in Note 8 as to which the
date is , 1997)
F-17
<PAGE>
IMAGEMAX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $61,647 $ 14,973
STOCK SUBSCRIPTION RECEIVABLE............................... -- 230,000
DEFERRED ACQUISITION COSTS.................................. -- 24,802
------- --------
$61,647 $269,775
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCRUED EXPENSES............................................ $ 4,781 $ 45,066
SHAREHOLDERS' EQUITY:
Series A Preferred Stock, no par value, 10,000,000
shares authorized, 126,923 and 215,769 shares issued
and outstanding at December 31, 1996 and
June 30, 1997.......................................... 73,500 178,500
Common Stock, no par value, 40,000,000 shares authorized,
550,000 and 647,308 shares issued and outstanding
at December 31, 1996 and June 30, 1997................. 6,500 236,500
Accumulated deficit....................................... (23,134) (190,291)
------- --------
Total shareholders' equity.......................... 56,866 224,709
------- --------
$61,647 $269,775
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
IMAGEMAX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM
INCEPTION
(NOVEMBER 12, SIX MONTHS
1996) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ $ 23,274 $ 167,597
INTEREST INCOME............................................. 140 440
-------- ---------
NET LOSS.................................................... $(23,134) $(167,157)
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
IMAGEMAX, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK TOTAL
------------------- ------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
-------- -------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 12, 1996
(date of inception).............. -- $ -- -- $ -- $ -- $ --
Sales of Preferred and Common
Stock.......................... 126,923 73,500 550,000 6,500 -- 80,000
Net loss......................... -- -- -- -- (23,134) (23,134)
-------- -------- -------- -------- --------- --------
BALANCE, DECEMBER 31, 1996......... 126,923 73,500 550,000 6,500 (23,134) 56,866
Sales of Preferred and Common
Stock.......................... 88,846 105,000 97,308 230,000 -- 335,000
Net loss......................... -- -- -- -- (167,157) (167,157)
-------- -------- -------- -------- --------- --------
BALANCE, JUNE 30, 1997............. 215,769 $178,500 647,308 $236,500 $(190,291) $224,709
======== ======== ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
IMAGEMAX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(NOVEMBER 12,
1996) TO SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(23,134) $(167,157)
Change in accrued expenses......................... 4,781 40,285
-------- ---------
Net cash used in operating activities........... (18,353) (126,872)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deferred acquisition costs............. -- (24,802)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of Common and Preferred
Stock........................................... 80,000 105,000
-------- ---------
NET INCREASE (DECREASED) IN CASH..................... 61,647 (46,674)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... -- 61,647
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 61,647 $ 14,973
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
1. BACKGROUND:
ImageMAX Inc. ("ImageMAX") was incorporated in Pennsylvania on November 12,
1996. ImageMAX was formed to become a leading national, single-source provider
of integrated document management solutions (see Note 2).
ImageMAX has conducted no operations to date and has entered into
agreements to acquire certain businesses discussed in Note 2. These businesses
have been operating independently, and ImageMAX may not be able to successfully
integrate these businesses and their operations, employees and management. Given
the nature of ImageMAX, it is and will be subject to many risks, including but
not limited to, (i) an absence of combined operating history, (ii) the potential
inability to manage growth, (iii) risks generally associated with acquisitions
including the implementation of other acquisitions, (iv) possible fluctuations
in quarterly results, (v) reliance on certain markets, and (vi) reliance on key
personnel.
2. ACQUISITIONS AND PUBLIC OFFERING:
In September 1997, ImageMAX entered into agreements to acquire Utz Medical
Enterprises, Inc., the parent of AMMCORP, by merger, CMC by merger, Laser
Graphics by merger, I(3) by net asset acquisition, DDS by merger, DTI by net
asset acquisition, I(2) Solutions by merger, IMS by stock acquisition, IDS by
merger, OMI by merger, TPS by stock acquisition, DataLink by net asset
acquisition, Spaulding (a wholly-owned subsidiary of SEMCO Industries, Inc.) by
net asset acquisition, and TIMCO by net asset acquisition (together, the
"Founding Companies"). These acquisitions (the "Acquisitions") will occur
simultaneously with the closing of ImageMAX's initial public offering (the
"Offering") and will be accounted for using the purchase method of accounting.
ImageMAX has been identified as the accounting acquirer for financial statement
presentation purposes. The estimated total purchase price of the Founding
Companies is $41.6 million, which consists of: (i) $26.3 million in cash to be
paid to the Founding Companies or their shareholders (the "Sellers") upon the
consummation of the Offering; (ii) the $13.1 million estimated fair value of
1,184,468 shares of Common Stock to be issued to the Sellers; and (iii)
estimated transaction costs of $2.2 million. For purposes of computing the
estimated purchase price for accounting purposes, the value of the shares is
determined using an estimated fair value of $11.05 per share (or $13.1 million),
which represents a discount of 15% from the assumed initial public offering
price of $13.00, due to restrictions on the sale and transferability of the
shares issued. The total estimated purchase price of $41.6 million for the
Acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing. Based on the estimated
purchase price of $41.6 million, approximately $4.0 million will be allocated to
acquired in-process research and development and will be charged to expense upon
the consummation of the Acquisitions. The remaining amount of intangible assets
of approximately $33.8 million includes approximately $33.0 million of goodwill
and $800,000 of developed technology.
3. SHAREHOLDERS' EQUITY:
In November 1996, ImageMAX issued 423,077 shares of Common Stock to its
founding shareholders for $5,000. In November 1996, ImageMAX sold 126,923 units
comprised of one share of Series A Convertible Preferred Stock (Series A
Preferred Stock) and one share of common stock to certain of its founders and to
David C. Utz Jr., an accredited investor, for $75,000. Each share of Series A
Preferred Stock is convertible into one share of Common Stock.
In April 1997, ImageMAX sold 88,846 shares of Series A Preferred Stock
to certain of its founders and two additional accredited investors for $105,000.
F-22
<PAGE>
IMAGEMAX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SHAREHOLDERS' EQUITY: -- (CONTINUED)
In June 1997, ImageMAX sold 97,308 shares of Common Stock to certain of its
founders and its President and Chief Operating Officer and Senior Vice
President--Finance, Chief Financial Officer, and Treasurer for $230,000. The
related stock subscription receivables were paid in full in July 1997.
In September 1997, ImageMAX sold 227,721 shares of Series A Preferred Stock
and 63,462 shares of Common Stock for total consideration of $1,076,500 and
$300,000, respectively, to certain of its founders and other accredited
investors.
4. 1997 INCENTIVE PLAN:
ImageMAX's 1997 Incentive Plan (the Plan) provides for the award of up to
600,000 shares of its Common Stock to its employees, directors, consultants and
other individuals who perform services for ImageMAX. The Plan provides for
granting of various stock based awards, including incentive and non-qualified
stock options, restricted stock and performance shares and units. Upon
completion of the Offering, non-qualified options to purchase an aggregate of
302,500 shares of Common Stock at the Offering price will be granted to
ImageMAX's four executive officers and an outside director. These grants will
vest in equal installments over three years.
5. EMPLOYMENT AGREEMENTS:
ImageMAX has entered into employment agreements with its Chief Executive
Officer, President and Chief Operating Officer, Senior Vice President-- Finance,
Chief Financial Officer and Treasurer, and Senior Vice President--Corporate
Development that provide for a minimum annual compensation of $610,000 plus
bonuses. In addition, in connection with the Closing of the Acquisitions,
ImageMAX will enter into employment agreements with several management members
of the Founding Companies that provide for minimum annual compensation of $1.4
million plus bonuses.
6. RELATED-PARTY MANAGEMENT CONTRACT:
In November 1996, ImageMAX entered into a management contract with GBL
Capital Corp. ("GBL"), an entity whose shareholders are also shareholders of
ImageMAX. GBL was engaged to manage the daily business operations of ImageMAX.
ImageMAX paid GBL $5,000 upon entering into the agreement and is required to pay
monthly fees ranging from $10,000 to $25,000. The monthly fee payments were
terminated on July 31, 1997. Upon the closing of an initial public offering,
ImageMAX is required to pay GBL a fee of $500,000. The $500,000 will be charged
to the statement of operations upon the consummation of the Offering.
7. ACCRUED EXPENSES:
Accrued expenses principally consist of professional fees related to the
Acquisitions and the Offering.
8. SIGNIFICANT ACCOUNTING POLICIES:
F-23
<PAGE>
IMAGEMAX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
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 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.
Reverse Stock Split
ImageMAX effected a 0.846154 for 1 reverse stock split on , 1997.
All references in the accompanying financial statements to the number of
shares and per-share amounts have been retroactively restated to reflect the
reverse stock split.
Cash and Cash Equivalents
ImageMAX considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. At December 31, 1996 and June 30, 1997,
cash equivalents primarily consisted of funds in a money market account.
Income Taxes
ImageMAX 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
betweeen 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.
ImageMAX 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.
Long-Lived Assets
ImageMAX follows 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 assets' carrying amount to
determine if a write-down to market value or discounted cash flow value is
necessary.
Accounting for Stock-Based Compensation
ImageMAX follows SFAS No. 123, "Accounting for Stock-Based Compensation,"
which 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, ImageMAX will
provide pro forma disclosure of net income and earnings per share, as
applicable, in the notes to future financial statements.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". This statement supersedes APB Option No. 15,
"Earnings per Share" and simplifies the computation of earnings per share
("EPS"). Primary EPS is replaced with a presentation of basic EPS. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Fully diluted EPS is replaced with diluted EPS. Diluted EPS reflects the
potential dilution if certain securities are converted. SFAS No. 128 requires
dual presentation of basic and diluted EPS by entities that issue any securities
other than ordinary common stock. SFAS No. 128 will be effective for financial
statements for both
F-24
<PAGE>
IMAGEMAX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
interim and annual periods ending after December 15, 1997, and requires
retroactive restatement of all EPS data presented. ImageMAX plans to adopt the
statement on December 31, 1997. ImageMAX does not expect the effect of adopting
SFAS No. 128 to have a material impact on its EPS calculations, and, if adopted
currently, SFAS No. 128 would not have a material impact on ImageMAX's reported
EPS.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Utz Medical Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Utz Medical
Enterprises, Inc. (a Minnesota corporation) and subsidiary as of July 31, 1995
and 1996 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period ended July 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 Utz Medical Enterprises,
Inc. and subsidiary as of July 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1996 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 3 to the
financial statements, as of July 31, 1996, the Company had a stockholders'
deficit and a working capital deficit of $834,072 and $3,099,907, respectively,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 22, 1997
F-26
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
----------------------- APRIL 30,
1995 1996 1997
ASSETS ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash............................................ $ 2,005 $ 2,038 $ 32,526
Accounts receivable, net of reserves of $69,430,
$59,279 and $52,879.......................... 1,034,963 884,125 944,361
Income tax receivable........................... 178,823 178,823 --
Inventories..................................... 139,885 78,790 120,369
Prepaid expenses and other...................... 28,456 25,773 33,007
Deferred income taxes........................... 25,897 22,111 19,724
---------- ---------- ----------
Total current assets......................... 1,410,029 1,191,660 1,149,987
PROPERTY AND EQUIPMENT, net....................... 2,035,021 1,990,040 1,802,012
DEFERRED INCOME TAXES............................. 20,281 66,386 45,871
INTANGIBLE ASSETS................................. 756,191 505,239 350,648
---------- ---------- ----------
$4,221,522 $3,753,325 $3,348,518
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Revolving promissory note....................... $ 799,501 $ 928,000 $ 991,000
Current portion of long-term debt............... 2,546,101 2,205,696 1,949,983
Bank overdrafts................................. 301,216 17,409 --
Accounts payable................................ 538,055 407,945 344,872
Accrued expenses................................ 432,998 628,937 656,693
Deferred revenue................................ 128,992 103,580 141,505
---------- ---------- ----------
Total current liabilities.................... 4,746,863 4,291,567 4,084,053
---------- ---------- ----------
LONG-TERM DEBT.................................... 105,041 295,830 260,196
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' DEFICIT:
Common stock, par value of $.01 per share;
10,000,000 shares authorized, 90,000 shares
issued and outstanding....................... 900 900 900
Additional paid in capital...................... 98,100 98,100 98,100
Accumulated deficit............................. (729,382) (933,072) (1,094,731)
---------- ---------- ----------
Total stockholders' deficit.................. (630,382) (834,072) (995,731)
---------- ---------- ----------
$4,221,522 $3,753,325 $3,348,518
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JULY 31, APRIL 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES.......... $5,585,527 $6,275,993 $5,550,268 $4,121,696 $4,263,858
---------- ---------- ---------- ---------- ----------
COST OF SERVICE
REVENUES................ 3,335,817 4,652,182 3,318,172 2,513,022 2,431,429
DEPRECIATION.............. 242,748 380,324 412,565 321,050 318,394
---------- ---------- ---------- ---------- ----------
3,578,565 5,032,506 3,730,737 2,834,072 2,749,823
---------- ---------- ---------- ---------- ----------
Gross profit......... 2,006,962 1,243,487 1,819,531 1,287,624 1,514,035
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 1,700,278 1,652,163 1,383,387 1,008,261 1,195,744
AMORTIZATION OF INTANGIBLE
ASSETS.................. 149,750 183,487 209,312 162,892 161,125
---------- ---------- ---------- ---------- ----------
Operating income
(loss)............ 156,934 (592,163) 226,832 116,471 157,166
INTEREST EXPENSE.......... 257,744 328,477 362,948 285,238 257,558
INTEREST INCOME........... (1,580) (5,485) (11,090) -- (125)
---------- ---------- ---------- ---------- ----------
Loss before income
taxes............. (99,230) (915,155) (125,026) (168,767) (100,267)
INCOME TAX EXPENSE
(BENEFIT)............... 49,797 (222,640) 78,664 106,186 61,392
---------- ---------- ---------- ---------- ----------
NET LOSS.................. $ (149,027) $ (692,515) $ (203,690) $ (274,953) $ (161,659)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- ADDITIONAL EARNINGS
SHARES AMOUNT PAID IN CAPITAL (DEFICIT) TOTAL
------ -------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1993....................... 90,000 $ 900 $98,100 $ 157,160 $ 256,160
Net loss................................... -- -- -- (149,027) (149,027)
------ -------- ------- ------------ ---------
BALANCE, JULY 31, 1994....................... 90,000 900 98,100 8,133 107,133
Dividends.................................. -- -- -- (45,000) (45,000)
Net loss................................... -- -- -- (692,515) (692,515)
------ -------- ------- ------------ ---------
BALANCE, JULY 31, 1995....................... 90,000 900 98,100 (729,382) (630,382)
Net loss................................... -- -- -- (203,690) (203,690)
------ -------- ------- ------------ ---------
BALANCE, JULY 31, 1996....................... 90,000 900 98,100 (933,072) (834,072)
Net loss (unaudited)....................... -- -- -- (161,659) (161,659)
------ -------- ------- ------------ ---------
BALANCE, APRIL 30, 1997 (UNAUDITED).......... 90,000 $ 900 $98,100 $ (1,094,731) $(995,731)
====== ======== ======= ============ =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JULY 31, APRIL 30,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $ (149,027) $(692,515) $(203,690) $(274,953) $(161,659)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization........... 392,498 563,811 621,877 483,942 479,519
(Gain) loss on sale of property and
equipment............................ (243) 3,054 30,499 30,499 --
Provision for loss on accounts
receivable........................... (30,093) 33,569 (10,151) (39,459) (6,400)
Deferred income tax benefit............. 20,056 (60,855) (42,319) (31,739) 22,904
Change in operating assets and
liabilities-
Accounts receivable.................. 248,734 (106,840) 160,989 295,638 (53,836)
Income tax receivable................ -- (178,823) -- -- 178,823
Inventories.......................... (103,251) 68,455 61,095 59,375 (41,579)
Prepaid expenses and other........... (38,477) 51,429 2,322 25,658 (13,769)
Accounts payable..................... 77,154 348,320 (88,110) (209,947) (63,073)
Accrued expenses..................... (92,004) 107,269 195,939 208,815 27,754
Deferred revenue..................... 54,834 15,440 (25,412) 37,105 37,925
---------- --------- --------- --------- ---------
Net cash provided by operating
activities....................... 380,181 152,314 703,039 584,934 406,609
---------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (739,815) (291,721) (179,246) (60,253) (130,365)
Proceeds on sale of property and
equipment................................. 5,700 25,200 17,344 17,344 --
Cash paid for non-compete agreement......... (100,000) -- -- -- --
---------- --------- --------- --------- ---------
Net cash used in investing
activities....................... (834,115) (266,521) (161,902) (42,909) (130,365)
---------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on revolving promissory note... 46,500 110,000 128,499 195,499 63,000
Proceeds from long-term debt................ 1,666,344 319,479 115,591 16,375 53,419
Payments on long-term debt.................. (1,270,010) (545,761) (501,387) (403,335) (344,766)
Increase (decrease) in bank overdrafts...... 9,338 267,165 (283,807) (301,216) (17,409)
Dividends to stockholders................... -- (45,000) -- -- --
---------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities............. 452,172 105,883 (541,104) (492,677) (245,756)
---------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH............... (1,762) (8,324) 33 49,348 30,488
CASH, BEGINNING OF PERIOD..................... 12,091 10,329 2,005 2,005 2,038
---------- --------- --------- --------- ---------
CASH, END OF PERIOD........................... $ 10,329 $ 2,005 $ 2,038 $ 51,353 $ 32,526
========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
1. ORGANIZATION AND BASIS OF PRESENTATION:
Utz Medical Enterprises, Inc. and its wholly owned subsidiary, American
Micro-Med Corporation, operate under the trade name of AMMCORP Records
Management ("AMMCORP"). AMMCORP is located in Chesterton, Indiana and offers
document conversion and management solutions to customers predominantly in the
healthcare industry through various methods of document imaging technologies.
AMMCORP also provides offsite storage and retrieval services.
AMMCORP and its stockholders intend to enter into a merger agreement with
ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Utz Medical
Enterprises, Inc. and its wholly owned Subsidiary. The financial statements
reflect the elimination of all significant intercompany accounts and
transactions.
Interim Financial Statements
The financial statements as of April 30, 1997 and for the nine months ended
April 30, 1996 and 1997 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of the results for those interim periods. The results of
operations for the nine months ended April 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
Inventories
Inventories represent materials used in the filming and scanning process
and are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements and capital leases are
depreciated over the lesser of their useful life or the lease term.
Intangible Assets
Intangible assets primarily consist of capitalized non-compete obligations
which are being amortized over five and ten-year periods. Related accumulated
amortization as of July 31, 1995 and 1996 and April 30, 1997 was $949,635,
$1,158,947 and $1,320,072, respectively.
Revenue Recognition
Revenue is recognized when the related services are rendered on a
percentage-of-completion basis. Deferred revenue represents services billed in
advance of performance.
F-31
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF APRIL 30, 1997 AND FOR THE
NINE MONTHS ENDED APRIL 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Income Taxes
AMMCORP accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and income tax basis of assets and
liabilities measured using enacted income tax rates and laws that are expected
to be in effect when the differences reverse.
Supplemental Cash Flow Information
AMMCORP paid cash for interest for the years ended July 31, 1994, 1995 and
1996, and the nine months ended April 30, 1996 and 1997, of $256,665, $329,346,
$265,448, $208,790 and $195,846, respectively. AMMCORP paid cash for income
taxes for the year ended July 31, 1994 of $47,432. AMMCORP financed equipment
purchases with capital leases in the amount of $236,180 for the year ended July
31, 1996 and the nine months ended April 30, 1996. There were no cash payments
made for income taxes or equipment purchases financed with capital leases in the
other periods presented.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt and capital lease obligations
approximates fair value on the balance sheet dates.
Long-Lived Assets
AMMCORP follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. GOING CONCERN:
The accompanying financial statements have been prepared assuming AMMCORP
will continue as a going concern. As of July 31, 1996, the Company had a
stockholders' deficit of $834,072 and a working capital deficit of $3,099,907
(see Note 6). These factors create uncertainty regarding AMMCORP'S ability to
continue as a going concern. Management has developed a plan to reduce current
operating expenses in an effort to improve cash flows. There can be no assurance
that AMMCORP'S efforts to reduce operating expenses will provide sufficient cash
flow to meet its current obligations.
F-32
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF APRIL 30, 1997 AND FOR THE
NINE MONTHS ENDED APRIL 30, 1996 AND 1997 IS UNAUDITED.)
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED JULY 31,
USEFUL LIVES ----------------------- APRIL 30,
YEARS 1995 1996 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Filming and scanning equipment.......... 3-5 $1,348,478 $1,707,405 $1,762,530
Furniture and office equipment.......... 5 368,885 366,465 389,728
Vehicles................................ 5 217,085 221,440 273,418
Building and building improvements...... 8-40 1,597,843 1,599,829 1,599,829
Land and land improvements.............. 15 88,693 88,693 88,693
---------- ---------- ----------
3,620,984 3,983,832 4,114,198
Less-Accumulated depreciation and
amortization.......................... (1,585,963) (1,993,792) (2,312,186)
---------- ---------- ----------
$2,035,021 $1,990,040 $1,802,012
========== ========== ==========
</TABLE>
As of July 31, 1995 and 1996 and April 30, 1997, AMMCORP had $14,074,
$221,088 and $184,069, in equipment, net of accumulated amortization financed
under capital leases. In March 1994, AMMCORP commenced operations in Anderson,
Indiana through the acquisition of $525,000 in filming equipment and $50,000 in
filming related inventory. AMMCORP paid an additional $100,000 in connection
with a non-compete agreement with the seller. In October 1995, the Anderson
Facility was closed and the related non-compete asset was charged to expense.
The filming equipment was relocated to the AMMCORP Chesterton, Indiana facility
and is fully depreciated as of March 1997.
5. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
JULY 31,
------------------- APRIL 30,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Accrued compensation.......................... $303,283 $232,540 $229,771
Accrued interest.............................. 13,248 110,748 173,136
Accrued income taxes.......................... 36,618 155,784 189,987
Other......................................... 79,849 129,865 63,799
-------- -------- --------
$432,998 $628,937 $656,693
======== ======== ========
</TABLE>
6. DEBT:
Revolving Promissory Note
On February 1, 1996, AMMCORP renewed its revolving promissory note (the
"Note") with the bank. AMMCORP can borrow up to $1,000,000 under the Note and
interest is due monthly at prime plus 2.5%. The outstanding principal balance
and all unpaid interest are due on March 31, 1998.
The highest amounts outstanding under the Note were $799,501, $1,000,000
and $1,000,000, for the years ended July 31, 1995 and 1996 and the nine months
ended April 30, 1997, respectively, and average borrowings under the Note were
$780,885, $900,347 and $951,400, respectively. The weighted average interest
rates on the Note were 9.70%, 10.54% and 11.02% for the years ended July 31,
1995 and 1996 and the nine months ended April 30, 1997, respectively.
F-33
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF APRIL 30, 1997 AND FOR THE
NINE MONTHS ENDED APRIL 30, 1996 AND 1997 IS UNAUDITED.)
6. DEBT: -- (CONTINUED)
Long-Term Debt
<TABLE>
<CAPTION>
JULY 31,
----------------------- APRIL 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Term note payable to bank in monthly installments of $9,197
including interest at 7.75% until September 15, 1998, at
which time the monthly installments will be adjusted to
reflect an interest rate of 3% plus the monthly average
yield on five-year U.S. Treasury securities, payments are
due through September, 2003.............................. $ 665,343 $ 605,278 $ 556,968
Term note payable to bank in monthly installments of
$14,450, including interest at prime plus 1.50%, through
March, 1998.............................................. 435,143 300,102 188,738
Term note payable to bank in monthly installments of
$6,700, including interest at prime plus 1.25%, through
December, 1997........................................... 116,008 81,591 47,289
Term note payable to bank in monthly installments of
$7,230, including interest at prime plus 1.50%, through
December, 1998........................................... 251,158 187,067 134,188
Term note payable to bank in monthly installments of
$4,666, including interest at prime plus 1.50%, through
January, 1997............................................ 82,303 32,430 --
Term note payable to bank in monthly installments of
$5,484, including interest at prime plus 1.50%, through
December, 1995........................................... 36,528 -- --
Term note payable to bank in monthly installments of
$7,380, including interest at 8.00%, through December,
1995..................................................... 26,608 -- --
Note payable to former stockholder in monthly installments
of $18,558, including interest at 10%, through August,
1998..................................................... 601,730 601,730 601,730
Note payable to former stockholder in bi-weekly
installments of $3,185, including interest at 10%,
through October, 1999.................................... 291,469 291,469 291,469
Vehicle loans payable in monthly installments ranging from
$340 to $1,140, with interest ranging from 7.99% to
10.50%, through November, 2000........................... 48,629 85,089 118,095
Capital lease obligations.................................. 10,350 217,620 189,275
Other...................................................... 85,873 99,150 82,427
---------- ---------- ----------
2,651,142 2,501,526 2,210,179
Less-Current portion....................................... (2,546,101) (2,205,696) (1,949,983)
---------- ---------- ----------
$ 105,041 $ 295,830 $ 260,196
========== ========== ==========
</TABLE>
As of July 31, 1996, stated maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
1997.................................. $ 992,529
1998.................................. 658,218
1999.................................. 346,935
2000.................................. 165,072
2001.................................. 119,439
Thereafter............................ 219,333
----------
$2,501,526
==========
</TABLE>
F-34
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF APRIL 30, 1997 AND FOR THE
NINE MONTHS ENDED APRIL 30, 1996 AND 1997 IS UNAUDITED.)
6. DEBT: -- (CONTINUED)
The term notes and revolving promissory note payable to the bank are under
a master loan agreement. Under this agreement, AMMCORP is subject to various
financial and non-financial covenants. In addition, the two notes payable to
former shareholders also contain various covenants. As of July 31, 1996, AMMCORP
is in default of these covenants and the bank and the former stockholders, at
their option, can declare that all principal and interest due under these
obligations are payable upon their demand. Accordingly, the term notes,
revolving promissory note and notes payable to former stockholders are
classified as current liabilities in the accompanying balance sheets (see Note
3).
The term notes, revolving promissory note, and notes payable to former
stockholders are personally guaranteed by the stockholders of AMMCORP.
7. COMMITMENTS AND CONTINGENCIES:
AMMCORP leases a warehouse under a noncancelable operating lease. Rent
expense for all operating leases for the year ended July 31, 1996 was $68,457.
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
1997.................................... $ 31,000
1998.................................... 33,400
1999.................................... 35,800
2000.................................... 38,200
2001.................................... 3,200
--------
$141,600
========
</TABLE>
AMMCORP is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on AMMCORP'S financial position or
results of operations.
8. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $25,754 $(139,899) $104,765
State........................................ 3,987 (21,656) 16,218
------- --------- --------
Total..................................... 29,741 (161,555) 120,983
------- --------- --------
Deferred:
Federal...................................... 17,368 (52,698) (36,646)
State........................................ 2,688 (8,387) (5,673)
------- --------- --------
Total..................................... 20,056 (61,085) (42,319)
------- --------- --------
$49,797 $(222,640) $ 78,664
======= ========= ========
</TABLE>
F-35
<PAGE>
UTZ MEDICAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF APRIL 30, 1997 AND FOR THE
NINE MONTHS ENDED APRIL 30, 1996 AND 1997 IS UNAUDITED.)
8. INCOME TAXES: -- (CONTINUED)
The reconciliation of the statutory federal income tax rate to AMMCORP'S
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate.................. (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit..... (3.3) (3.3) (3.3)
Nondeductible expenses............................. 87.5 13.0 100.2
----- ----- -----
50.2% (24.3)% 62.9%
===== ===== =====
</TABLE>
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred income taxes are as follows:
<TABLE>
<CAPTION>
JULY 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Gross deferred tax assets:
Depreciation and amortization................ $ 20,281 $ 66,386
Accruals and reserves not currently
deductible................................ 25,897 22,111
--------- ---------
$ 46,178 $ 88,497
========= =========
</TABLE>
AMMCORP did not have any valuation allowances against deferred income tax
assets at July 31, 1995 and 1996, as it believes it is more likely than not that
the deferred tax assets will be realized.
9. EMPLOYEE BENEFIT PLAN:
AMMCORP sponsors a defined contribution plan, the "AMMCORP 401(k)
Profit-Sharing Plan" (the "Plan") which covers substantially all of AMMCORP'S
employees subject to certain eligibility requirements, as defined. The Plan
provides for discretionary profit sharing and employer matching contributions
based on a percentage of employee salary deferrals. AMMCORP made matching
contributions of $2,400 in the year ended July 31, 1995. There have been no
profit sharing contributions to the Plan.
10. SALE OF BUSINESS (UNAUDITED):
In September 1997, AMMCORP and its stockholders entered into a definitive
agreement with ImageMAX, providing for a merger of AMMCORP with ImageMAX.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Codalex Microfilming Corporation and
Imaging Information Industries, Inc.:
We have audited the accompanying combined balance sheets of Codalex
Microfilming Corporation (a South Carolina corporation) and Imaging Information
Industries, Inc. (a South Carolina Corporation) as of June 30, 1996 and 1997,
and the related combined statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended June
30, 1997. 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 combined financial position of Codalex
Microfilming Corporation and Imaging Information Industries, Inc. as of June 30,
1996 and 1997, and the combined results of their operations and their cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Columbia, South Carolina,
August 29, 1997
F-37
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 41,057 $ 40,902
Accounts receivable, net of allowance for doubtful accounts of $32,200 and
$37,000.......................................................................... 219,208 559,111
Due from affiliates................................................................. 31,781 112,756
Inventories......................................................................... 132,497 160,867
Prepaid expenses and other.......................................................... 9,149 5,807
-------- ----------
Total current assets............................................................. 433,692 879,443
PROPERTY AND EQUIPMENT, net........................................................... 185,731 260,332
-------- ----------
$619,423 $1,139,775
======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit...................................................................... $121,158 $ 142,721
Current portion of long term debt................................................... 322,142 393,811
Accounts payable.................................................................... 152,436 306,304
Due to affiliates................................................................... 11,185 129,869
Accrued expenses.................................................................... 102,421 186,723
Deferred revenue.................................................................... -- 33,248
-------- ----------
Total current liabilities........................................................ 709,342 1,192,676
-------- ----------
LONG-TERM DEBT........................................................................ 11,335 29,634
-------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY (DEFICIT):
CMC common stock, $1 par value, 100,000 shares authorized, 10,000 shares issued and
outstanding...................................................................... 10,000 10,000
I(3) common stock, no par value, 200,000 shares authorized, 90,510 shares issued and
outstanding...................................................................... 138,750 138,750
Accumulated deficit................................................................. (250,004) (231,285)
-------- ----------
Total stockholders' equity (deficit)............................................. (101,254) (82,535)
-------- ----------
$619,423 $1,139,775
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Services.......................................................... $1,836,118 $ 755,085 $1,507,270
Products.......................................................... 503,609 622,181 1,357,845
---------- ---------- ----------
2,339,727 1,377,266 2,865,115
---------- ---------- ----------
COST OF REVENUES:
Services.......................................................... 1,177,764 507,561 1,011,894
Products.......................................................... 329,149 416,104 1,016,164
Depreciation...................................................... 43,698 47,211 64,338
---------- ---------- ----------
1,550,611 970,876 2,092,396
---------- ---------- ----------
Gross profit................................................... 789,116 406,390 772,719
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ 730,356 549,435 758,900
AMORTIZATION........................................................ 18,029 1,877 1,730
---------- ---------- ----------
Operating income (loss)........................................ 40,731 (144,922) 12,089
OTHER (INCOME) EXPENSE:
Interest expense.................................................. 29,082 60,472 53,370
Management fee.................................................... -- -- (60,000)
---------- ---------- ----------
Income (loss) before income taxes.............................. 11,649 (205,394) 18,719
INCOME TAXES........................................................ -- -- --
---------- ---------- ----------
NET INCOME (LOSS)................................................... $ 11,649 $ (205,394) $ 18,719
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
TOTAL
CMC I(3) STOCKHOLDERS'
----------------- ------------------ ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT DEFICIT (DEFICIT)
------ ------- ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994....................... 10,000 $10,000 -- $ 20,000 $ (56,259) $ (26,259)
Issuance of common stock................... -- -- 90,510 45,000 -- 45,000
Net income................................. -- -- -- -- 11,649 11,649
------ ------- ------ -------- --------- ---------
BALANCE, JUNE 30, 1995....................... 10,000 10,000 90,510 65,000 (44,610) 30,390
Paid-in capital for previously issued
stock.................................... -- -- -- 73,750 -- 73,750
Net loss................................... -- -- -- -- (205,394) (205,394)
------ ------- ------ -------- --------- ---------
BALANCE, JUNE 30, 1996....................... 10,000 10,000 90,510 138,750 (250,004) (101,254)
Net income................................. -- -- -- -- 18,719 18,719
------ ------- ------ -------- --------- ---------
BALANCE, JUNE 30, 1997....................... 10,000 $10,000 90,510 $138,750 $(231,285) $ (82,535)
====== ======= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $ 11,649 $(205,394) $ 18,719
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities-
Depreciation and amortization............................................ 61,727 49,088 66,068
(Gain) loss on sale of equipment......................................... -- (4,832) 19,273
Change in operating assets and liabilities:
Accounts receivable................................................... (60,523) 97,597 (339,903)
Inventories........................................................... (11,166) (98,126) (28,370)
Prepaid expenses and other assets..................................... (4,802) (3,385) 1,612
Net due to/from affiliates............................................ (52,039) 31,443 37,709
Accounts payable and accrued expenses................................. 109,648 (60,976) 238,170
Deferred revenue...................................................... -- -- 33,248
-------- --------- ---------
Net cash provided by (used in) operating activities................. 54,494 (194,585) 46,526
-------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment.......................................... (38,926) (30,260) (130,017)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................................... -- 153,932 121,980
Principal payments on debt................................................... (38,207) (10,141) (38,644)
Capital contributions........................................................ 45,000 73,750 --
-------- --------- ---------
Net cash provided by financing activities........................... 6,793 217,541 83,336
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 22,361 (7,304) (155)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................... 26,000 48,361 41,057
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......................................... $ 48,361 $ 41,057 $ 40,902
-------- --------- ---------
SUPPLEMENTAL DATA:
Cash paid for interest..................................................... $ 8,000 $ 56,000 $ 24,000
-------- --------- ---------
NONCASH FINANCING TRANSACTION:
Equipment financed through capital leases.................................... $ -- $ -- $ 28,195
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
Codalex Microfilming Corporation ("CMC") and Imaging Information
Industries, Inc. ("I(3)") (collectively, "Codalex") provide micrographic and
electronic imaging services and sell certain imaging and scanning equipment to
businesses primarily in South Carolina and Georgia. Codalex's customer base
includes hospitals, commercial enterprises and a limited number of government
institutions. CMC is located in Columbia, South Carolina, and was purchased in
July 1992. Imaging is located in Atlanta, Georgia, and was founded in February
1995.
The combined companies had net income of approximately $19,000 in 1997,
resulting in a stockholders' deficit of approximately $83,000 at June 30, 1997.
The working capital deficit at June 30, 1997 was approximately $313,000. In
management's opinion, the cash flow requirements for fiscal 1998 will be funded
through improvement in operations. Management instituted sales price increases
of 7% and eliminated approximately 20% of production labor costs in the last
quarter of fiscal 1997. Codalex will not pay the stockholder and other
related-party notes that are currently due if cash flows from operations are not
sufficient to fund its obligations as they become due.
CMC and its stockholders intend to enter into a merger agreement with
ImageMAX, Inc. (ImageMAX) and I(3) and its stockholders intend to enter a net
asset acquisition agreement with ImageMAX both of which would close upon the
consummation of the initial public offering of the common stock of ImageMAX (see
Note 8).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Codalex is controlled and managed through common ownership. Accordingly,
the financial statements have been combined and reflect the elimination of all
significant intercompany accounts and transactions.
Cash and Cash Equivalents
Codalex considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories only represent microfiche viewing and imaging equipment, and
production and related supplies.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
Revenue Recognition
Service and product revenues are recognized when the services are rendered
or products are shipped to Codalex's customers. Deferred revenue represents
payments for services that are billed in advance of performance. No single
customer exceeded 10% of revenues for any year presented.
F-42
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Income Taxes
Imaging has elected to be taxed under Subchapter S of the Internal Revenue
Code. Accordingly, all taxable income or loss of Imaging is included in the
stockholders' individual income tax returns.
CMC is a C corporation and income tax expense is provided in Codalex's
financial statements. Deferred income tax liabilities and assets are determined
based on the difference between the financial statement and income tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future using enacted income tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount
expected to be realized. Deferred tax assets resulting from nondeductible
reserves and net operating losses have offset deferred tax liabilities related
to accelerated depreciation for tax reporting in the accompanying financial
statements. Income tax expense on fiscal 1997 earnings was offset by the
remaining net operating loss carryforwards.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt approximates fair value on the
balance sheet dates.
Long-Lived Assets
Codalex follows Statement of Financial Accounting Standards 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 assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIVES --------------------
YEARS 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Scanning and imaging equipment................................. 7 $236,188 $365,329
Furniture and office equipment................................. 7 15,443 22,098
Automobiles.................................................... 5 74,749 35,772
-------- --------
326,380 423,199
Less--Accumulated depreciation................................. (140,649) (162,867)
-------- --------
$185,731 $260,332
======== ========
</TABLE>
F-43
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT: -- (CONTINUED)
As of June 30, 1997, Codalex had approximately $28,000 in equipment, net of
accumulated depreciation, financed under capital leases with a related party.
4. DEBT:
At June 30, 1997, Codalex had a line of credit agreement with a bank which
provides for borrowings of up to $175,000, based on eligible accounts
receivable. The line bears interest at the bank prime rate plus 0.75% and
expires on May 15, 1998. The line of credit is secured by substantially all of
Codalex's assets and a personal guarantee by Codalex's stockholders.
Other long term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Unsecured demand notes payable to related parties accruing
interest at 12% annually........................................ $251,426 $285,839
Commercial term note bearing interest at 9.5%, collateralized by a
security agreement with Imaging; payments in monthly
installments of $2,869 through January 1999..................... 62,500 50,503
Other various notes payable to banks.............................. 19,551 58,908
Obligations under capital leases with related parties............. -- 28,195
-------- --------
333,477 423,445
Less--Current portion............................................. (322,142) (393,811)
-------- --------
$ 11,335 $ 29,634
======== ========
</TABLE>
Future maturities of debt at June 30, 1997, are $536,532 in 1998 and
$29,634 in 1999. Codalex is in compliance with all covenants related to their
debt as of June 30, 1997.
5. ACCRUED EXPENSES:
Accrued expenses are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Interest.......................................................... $ 61,518 $ 90,628
Payroll and related taxes......................................... 33,328 84,814
Other............................................................. 7,575 11,281
-------- --------
$102,421 $186,723
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Codalex leases office space under two noncancelable operating leases. One
of these leases expires July 31, 1998, and requires future minimum lease
payments of approximately $16,000 in 1998. The other lease expires November 1,
2008, subject to rent negotiations at October 31, 1998. The future minimum lease
payments through 2008 are $89,000 per year. The lessor of both leases is the
majority stockholder of Codalex. Rent expense for all operating leases for the
years ended June 30, 1995, 1996 and 1997 was $86,000, $92,000 and $94,000,
respectively.
F-44
<PAGE>
CODALEX MICROFILMING CORPORATION AND
IMAGING INFORMATION INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
Codalex is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
7. OTHER RELATED-PARTY TRANSACTIONS:
Codalex is controlled through common ownership, as previously stated. The
same ownership has controlling interest in two similar electronic storage
companies, Laser Graphics Systems & Services ("Laser Graphics") and Microfilm
World. Laser Graphics is located in Cleveland, Tennessee, and Microfilm World is
in Charlotte, North Carolina. All four companies have some overlapping resources
and services. Generally, their geographic regions divide the sales territories.
CMC, I(3) and Laser Graphics are to be included in the purchase transaction
described in Note 1. Revenues included in the accompanying financial statements
from Microfilm World and Laser Graphics for the year ended June 30, 1995, 1996
and 1997, are approximately $33,000 and $0, $0 and $8,000, and $50,000, $48,000,
respectively. The pricing for these services is established at prevailing market
rates at the time of performance. Additionally, Codalex charged Laser Graphics a
$60,000 management fee for reimbursement of certain shared services in fiscal
1997.
8. SALE OF THE BUSINESS (UNAUDITED):
In September 1997, CMC and I(3) and its stockholders entered into the
agreements discussed in Note 1 with ImageMAX.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Laser Graphics Systems & Services, Inc.:
We have audited the accompanying balance sheets of Laser Graphics Systems &
Services, Inc. (a Tennessee corporation) as of October 31, 1995 and 1996 and
July 31, 1997, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended October
31, 1996 and the nine-month period ended July 31, 1997. 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 Laser Graphics Systems &
Services, Inc. as of October 31, 1995 and 1996 and July 31, 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended October 31, 1996 and the nine-month period ended July 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Columbia, South Carolina,
August 19, 1997
F-46
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 18,946 $ 12,172 $ 305
Accounts receivable, net of allowance for doubtful accounts of $6,000.... 173,564 203,377 209,585
Inventories.............................................................. 50,179 50,385 58,388
Due from affiliates...................................................... 5,915 61,842 98,301
Prepaid expenses and other............................................... 7,495 12,365 11,920
-------- -------- --------
Total current assets............................................... 256,099 340,141 378,499
PROPERTY AND EQUIPMENT, net................................................ 163,940 182,676 185,354
OTHER ASSETS............................................................... 6,308 4,731 4,455
-------- -------- --------
$426,347 $527,548 $568,308
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit........................................................... $ 82,518 $ 54,243 $122,834
Current maturities of long-term debt..................................... 62,443 74,818 61,686
Book overdrafts.......................................................... -- 30,265 53,104
Accounts payable......................................................... 147,110 107,608 138,730
Due to affiliates........................................................ 5,682 74,662 71,482
Accrued expenses and other............................................... 25,993 69,334 49,824
-------- -------- --------
Total current liabilities.......................................... 323,746 410,930 497,660
-------- -------- --------
LONG-TERM DEBT............................................................. 111,937 76,336 33,140
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 2,000 shares authorized 1,000, 670, and 670
shares issued and outstanding for 1995, 1996 and 1997,respectively,
net of loan from stockholders......................................... -- -- --
Retained earnings (accumulated deficit).................................. (9,336) 40,282 37,508
-------- -------- --------
Total stockholders' equity (deficit)..................................... (9,336) 40,282 37,508
-------- -------- --------
$426,347 $527,548 $568,308
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------ --------------------------
1995 1996 1996 1997
---------- ---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Services........................................... $1,055,815 $1,131,629 $ 799,295 984,908
Products........................................... 592,555 1,315,050 1,121,430 $ 328,652
---------- ---------- ---------- ----------
1,648,370 2,446,679 1,920,725 1,313,560
---------- ---------- ---------- ----------
COST OF REVENUES:
Services........................................... 763,038 810,657 573,090 638,639
Products........................................... 440,416 986,288 843,073 243,489
Depreciation....................................... 27,984 33,957 20,925 28,263
---------- ---------- ---------- ----------
1,231,438 1,830,902 1,437,088 910,391
---------- ---------- ---------- ----------
Gross profit.................................... 416,932 615,777 483,637 403,169
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 396,366 499,839 327,330 385,367
---------- ---------- ---------- ----------
Operating income................................... 20,566 115,938 156,307 17,802
INTEREST EXPENSE, net................................ 29,902 19,995 16,730 20,576
---------- ---------- ---------- ----------
Income (loss) before income taxes............... (9,336) 95,943 139,577 (2,774)
INCOME TAXES......................................... -- 21,655 29,311 --
---------- ---------- ---------- ----------
NET INCOME (LOSS).................................... $ (9,336) $ 74,288 $ 110,266 $ (2,774)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS STOCKHOLDERS'
---------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1994........................................ -- $ -- $ -- $ --
Issuance of 1,000 shares common stock.......................... 1,000 1,000 -- 1,000
Loan to stockholders........................................... -- (1,000) -- (1,000)
Net loss....................................................... -- -- (9,336) (9,336)
------ ------ -------- -------
BALANCE, OCTOBER 31, 1995........................................ 1,000 -- (9,336) (9,336)
Purchase of 330 shares of common stock......................... (330) (330) (24,670) (25,000)
Writeoff of loan to stockholder related to
purchase.................................................... -- 330 -- 330
Net income..................................................... -- -- 74,288 74,288
------ ------ -------- -------
BALANCE, OCTOBER 31, 1996........................................ 670 -- 40,282 40,282
Net loss....................................................... -- -- (2,774) (2,774)
------ ------ -------- -------
BALANCE, JULY 31, 1997........................................... 670 $ -- $ 37,508 $37,508
====== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED JULY 31,
------------------ ----------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
------- ------- --------- -------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $(9,336) $74,288 $ 110,266 $(2,774)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization................................... 29,561 35,534 26,650 29,446
Change in operating assets and liabilities-
Accounts receivable.......................................... 46,475 (29,813) (61,238) (6,208)
Inventories.................................................. (9,806) (206) (4,535) (8,003)
Due to/from affiliates, net.................................. (233) 13,053 233 (39,639)
Prepaid expenses and other assets............................ (4,195) (4,870) (30,910) (462)
Accounts payable and accrued expenses and other.............. 14,899 3,839 6,720 11,612
------- ------- --------- -------
Net cash provided by (used in) operating activities........ 67,365 91,825 47,186 (16,028)
------- ------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Organizational costs paid........................................... (7,885) -- -- --
Purchases of property and equipment................................. (5,685) (52,693) (51,040) (30,941)
------- ------- --------- -------
Net cash used in investing activities...................... (13,570) (52,693) (51,040) (30,941)
------- ------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of stock................................................... -- (24,670) (24,670) --
Net borrowings (payments) on line of credit......................... (12,864) (28,275) (43,779) 68,591
Bank overdraft...................................................... -- 30,265 62,413 22,839
Proceeds from long-term debt........................................ -- 45,395 45,395 4,796
Principal payments on capital lease obligations..................... (24,234) (26,852) (21,894) (21,711)
Principal payments on long-term debt................................ (3,364) (41,769) (28,091) (39,413)
------- ------- --------- -------
Net cash (used in) provided by financing activities........ (40,462) (45,906) (10,626) 35,102
------- ------- --------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................................... 13,333 (6,774) (14,480) (11,867)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 5,613 18,946 18,946 12,172
------- ------- --------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $18,946 $12,172 $ 4,466 $ 305
======= ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED JULY 31, 1996 IS UNAUDITED.)
1. BACKGROUND:
Laser Graphics Systems & Services, Inc., ("Laser Graphics"), provides
document imaging and storage services and distributes document imaging supplies
and equipment to businesses primarily in Tennessee, Northwest Georgia, and
Southwest Virginia. Laser Graphics' customers include commercial enterprises, a
limited number of governmental institutions and hospitals.
Laser Graphics and its stockholders intend to enter into a merger agreement
with ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX (see Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements for the nine months ended July 31, 1996 are
unaudited and, in the opinion of management of Laser Graphics, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for that interim period. The results of
operations for the nine months ended July 31, 1996 and 1997 are not necessarily
indicative of the results to be expected for the full year.
Cash and Cash Equivalents
Laser Graphics considers highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories only represent microfiche viewing and imaging equipment,
production and related supplies.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are depreciated over the
lesser of their useful life or the term of the lease.
Revenue Recognition
Revenue is recognized when services are rendered or when products are
shipped to customers. Laser Graphics had three customers with revenues of 18%,
17% and 10% of its total revenues, for the year ended October 31, 1996. Accounts
receivable as of October 31, 1996, for these customers were approximately $0,
$17,000 and $35,000. No other customer exceeded 10% for any of the other periods
presented.
Income Taxes
Laser Graphics is a C corporation. Deferred income tax liabilities and
assets are determined based on the difference between the financial statement
and income tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future using enacted income tax rates in effect for
the year in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred income
tax assets to the amount expected to be realized. Laser Graphics has a net
deferred tax liability of approximately $6,000 at July 31, 1997, as a result of
accelerated depreciation for tax reporting purposes in excess of net deferred
tax assets due to the nondeductible allowance for doubtful accounts.
Supplemental Cash Flow Information
For the years ended October 31, 1995, 1996 and for the nine months ended
July 31, 1996 and 1997, Laser Graphics paid interest of approximately $32,000,
$24,000 $17,000, and $12,000, respectively. For the nine months ended July 31,
1997, Laser Graphics paid income taxes of $12,000.
F-51
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED JULY 31, 1996 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt approximates fair value on the
balance sheet dates.
Long-Lived Assets
Laser Graphics follows Statement of Financial Accounting Standards 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 assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31,
USEFUL LIVES -------------------- JULY 31,
(IN YEARS) 1995 1996 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Equipment......................................... 5-7 $159,143 $200,602 $214,636
Office furniture and fixtures..................... 7 20,124 26,874 29,111
Vehicles.......................................... 5 12,656 17,140 15,607
Leasehold improvements............................ 15 -- -- 12,921
-------- -------- --------
191,923 244,616 272,275
Less--Accumulated depreciation and amortization... (27,983) (61,940) (86,921)
-------- -------- --------
$163,940 $182,676 $185,354
======== ======== ========
</TABLE>
As of October 31, 1995 and 1996 and July 31, 1997, Laser Graphics had
approximately $67,000, $55,000 and $47,000, respectively, in equipment, net of
accumulated depreciation, financed under capital leases.
4. LONG-TERM DEBT:
Laser Graphics has a line of credit with a bank. The line of credit
provides for a maximum borrowing of 70% of the Company's current accounts
receivable which is computed at the end of each calendar quarter. The line of
credit bears interest at 9.25% per year and expires in December 1997. The line
is secured by all of Laser Graphics' assets and is personally guaranteed by the
majority stockholder.
Other long-term debt is as follows:
F-52
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED JULY 31, 1996 IS UNAUDITED.)
4. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Note payable to a related-party partnership in monthly
installments of $2,965 including interest at 12%, through June
1998, unsecured............................................... $ 80,863 $ 53,511 $ 30,743
Term loan payable to a bank in monthly installments of $616,
plus interest at 8.5%, through February 2001, collateralized
by accounts receivable, inventory, and equipment.............. -- 27,983 24,319
Term loan payable to a bank in monthly installments of $218,
plus interest at 8.5%, through February 1999, collateralized
by a vehicle.................................................. -- -- 3,862
Other term loans................................................ 9,053 12,048 --
Obligations under capitalized leases............................ 84,464 57,612 35,902
-------- -------- --------
174,380 151,154 94,826
Less--Current portion........................................... (62,443) (74,818) (61,686)
-------- -------- --------
$111,937 $ 76,336 $ 33,140
======== ======== ========
</TABLE>
As of July 31, 1997, maturities of long-term debt, including capital
leases, are as follows:
<TABLE>
<S> <C>
1998............................................ $ 61,686
1999............................................ 20,427
2000............................................ 6,584
2001............................................ 6,129
---------
$ 94,826
=========
</TABLE>
Laser Graphics was in compliance with all debt covenants or had obtained
waivers as of July 31, 1997.
5. COMMITMENTS AND CONTINGENCIES:
Laser Graphics leases office space under noncancellable operating leases
from a related party partnership. Rent expense for all operating leases for the
years ended October 31, 1995 and 1996 and the nine months ended July 31, 1996
and 1997 was approximately $42,000, $42,000, $33,000, and $44,000, respectively.
Future minimum lease payments under noncancellable operating leases are
approximately $61,000 in fiscal 1998.
Laser Graphics is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
6. RELATED-PARTY TRANSACTIONS:
For the year ended October 31, 1996, and the nine-month period ended July
31, 1997, Laser Graphics had sales to related parties of approximately $76,000,
and $90,000, respectively, and had purchases from related parties for the same
periods of $130,000, and $9,000, respectively. The pricing
F-53
<PAGE>
LASER GRAPHICS SYSTEMS & SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED JULY 31, 1996 IS UNAUDITED.)
6. RELATED-PARTY TRANSACTIONS: -- (CONTINUED)
for these services is established at prevailing market rates at the time of
performance. Additionally, Codalex charged Laser Graphics a $60,000 management
fee for reimbursement of certain shared services for the year ended October 31,
1996.
The stockholders of the Company also have controlling interest in three
similar document storage companies: Codalex in Columbia, SC, Microfilm World in
Charlotte, NC, and Imaging Information Industries in Atlanta, GA. All four
companies have some overlapping resources and services. Generally, their
geographic regions divide the sales territories. Codalex, Imaging and Laser
Graphics are to be included in the purchase transaction described in Note 1.
7. SALE OF THE BUSINESS (UNAUDITED):
In September 1997, Laser Graphics and its stockholders entered into a
definitive merger agreement with ImageMAX (see Note 1).
F-54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DataLink Corporation:
We have audited the accompanying balance sheets of DataLink Corporation (an
Arizona corporation) as of December 31, 1995 and 1996 and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the 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 DataLink Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 8, 1997
F-55
<PAGE>
DATALINK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 140,607 $ 138,547 $ 268,042
Accounts receivable............................................... 367,402 320,514 358,247
Notes receivable from stockholders................................ -- 20,000 10,000
Inventories....................................................... 36,455 26,805 37,161
Prepaid expenses and other........................................ 4,924 194 900
---------- ---------- ----------
Total current assets..................................... 549,388 506,060 674,350
PROPERTY AND EQUIPMENT, net......................................... 469,219 1,063,357 979,391
OTHER ASSETS........................................................ 4,903 16,417 30,615
---------- ---------- ----------
$1,023,510 $1,585,834 $1,684,356
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit................................................... $ -- $ 20,000 $ --
Current portion of long-term debt................................. 135,272 121,764 83,954
Accounts payable.................................................. 80,648 119,635 113,062
Accrued expenses.................................................. 70,252 91,637 128,627
---------- ---------- ----------
Total current liabilities................................ 286,172 353,036 325,643
---------- ---------- ----------
LONG-TERM DEBT...................................................... 268,588 149,490 113,121
---------- ---------- ----------
CAPITALIZED LEASE OBLIGATION TO
RELATED-PARTY (Note 9)............................................ -- 720,000 720,000
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $100 par value, 50,000 shares
authorized, none issued and outstanding........................ -- -- --
Common stock, $1 par value, 100,000 shares authorized,
40,000 shares issued and outstanding........................... 40,000 40,000 40,000
Retained earnings................................................. 428,750 323,308 485,592
---------- ---------- ----------
Total stockholders' equity............................... 468,750 363,308 525,592
---------- ---------- ----------
$1,023,510 $1,585,834 $1,684,356
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
DATALINK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services............................ $2,465,387 $2,151,498 $2,286,122 $1,162,853 $1,284,596
Products............................ 562,313 540,117 865,183 456,528 427,432
---------- ---------- ---------- ---------- ----------
3,027,700 2,691,615 3,151,305 1,619,381 1,712,028
---------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Services............................ 1,864,429 1,541,790 1,592,764 836,517 795,957
Products............................ 604,431 479,249 773,632 409,995 356,571
Depreciation........................ 190,647 204,348 217,967 104,412 103,846
---------- ---------- ---------- ---------- ----------
2,659,507 2,225,387 2,584,363 1,350,924 1,256,374
---------- ---------- ---------- ---------- ----------
Gross profit............... 368,193 466,228 566,942 268,457 455,654
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............. 331,657 339,246 466,772 212,624 232,037
---------- ---------- ---------- ---------- ----------
Operating income........... 36,536 126,982 100,170 55,833 223,617
INTEREST EXPENSE...................... 46,416 52,226 107,058 41,751 62,199
INTEREST INCOME....................... (1,366) (166) (1,446) (590) (866)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)..................... $ (8,514) $ 74,922 $ (5,442) $ 14,672 $ 162,284
========== ========== ========== ========== ==========
PRO FORMA DATA (UNAUDITED):
Historical net income (loss)........ $ (8,514) $ 74,922 $ (5,442) $ 14,672 $ 162,284
Pro forma income tax expense
(benefit)........................ (1,955) 32,454 2,392 6,376 65,817
---------- ---------- ---------- ---------- ----------
Pro forma net income (loss)......... $ (6,559) $ 42,468 $ (7,834) $ 8,296 $ 96,467
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
DATALINK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED EQUITY
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- --------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993....................................... 40,000 $40,000 $ 362,342 $402,342
Net loss....................................................... -- -- (8,514) (8,514)
------ ------- --------- --------
BALANCE, DECEMBER 31, 1994....................................... 40,000 40,000 353,828 393,828
Net income..................................................... -- -- 74,922 74,922
------ ------- --------- --------
BALANCE, DECEMBER 31, 1995....................................... 40,000 40,000 428,750 468,750
Distributions to stockholders.................................. -- -- (100,000) (100,000)
Net loss....................................................... -- -- (5,442) (5,442)
------ ------- --------- --------
BALANCE, DECEMBER 31, 1996 40,000 40,000 323,308 363,308
Net income (unaudited)......................................... -- -- 162,284 162,284
------ ------- --------- --------
BALANCE, JUNE 30, 1997
(UNAUDITED).................................................... 40,000 $40,000 $ 485,592 $525,592
====== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE>
DATALINK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (8,514) $ 74,922 $ (5,442) $ 14,672 $ 162,284
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization.............. 190,647 204,348 217,967 104,412 103,846
Loss (gain) on sale of fixed assets........ -- (2,455) 7,304 5,483
Changes in operating assets and
liabilities-
Accounts receivable..................... (74,019) 21,090 46,888 (3,125) (37,733)
Inventories............................. (4,607) (7,130) 9,650 8,547 (10,356)
Prepaid expenses and other.............. (3,875) (2,126) (26,784) (28,685) (4,904)
Accounts payable........................ 45,529 (76,365) 38,987 9,487 (6,573)
Accrued expenses........................ (38,264) 4,566 21,385 15,033 36,990
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities.......................... 106,897 216,850 309,955 125,824 243,554
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (237,532) (47,613) (119,790) (80,797) (19,880)
Proceeds from disposition of equipment......... -- 8,965 20,381 5,268 --
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities.......................... (237,532) (38,648) (99,409) (75,529) (19,880)
========== ========== ========== ========== ==========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on lines of
credit....................................... 90,000 (90,000) 20,000 20,000 (20,000)
Proceeds from long-term debt................... 126,180 250,000 15,109 15,109 --
Repayment of long-term debt.................... (95,796) (295,047) (147,715) (72,437) (74,179)
Distributions to stockholders.................. -- -- (100,000) -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities................ 120,384 (135,047) (212,606) (37,328) (94,179)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................... (10,251) 43,155 (2,060) 12,967 129,495
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 107,703 97,452 140,607 140,607 138,547
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD......................................... $ 97,452 $ 140,607 $ 138,547 $ 153,574 $ 268,042
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
<PAGE>
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
DataLink Corporation ("DataLink") is an Arizona corporation with
administrative offices located in Tempe, Arizona. DataLink's product line
includes computer output microfilm, source document microfilming, imaging
systems, data entry services, customized data processing services and customer
programming services.
DataLink intends to enter into a net asset acquisition agreement with
ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited and, in the opinion of management of
DataLink, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
Cash and Cash Equivalents
DataLink considers highly liquid investments with original maturities of
three months or less to be cash equivalents. At the balance sheet dates, cash
equivalents were composed primarily of money market funds. Cash equivalents are
carried at cost, which approximates market value. DataLink maintains cash
accounts, which, at times may exceed federally insured limits. DataLink believes
that they are not exposed to any significant risks on their cash accounts.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are primarily comprised of microfilm, microfiche and related
supplies.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements and capital lease assets are
depreciated over the lesser of their useful life or the term of the lease.
Revenue Recognition
Revenue is recognized when the services are rendered or the products are
shipped to customers. Service revenues are recognized on a
percentage-of-completion basis.
Income Taxes
DataLink has elected to be taxed under Subchapter S of the Internal Revenue
Code, and, accordingly, the taxable income or loss of DataLink is included in
the stockholders' individual tax returns.
F-60
<PAGE>
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
DataLink reports certain income and expense items for income tax purposes
on a different basis than that reflected in the accompanying financial
statements. The primary differences are due to depreciation and accounting
treatment of capitalized related party lease. The cumulative amount of these
differences at December 31, 1996 was approximately $75,000. If the S Corporation
status were terminated, a deferred income tax liability related to these
cumulative differences would need to be recorded.
For informational purposes, the accompanying statements of operations
include an unaudited pro forma adjustment for income taxes which would have been
recorded if DataLink had not been an S Corporation, based on the tax laws in
effect during the respective periods. The differences between the federal
statutory income tax rate and the pro forma income tax rate primarily relate to
state income taxes and expenses not deductible for tax purposes.
Supplemental Cash Flow Information
For the years ended December 31, 1994, 1995 and 1996, and the six month
periods ended June 30, 1996 and 1997, DataLink paid interest of $46,416,
$52,226, $78,223, $27,174 and $58,823, respectively. Capital lease obligations
of $720,000 were incurred on a related-party facility lease entered into in the
year ended December 31, 1996 and the six month period ended June 30, 1996.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt and capital lease obligations
approximates fair value at the balance sheet dates.
Long-Lived Assets
DataLink follows Statement of Financial Accounting Standards 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 assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary.
F-61
<PAGE>
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------------- JUNE 30,
(YEARS) 1995 1996 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Building (related-party capital
lease)................................ 20 $ -- $ 720,000 $ 720,000
Scanning and filming equipment.......... 5-7 925,649 853,817 857,475
Furniture and office equipment.......... 5-7 208,827 208,370 218,073
Leasehold improvements.................. 5-20 9,715 29,402 29,402
Purchased software...................... 5 48,829 51,100 57,620
---------- ---------- ----------
1,193,020 1,862,689 1,882,570
Less-Accumulated depreciation and
amortization.......................... (723,801) (799,332) (903,179)
---------- ---------- ----------
$ 469,219 $1,063,357 $ 979,391
========== ========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997 was $190,647, $204,348,
$217,967, $104,412 and $103,846, respectively. As of December 31, 1995 and 1996
and June 30, 1997, DataLink had $88,487, $737,647, and $672,000 in capital lease
property, net of accumulated amortization.
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Accrued payroll and commissions................. $39,306 $35,086 $ 48,188
Accrued vacation................................ 10,189 16,618 18,000
Accrued sales tax............................... 13,473 10,771 21,851
Accrued interest................................ -- 28,835 37,211
Other........................................... 7,284 327 3,377
------- ------- --------
$70,252 $91,637 $128,627
======= ======= ========
</TABLE>
5. LINES OF CREDIT:
DataLink has a credit facility with a bank providing for a $250,000
revolving line of credit ("Revolver"), a $50,000 equipment line of credit
("Equipment Line"), and two term loans (see Note 6). The borrowings under the
Revolver are secured by substantially all of the assets of DataLink. Advances
under the line bear interest at prime plus 1% (9.5% at June 30, 1997). The
availability under the Revolver is restricted by the borrowing base, as defined.
The Revolver expired on June 30, 1997, and DataLink is currently negotiating for
an extension. The highest amount outstanding under the Revolver for the year
ended December 31, 1996 and the six months ended June 30, 1997 was $20,000 and
the average amount outstanding was $14,167 and $20,000, respectively. The
weighted average interest rate on the Revolver for the year ended December 31,
1996, and the six months ended June 30, 1997 was 9.27% and 9.38%, respectively.
There were no amounts outstanding under the Revolver in 1995.
The Equipment Line is used to finance the purchase of equipment by
DataLink. Borrowings are secured by the assets purchased and availability under
the line is limited by the borrowing base, as defined. Advances under the line
bear interest at prime plus 1.5% (10% at June 30, 1997). For the years
F-62
<PAGE>
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
5. LINES OF CREDIT: -- (CONTINUED)
ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997,
there were no amounts outstanding under the line. DataLink is currently
negotiating for an extension of the line which matured on June 30, 1997. The
credit facility requires, among other things, DataLink to meet specified
financial ratios and imposes restrictions on the sales of property.
6. LONG-TERM DEBT (EXCLUDING CAPITALIZED LEASE OBLIGATION TO RELATED PARTY (SEE
NOTE 9)):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Bank loan, monthly principal and interest payments of
$5,498, interest at prime plus 1.5% (10% at June 30,
1997), matures on March 31, 2000.......................... $218,516 $172,174 $147,265
Bank loan, monthly principal payments of $3,283, plus
interest at prime plus 2% (10.5% at June 30, 1997),
matures on June 1, 1998................................... 98,491 59,095 39,070
Other....................................................... -- 12,326 10,740
Capitalized lease, monthly principal and interest payments
of $5,333, final payment of $23,340 due on February 25,
1997...................................................... 86,853 27,659 --
-------- -------- --------
403,860 271,254 197,075
Less-Current portion........................................ (135,272) (121,764) (83,954)
-------- -------- --------
$268,588 $149,490 $113,121
======== ======== ========
</TABLE>
As of December 31, 1996, maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997...................................... $121,764
1998...................................... 80,034
1999...................................... 66,977
2000...................................... 2,479
--------
$271,254
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
DataLink leases vehicles and office equipment under noncancelable operating
leases. Rent expense under operating leases for the years ended December 31,
1994, 1995 and 1996 and the six month periods ended June 30, 1996 and 1997 was
$109,519, $119,626, $80,555, $67,586 and $14,982, respectively. Future minimum
lease payments under noncancelable operating leases as of December 31, 1996, are
as follows:
<TABLE>
<S> <C>
1997....................................... $25,199
1998....................................... 23,708
1999....................................... 3,231
-------
$52,138
=======
</TABLE>
DataLink is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on DataLink's financial position or
results of operations.
F-63
<PAGE>
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
8. MAJOR CUSTOMERS:
For the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1997, one customer accounted for 10%, 11%, 10% and 11% of total
revenues, respectively. For the year ended December 31, 1994 and the six month
periods ended June 30, 1996 and 1997, DataLink had another customer which
accounted for 11%, 11% and 16%, respectively, of total revenues. The loss of one
or more of these major clients could have a materially adverse effect on the
DataLink's business.
9. RELATED-PARTY TRANSACTIONS:
Leasing Transactions
In March 1996, DataLink entered into a lease on its office facility with an
entity whose stockholders are also the stockholders of DataLink. The lease is
accounted for as a capital lease and has a term of 20 years. The implicit
interest rate of the lease is 13.6%. A security deposit on the building of
$15,000 is recorded in other assets as of December 31, 1996 and June 30, 1997.
At December 31, 1996, the future minimum lease payments under the capital
lease are as follows:
<TABLE>
<S> <C>
1997.................................... $ 85,578
1998.................................... 89,988
1999.................................... 92,613
2000.................................... 97,239
2001.................................... 100,940
2002 and thereafter..................... 1,840,202
----------
Total minimum lease payments............ 2,306,560
Less- Amounts representing interest..... (1,586,560)
----------
Net minimum principal payments.......... $ 720,000
==========
</TABLE>
Due to the payment timing and the implicit interest rate, no principal
payments will be made for several years. As a result, the entire related party
capital lease is classified as long-term. DataLink expects to restructure the
lease as an operating lease in connection with the sale of the business (see
Notes 1 and 10).
Notes Receivable
On June 30, 1997, DataLink issued a $10,000 note to an entity whose
stockholders are also the stockholders of DataLink. The note matures December
31, 1997, with interest due monthly at an annual rate of 9.5%. On April 15,
1996, DataLink issued a $20,000 note to the same entity. The note matured on
June 30, 1997, with interest due monthly at a rate equivalent to the rate under
the Revolver (see Note 5).
10. SALE OF BUSINESS (UNAUDITED):
In September 1997, DataLink and its stockholders entered into a net asset
acquisition agreement with ImageMAX (see Note 1).
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DocuTech, Inc. and DocuTech Data Systems, Inc.:
We have audited the accompanying combined balance sheets of DocuTech, Inc.
and DocuTech Data Systems, Inc. (Nebraska corporations) as of December 31, 1995
and 1996 and the related combined statements of operations, stockholders' equity
and cash flows for each of the three years in the 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 DocuTech, Inc. and DocuTech
Data Systems, Inc. as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 1, 1997
F-65
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
30,1995
1997 --------
1996
--
------------------------------
(UNAUDITED)ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash..................................................................... $ 13,585 $181,065 $ 152,427
Accounts receivable, net of reserve of $16,200 in 1997................... 93,171 235,474 520,315
Inventories.............................................................. -- 23,470 5,678
Prepaid expenses and other............................................... 5,336 8,331 14,301
Advances to stockholder.................................................. 30,609 -- --
-------- -------- ---------
Total current assets............................................... 142,701 448,340 692,721
PROPERTY AND EQUIPMENT, net................................................ 101,462 118,295 113,849
-------- -------- ---------
$244,163 $566,635 $ 806,570
======== ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit........................................................... $ 37,000 $ -- $ --
Current portion of long-term debt........................................ 69,758 25,015 10,184
Accounts payable......................................................... 14,759 67,366 59,112
Accrued expenses......................................................... 37,722 52,979 104,323
Deferred revenue......................................................... 50,522 58,214 108,716
-------- -------- ---------
Total current liabilities.......................................... 209,761 203,574 282,335
-------- -------- ---------
LONG-TERM DEBT............................................................. 20,225 9,103 5,041
-------- -------- ---------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Common stock (DocuTech, Inc.), $1 par value, 300 shares authorized,
issued and outstanding................................................ 300 300 300
Common stock (DocuTech Data Systems, Inc.), $1 par value, 10,000 shares
authorized, issued and outstanding.................................... 10,000 10,000 10,000
Retained earnings........................................................ 3,877 343,658 508,894
-------- -------- ---------
Total stockholders' equity......................................... 14,177 353,958 519,194
-------- -------- ---------
$244,163 $566,635 $ 806,570
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services.............................. $599,793 $ 853,786 $1,248,631 $ 522,761 $ 580,248
Products.............................. -- 60,087 317,544 186,192 202,716
Software.............................. -- 159,111 756,308 343,813 623,731
-------- ---------- ---------- ---------- ----------
Total revenues.................. 599,793 1,072,984 2,322,483 1,052,766 1,406,695
-------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Cost of services...................... 376,573 479,029 500,711 224,963 267,429
Cost of products...................... -- 52,250 276,125 161,906 176,275
Cost of software...................... -- 21,744 308,614 151,859 97,010
Depreciation.......................... 11,806 24,430 31,474 15,653 17,570
-------- ---------- ---------- ---------- ----------
388,379 577,453 1,116,924 554,381 558,284
-------- ---------- ---------- ---------- ----------
Gross profit.................... 211,414 495,531 1,205,559 498,385 848,411
PRODUCT DEVELOPMENT EXPENSES............ -- 127,032 161,414 88,799 94,874
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 198,807 274,262 585,564 272,421 284,381
-------- ---------- ---------- ---------- ----------
Operating income................ 12,607 94,237 458,581 137,165 469,156
INTEREST EXPENSE........................ 4,178 13,126 15,848 9,370 2,539
INTEREST INCOME......................... -- -- (3,248) -- --
-------- ---------- ---------- ---------- ----------
NET INCOME.............................. $ 8,429 $ 81,111 $ 445,981 $ 127,795 $ 466,617
======== ========== ========== ========== ==========
PRO FORMA DATA (UNAUDITED)
Historical net income................. $ 8,429 $ 81,111 $ 445,981 $ 127,795 $ 466,617
Pro forma income taxes................ 3,372 32,444 178,392 51,118 186,647
-------- ---------- ---------- ---------- ----------
PRO FORMA NET INCOME.................... $ 5,057 $ 48,667 $ 267,589 $ 76,677 $ 279,970
======== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DOCUTECH DATA
DOCUTECH, INC. SYSTEMS, INC.
---------------- ------------------
COMMON STOCK COMMON STOCK
---------------- ------------------ RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994..................... 300 $300 -- $ -- $(19,063) $(18,763)
Net income.............................. -- -- -- -- 8,429 8,429
---- ---- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1994................... 300 300 -- -- (10,634) (10,334)
Dividends to stockholders............... -- -- -- -- (66,600) (66,600)
Issuance of common stock................ -- -- 10,000 10,000 -- 10,000
Net income.............................. -- -- -- -- 81,111 81,111
---- ---- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1995................... 300 300 10,000 10,000 3,877 14,177
Dividends to stockholders............... -- -- -- -- (106,200) (106,200)
Net income.............................. -- -- -- -- 445,981 445,981
---- ---- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1996................... 300 300 10,000 10,000 343,658 353,958
Dividends to stockholders
(unaudited).......................... -- -- -- -- (301,381) (301,381)
Net income (unaudited).................. -- -- -- -- 466,617 466,617
---- ---- ------- ------- -------- --------
BALANCE, JUNE 30, 1997
(UNAUDITED)................................ 300 $300 10,000 $10,000 $508,894 $519,194
==== ==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
-------- ------- -------- -------- --------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 8,429 $81,111 $445,981 $127,795 $466,617
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation........................................ 11,806 24,430 31,474 15,653 17,570
Loss on disposal of equipment -- -- 418 510 --
Change in operating assets and liabilities-
Accounts receivable.............................. (12,546) (58,858) (142,303) (56,732) (284,841)
Inventories...................................... -- -- (23,470) -- 17,792
Prepaid expenses and other....................... 4,267 4,266 (2,995) 2,134 (5,970)
Accounts payable................................. 16,077 (11,419) 52,607 59,894 (8,254)
Accrued expenses................................. (14,280) 23,028 15,257 55,771 51,344
Deferred revenue................................. -- 50,522 7,692 (20,718) 50,502
-------- ------- -------- -------- --------
Net cash provided by operating activities...... 13,753 113,080 384,661 184,307 304,760
-------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (22,317) (16,897) (31,025) (23,323) (13,124)
-------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit........... 39,000 (2,000) (37,000) (18,255) --
Proceeds from long-term debt............................ 36,569 30,000 -- -- --
Repayments of long-term debt............................ (63,405) (29,203) (73,565) (34,797) (18,893)
Advances to stockholders................................ -- (30,609) (3,953) (3,953) --
Repayment of officer loans.............................. (7,684) -- -- -- --
Issuance of common stock................................ -- 10,000 -- -- --
Dividends to stockholders............................... -- (66,600) (71,638) -- (301,381)
-------- ------- -------- -------- --------
Net cash provided by (used in) financing
activities................................... 4,480 (88,412) (186,156) (57,005) (320,274)
-------- ------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH........................... (4,084) 7,771 167,480 103,979 (28,638)
CASH, BEGINNING OF PERIOD................................. 9,898 5,814 13,585 13,585 181,065
-------- ------- -------- -------- --------
CASH, END OF PERIOD....................................... $ 5,814 $13,585 $181,065 $117,564 $152,427
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
DocuTech, Inc. ("DTI"), a service bureau, and DocuTech Data Systems, Inc.
("DDS"), a provider of open-architecture document scanning software products,
operate jointly as DocuTech ("DocuTech") in Lincoln, Nebraska. DTI provides
document microfilming and imaging services. DDS markets its DocuROM, FileTRAX
and other scanning and electronic image management software nationally to both
end users and service bureaus. DDS presently has more than 70 service bureaus
acting as value-added resellers ("VARs") for its software products.
DDS and its stockholders intend to enter into a merger agreement with
ImageMAX, Inc. (ImageMAX) and DDI and its stockholders intend to enter a net
asset acquisition agreement with ImageMAX which would both close upon the
consummation of the initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The combined financial statements as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 are unaudited and, in the opinion of the
management of DocuTech, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for those interim periods. The results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results to be expected for any other interim period or the entire year.
Basis of Presentation
The combined financial statements include the accounts of DTI and DDS, both
of which are controlled by the same majority stockholder. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories at December 31, 1996 consist of scanning equipment which was
sold to a customer in March 1997.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expenses as incurred.
Property and equipment capitalized under capital leases are recorded at the
lesser of the present value of the minimum lease payments or the fair market
value of the property. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets or the lease term,
whichever is shorter.
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," DocuTech capitalizes certain costs incurred to internally
develop software which is licensed to customers. Capitalization of such software
development costs begins upon the establishment of technological feasibility
(typically determined to be upon completion of a working model) and concludes
when the product is available for general release. For the years ended December
31, 1995 and 1996, and the six months ended June
F-70
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
30, 1997, such costs were immaterial. Costs incurred prior to the establishment
of technological feasibility are charged to product development expense as
incurred.
Revenue Recognition
Service revenue includes document microfilming and imaging services.
Service revenue is recognized on a percentage-of-completion basis as the
services are performed. Product revenue is recognized when the products are
shipped to customers.
Software revenue includes software licensing fees, consulting,
implementation, training and maintenance. Depending on contract terms and
conditions, software license fees are recognized upon delivery of the product if
no significant vendor obligations remain and collection of the resulting
receivable is deemed probable. DocuTech's software licensing agreements provide
for customer support (typically 90 days) as an accommodation to purchasers of
its products. The portion of the license fee associated with customer support is
unbundled from the license fee and is recognized ratably over the warranty
period as maintenance revenue.
Consulting, implementation and training revenues are recognized as the
services are performed. Maintenance revenues are recognized ratably over the
terms of the maintenance agreements. Deferred revenue represents billed software
maintenance for future periods.
Income Taxes
DocuTech has elected to be taxed under Subchapter S of the Internal Revenue
Code, and, accordingly, the taxable income of the Company is included in the
stockholders' individual tax returns.
DocuTech reports certain income and expense items for income tax purposes
on a different basis than that reflected in the accompanying combined financial
statements. The primary timing differences are due to revenue and accruals not
currently reflected as income or deductible for tax purposes, respectively. The
cumulative amount of these differences at December 31, 1996 was approximately
$47,000. If the S Corporation status were terminated, then a deferred income tax
asset related to these cumulative differences would need to be recorded.
For informational purposes, given the pending sale of the business, the
accompanying combined statements of operations include an unaudited pro forma
adjustment for income taxes which would have been recorded if DocuTech had not
been an S Corporation, based on the tax laws in effect during the respective
periods. The differences between the federal statutory income tax rate and the
pro forma income tax rate primarily relates to state income taxes and expenses
not deductible for tax purposes.
Supplemental Cash Flow Information
For the years ended December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1996 and 1997, DocuTech paid interest of $4,013, $12,525,
$15,085, $9,319 and $2,694, respectively. Capital lease obligations of $36,000,
$25,022, $17,700, $17,700 and $0 were incurred on equipment leases entered into
in 1994, 1995, 1996 and the six months ended June 30, 1996 and 1997,
respectively.
F-71
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the combined financial statements at fair value due to their
short-term nature. The carrying amount of long-term debt approximates fair value
on the balance sheet dates.
Long-Lived Assets
DocuTech follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------- JUNE 30,
(YEARS) 1995 1996 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Scanning and filming equipment....................... 5-7 $121,820 $152,606 $159,614
Furniture and office equipment....................... 7 964 6,713 6,713
Computers and related equipment...................... 5 30,689 42,879 48,995
Vehicles............................................. 5 3,000 -- --
-------- -------- --------
156,473 202,198 215,322
Less- Accumulated depreciation....................... (55,011) (83,903) (101,473)
-------- -------- --------
$101,462 $118,295 $113,849
======== ======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997, was $11,806, $24,430, $31,474,
$15,653, and $17,570, respectively. As of December 31, 1995 and 1996 and June
30, 1997, DocuTech had $31,844, $22,573 and $15,251 in property, net of
accumulated amortization, financed under capital leases.
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Accrued payroll and commissions...................................... $22,128 $24,573 $ 71,555
Accrued professional fees............................................ 6,000 12,000 15,000
Other................................................................ 9,594 16,406 17,768
------- ------- --------
$37,722 $52,979 $104,323
======= ======= ========
</TABLE>
F-72
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
5. LINE OF CREDIT:
DocuTech has a line of credit with a bank. The line of credit provides for
a maximum borrowing of 70% the Company's accounts receivable which is computed
at the end of each calendar quarter. The line of credit bears interest at 9.25%
per year. The line is secured by all of DocuTech's assets and is personally
guaranteed by the majority stockholder. The highest outstanding balance was
$40,000 and $37,000 during 1995 and 1996, respectively. The average outstanding
balance was $38,000 and $13,750 during 1995 and 1996, respectively. The line was
not used during the six months ended June 30, 1997.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Term loan payable to a bank in monthly installments of $801 including
interest at 9.5%, through May 1997.................................. $16,708 $ 7,806 $ --
Term loan payable to a bank in two semi-annual installments of $15,000,
plus interest at 9.5%, through October 1996......................... 30,000 -- --
Obligations under capital leases (see Note 7).......................... 43,275 26,312 15,225
------- ------- --------
89,983 34,118 15,225
Less- Current portion.................................................. (69,758) (25,015) (10,184)
------- ------- --------
$20,225 $ 9,103 $ 5,041
======= ======= ========
</TABLE>
7. COMMITMENTS:
DocuTech leases vehicles and office space under noncancelable operating
leases. Rent expense for all operating leases for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997 was
$50,472, $72,869, $75,177, $37,924 and $65,076, respectively. DocuTech also
finances equipment purchases through capital leases.
Future minimum lease payments under DocuTech's leases as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997..................................................................... $20,845 $ 87,698
1998..................................................................... 9,078 26,732
1999..................................................................... 1,547 --
------- ---------
31,470 $ 114,430
=========
Less-Amount representing interest........................................ (5,158)
-------
Present value of future minimum principal lease payments................. 26,312
Less-Current portion..................................................... (17,209)
-------
$ 9,103
=======
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
During the year ended December 31, 1995 and the six months ended June 30,
1996, DocuTech advanced $30,609 and $3,953, respectively to the sole stockholder
of DTI and his wife. These advances totalling $34,562 were declared a dividend
in December 1996.
F-73
<PAGE>
DOCUTECH, INC. AND DOCUTECH DATA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
8. RELATED-PARTY TRANSACTIONS: -- (CONTINUED)
In July 1997, DocuTech agreed to a severance arrangement with an employee
who is also a 10% stockholder of DDS. DocuTech agreed to a severance payment of
$40,000, payable in five equal monthly installments, beginning on August 30,
1997. DocuTech will recognize the $40,000 as an expense in third quarter of
1997.
9. SEGMENT DATA:
DocuTech operates in two business segments. The following table presents
information about DocuTech's operations by segment:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service Bureau................................. $599,793 $ 853,786 $1,248,631 $ 522,761 $ 580,248
Software Products.............................. -- 219,198 1,073,852 530,005 826,447
-------- ---------- ---------- ---------- ----------
$599,793 $1,072,984 $2,322,483 $1,052,766 $1,406,695
Net Income (Loss):
Service Bureau................................. $ 8,429 $ 86,184 $ 415,709 $ (1,841) $ 206,781
Software Products.............................. -- (5,073) 30,272 129,636 259,836
-------- ---------- ---------- ---------- ----------
$ 8,429 $ 81,111 $ 445,981 $ 127,795 $ 466,617
Identifiable Assets:
Service Bureau................................. $ 220,511 $ 354,779 $ 282,978
Software Products.............................. 23,652 211,856 523,592
---------- ---------- ----------
$ 244,163 $ 566,635 $ 806,570
Property and Equipment Additions (including capital
lease additions):
Service Bureau................................. $ 58,317 $ 39,033 $ 37,224 $ 37,223 $ 5,978
Software Products.............................. -- 2,886 11,501 3,800 7,146
-------- ---------- ---------- ---------- ----------
$ 58,317 $ 41,919 $ 48,725 $ 41,023 $ 13,124
Depreciation Expense:
Service Bureau................................. $ 11,806 $ 24,142 $ 29,966 $ 14,893 $ 15,994
Software Products.............................. -- 288 1,508 760 1,576
-------- ---------- ---------- ---------- ----------
$ 11,806 $ 24,430 $ 31,474 $ 15,653 $ 17,570
</TABLE>
10. SUBSEQUENT EVENT (UNAUDITED):
In September 1997, DocuTech and DDI and their stockholders entered into the
agreements discussed in Note 1 with ImageMAX.
F-74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Image & Information Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Image &
Information Solutions, Inc. (a Louisiana corporation) as of October 31, 1995 and
1996 and the related consolidated statements of operations, stockholder's equity
and cash flows for each of the three years in the period ended October 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 Image & Information
Solutions, Inc. as of October 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
September 10, 1997.
F-75
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------ JULY 31,
1995 1996 1997
ASSETS ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $1,530,159 $1,320,832 $ 1,252,026
Certificates of deposit........................................... 119,557 127,352 131,073
Accounts receivable............................................... 368,442 337,243 468,043
Inventory......................................................... 436,208 399,708 453,338
---------- ---------- -----------
Total current assets........................................ 2,454,366 2,185,135 2,304,480
---------- ---------- -----------
PROPERTY AND EQUIPMENT, net......................................... 733,436 725,860 719,256
RECEIVABLE FROM STOCKHOLDER......................................... 89,080 119,080 139,330
---------- ---------- -----------
$3,276,882 $3,030,075 $ 3,163,066
========== ========== ===========
LIABILITIES AND
STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................................. $ 60,286 $ 77,105 $ 81,446
Accounts payable.................................................. 258,338 190,950 129,514
Accrued expenses.................................................. 216,040 155,290 191,675
Taxes payable..................................................... 667,844 648,176 708,847
---------- ---------- -----------
Total current liabilities................................... 1,202,508 1,071,521 1,111,482
---------- ---------- -----------
LONG-TERM DEBT, net of current portion.............................. 474,329 426,582 363,211
---------- ---------- -----------
DEFERRED TAXES PAYABLE.............................................. 6,176 2,761 2,761
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 5 and 6)
STOCKHOLDER'S EQUITY:
Common stock, no par value, stated value $3.33 per share, 25,000
shares authorized, 300 shares issued........................... 1,000 1,000 1,000
Treasury stock, 200 shares, at cost............................... (68,682) (68,682) (68,682)
Retained earnings................................................. 1,661,551 1,596,893 1,753,294
---------- ---------- -----------
Total stockholders' equity.................................. 1,593,869 1,529,211 1,685,612
---------- ---------- -----------
$3,276,882 $3,030,075 $ 3,163,066
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-76
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services.......................... $2,292,478 $2,302,910 $2,383,522 $1,839,345 $2,014,104
Products.......................... 1,345,227 1,710,397 1,575,118 1,298,135 1,316,370
---------- ---------- ---------- ---------- ----------
3,637,705 4,013,307 3,958,640 3,137,480 3,330,474
---------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Services.......................... 724,157 917,331 1,022,868 721,310 767,154
Products.......................... 1,129,297 1,302,406 1,228,915 1,024,455 965,719
Depreciation...................... 158,693 154,715 156,675 120,124 126,585
---------- ---------- ---------- ---------- ----------
2,012,147 2,374,452 2,408,458 1,865,889 1,859,458
---------- ---------- ---------- ---------- ----------
Gross profit................... 1,625,558 1,638,855 1,550,182 1,271,591 1,471,016
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 1,327,397 1,264,394 1,672,745 1,084,511 1,203,961
---------- ---------- ---------- ---------- ----------
Operating income (loss)........ 298,161 374,461 (122,563) 187,080 267,055
INTEREST EXPENSE.................... 97,326 88,815 95,101 72,305 75,126
INTEREST INCOME..................... (52,184) (97,611) (93,221) (65,716) (60,333)
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes....................... 253,019 383,257 (124,443) 180,491 252,262
INCOME TAXES........................ 101,667 143,725 (59,785) 68,587 95,861
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)................... $ 151,352 $ 239,532 $ (64,658) $ 111,904 $ 156,401
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-77
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1993.......................... 300 $1,000 $1,270,667 $(68,682) $ 1,202,985
Net income....................................... -- -- 151,352 -- 151,352
------ ------ ---------- -------- -----------
BALANCE, OCTOBER 31, 1994.......................... 300 1,000 1,422,019 (68,682) 1,354,337
Net income....................................... -- -- 239,532 -- 239,532
------ ------ ---------- -------- -----------
BALANCE, OCTOBER 31, 1995.......................... 300 1,000 1,661,551 (68,682) 1,593,869
Net loss......................................... -- -- (64,658) -- (64,658)
------ ------ ---------- -------- -----------
BALANCE, OCTOBER 31, 1996.......................... 300 1,000 1,596,893 (68,682) 1,529,211
Net income (unaudited)........................... -- -- 156,401 -- 156,401
------ ------ ---------- -------- -----------
BALANCE, JULY 31, 1997 (UNAUDITED)................. 300 $1,000 $1,753,294 $(68,682) $ 1,685,612
====== ====== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 151,352 $ 239,532 $ (64,658) $ 111,904 $ 156,401
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation............................... 158,693 154,715 156,675 120,124 126,585
Provision for loss on accounts
receivable.............................. 71,191 59,798 105,491 79,118 25,000
Provision for deferred income taxes........ (38,754) (3,959) (3,415) -- --
Change in operating assets and liabilities-
Accounts receivable..................... (44,520) (110,645) (74,292) (116,727) (155,800)
Inventories............................. 15,081 (56,826) 36,500 167,174 (52,485)
Accounts payable........................ 129,479 (22,537) (67,388) (118,885) (61,436)
Accrued expenses........................ 112,822 (1,234) (60,750) (46,532) 36,385
Taxes payable........................... 162,688 173,333 (19,668) 92,055 60,671
Net changes in other assets and
liabilities........................... -- (6,351) (7,795) (5,160) (4,866)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities.......................... 718,032 425,826 700 283,071 130,455
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increases in receivables from stockholder...... (30,298) (29,399) (30,000) (22,500) (20,250)
Purchases of property and equipment............ (162,501) (199,170) (149,099) (87,478) (119,981)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities.......................... (192,799) (228,569) (179,099) (109,978) (140,231)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................... 566,169 14,311 36,376 36,376 --
Principal payments on long-term debt........... (760,584) (47,576) (67,304) (48,408) (59,030)
---------- ---------- ---------- ---------- ----------
Net cash used in financing
activities.......................... (194,415) (33,265) (30,928) (12,032) (59,030)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 330,818 163,992 (209,327) 161,061 (68,806)
CASH AND CASH EQUIVALENTS, beginning of period... 1,035,349 1,366,167 1,530,159 1,530,159 1,320,832
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period......... $1,366,167 $1,530,159 $1,320,832 $1,691,220 $1,252,026
========== ========== ========== ========== ==========
SUPPLEMENTAL DATA:
Cash paid for-
Income taxes................................. $ 9,133 $ 18,924 $ 17,456 $ 12,986 $ 75,199
Interest..................................... 54,536 39,650 36,545 28,655 24,653
</TABLE>
The accompanying notes are an integral part of these statements.
F-79
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 31, 1997 AND FOR THE
NINE MONTHS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
Image & Information Solutions, Inc. (formerly Microfilm Supply, Inc.)
("I(2) Solutions") was incorporated in Louisiana on October 8, 1974. I(2)
Solutions provides data and information conversion services ranging from optical
disk scanning/imaging to microfilm processing. I(2) Solutions is also an
authorized Minolta and Kodak dealer, selling various microfilm and microfiche
readers as well as other related equipment.
I(2) Solutions and its stockholder intend to enter into a merger agreement
with ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Consolidated Financial Statements
The consolidated financial statements as of July 31, 1997 and for the nine
months ended July 31, 1996 and 1997 are unaudited and, in the opinion of
management of I(2) Solutions, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for
those interim periods. The results of operations for the nine months ended July
31, 1997 are not necessarily indicative of the results to be expected for the
full year.
Principles of Consolidation
The consolidated financial statements include the results of I(2) Solutions
and its subsidiary. All intercompany transactions have been eliminated from the
accompanying consolidated financial statements.
Cash and Cash Equivalents
I(2) Solutions considers highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.
Accounts Receivable
Accounts receivable are stated net of an allowance for uncollectible
accounts of $25,000 at July 31, 1997.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories primarily represent microfiche viewing and imaging equipment
and production and related supplies.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expenses as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are depreciated over the
lesser of their useful life or the term of the lease.
F-80
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JULY 31, 1997 AND FOR THE
NINE MONTHS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Revenue Recognition
Revenue is recognized when the services are rendered or the products
shipped to customers. Service revenue is recognized on a
percentage-of-completion basis.
Income Taxes
I(2) Solutions accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured using enacted tax rates that are expected to be in
effect when the differences reverse. See Note 6.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the consolidated financial statements at fair value due to the
short-term nature of those instruments. The carrying amount of long-term debt
approximates fair value on the balance sheet dates.
Long-Lived Assets
I(2) Solutions follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31,
USEFUL LIVES ------------------------ JULY 31,
YEARS 1995 1996 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Scanning and filming equipment......................... 5-7 $1,159,060 $1,270,910 $1,388,074
Furniture and office equipment......................... 5-7 81,116 81,116 82,434
Autos.................................................. 5 163,590 177,981 159,041
Building and building improvements..................... 30 644,847 661,061 661,061
Land................................................... 124,809 124,809 126,809
---------- ---------- ----------
2,173,422 2,315,877 2,417,419
Less- Accumulated depreciation......................... (1,439,986) (1,590,017) (1,698,163)
---------- ---------- ----------
$ 733,436 $ 725,860 $ 719,256
========== ========== ==========
</TABLE>
F-81
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JULY 31, 1997 AND FOR THE
NINE MONTHS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED.)
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Term loan payable to a bank in monthly installments of $7,515
including interest at 7.97%, through April 2002, secured by
real estate................................................... $457,282 $402,157 $357,661
Term loan payable to a bank in monthly installments of $490
including interest at 7.75% through February 1999, secured by
automobiles................................................... -- 12,111 8,303
Term loan payable to a bank in monthly installments of $645
including interest at 7.75% through February 1999, secured by
automobiles................................................... -- 15,948 10,935
Term loan payable to a bank in monthly installments of $455
including interest at 8.9% through July 1998, secured by
automobiles................................................... 12,907 8,427 4,793
Note payable to former stockholder in varying monthly
installments of $417 to $883 through March 2009 without
interest, interest imputed on present value at 8%............. 64,426 65,044 62,965
-------- -------- --------
534,615 503,687 444,657
Less- Current portion........................................... (60,286) (77,105) (81,446)
-------- -------- --------
$474,329 $426,582 $363,211
======== ======== ========
</TABLE>
As of October 31, 1996, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
- ---------------------------------------------------------
<S> <C>
1997................................................... $ 77,105
1998................................................... 86,736
1999................................................... 80,784
2000................................................... 83,126
2001................................................... 90,000
Thereafter............................................. 85,936
-----------
$ 503,687
===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
I(2) Solutions leases certain office space (See Note 8) and certain
equipment under noncancelable operating leases. Rent expense for the years ended
October 31, 1994, 1995 and 1996, was $90,245, $74,054 and $59,943, respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 52,324
1998..................................................... 17,324
1999..................................................... 3,872
---------
$ 73,520
=========
</TABLE>
F-82
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JULY 31, 1997 AND FOR THE
NINE MONTHS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED.)
5. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
I(2) Solutions is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on I(2) Solutions' financial
position or results of operations. See Note 6 regarding Income Taxes.
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, JULY
-------------------------------- 31,
1994 1995 1996 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Current Provision (Benefit):
Federal........................................... $123,207 $123,559 $(54,188) $81,482
State............................................. 17,214 24,125 (2,182) 14,379
Deferred Provision (Benefit):
Federal........................................... (32,941) (3,365) (2,903) --
State............................................. (5,813) (594) (512) --
-------- -------- -------- -------
$101,667 $143,725 $(59,785) $95,861
======== ======== ======== =======
</TABLE>
The reconciliation of the statutory Federal income tax rate to I(2)
Solutions' effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------- JULY 31,
1994 1995 1996 1997
---- ---- ---- --------
<S> <C> <C> <C> <C>
Income tax rate..................................................... 34% 34% 34% 34%
State income taxes, net of federal tax benefit...................... 4 4 4 4
Non deductible expense.............................................. 2 -- 10 --
-- -- -- --
40% 38% 48% 38%
== == == ==
</TABLE>
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Gross deferred tax assets:
Accruals and reserves not currently deductible................ $ 51,905 $ 67,790 $ 67,790
Gross deferred tax liability:
Book/tax difference of accounts receivable.................... (58,081) (70,551) (70,551)
-------- -------- --------
Net deferred tax liability:................................... $ 6,176 $ 2,761 $ 2,761
======== ======== ========
</TABLE>
I(2) Solutions did not have any valuation allowances against deferred tax
assets at July 31, 1997, as it believes it is more likely than not that the
deferred tax assets will be realized.
During 1997 I(2) Solutions filed amended Federal and state tax returns
which resulted in the payment of additional income taxes and interest
attributable to the year ended October 31, 1996 and certain prior years. The
accompanying consolidated financial statements reflect the income tax expense
and related interest attributable to the respective periods. As of October 31,
1995 and 1996 and July 31,
F-83
<PAGE>
IMAGE & INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JULY 31, 1997 AND FOR THE
NINE MONTHS ENDED JULY 31, 1996 AND 1997 IS UNAUDITED.)
6. INCOME TAXES: -- (CONTINUED)
1997, income taxes payable included interest payable of $87,000, $140,000, and
$187,000, respectively. The accompanying consolidated financial statements do
not reflect any provision for penalties or related interest that may be incurred
as a result of these additional tax payments. These taxes, interest and
penalties could range from $0 to approximately $600,000.
7. EMPLOYEE INCENTIVE PLANS:
I(2) Solutions maintains a 401(k) Plan for benefit of its employees. Under
provisions of the Plan, I(2) Solutions matches 100% of employees' total
contributions to the Plan, subject to Internal Revenue Service limitations.
Total expense recorded by I(2) Solutions related to the Plan was $42,000,
$39,000 and $49,000 for the years ended October 31, 1994, 1995 and 1996.
During the fiscal year ended October 31, 1996 and the nine month period
ended July 31, 1997, I(2) Solutions paid discretionary bonuses to the
stockholder totaling approximately $419,000 in 1996 and $162,000 in 1997. These
bonuses were paid throughout 1996 and 1997, with the majority of payments
occurring in the fourth quarter of fiscal 1996 and the first quarter of fiscal
1997.
8. RELATED-PARTY TRANSACTIONS:
I(2) Solutions rents office space in Bossier City, Louisiana, from an
educational trust fund benefiting the stockholder's children. Rent payments to
the trust fund totaled $74,000, $71,000 and $42,000 for the years ended October
31, 1994, 1995 and 1996. I(2) Solutions also rents certain other space from the
stockholder's parents; rental payments pursuant to this agreement totaled
$12,000 for each of the years ended October 31, 1994, 1995 and 1996.
In February 1997 I(2) Solutions moved the documents imaging portion of its
operations to a newly constructed building adjacent to its then existing Monroe,
Louisiana facility. The newly constructed building is owned by the I(2)
Solutions stockholder. Through July 31, 1997 the stockholder has not charged
I(2) Solutions any rent.
In 1993 I(2) Solutions entered into a split-dollar life insurance agreement
with the stockholder. Under the terms of agreement, I(2) Solutions paid premiums
on life insurance policies covering the stockholder and his father. These
premiums paid have been recorded as a receivable and are included in Receivable
from Stockholder in the accompanying consolidated financial statements. I(2)
Solutions maintains an assignment of the cash surrender value of the policies as
collateral for the premiums paid.
9. SUBSEQUENT EVENT (UNAUDITED):
In September 1997, I(2) Solutions entered into a merger agreement with ImageMAX
(see Note 1).
F-84
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Image Memory Systems, Inc.:
We have audited the accompanying balance sheets of Image Memory Systems,
Inc. (an Ohio corporation) as of November 30, 1995 and 1996 and the related
statements of operations, shareholder's equity and cash flows for each of the
three years in the period ended November 30, 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 Image Memory Systems, Inc.
as of November 30, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended November 30, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 6, 1997
F-85
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------- MAY 31,
1995 1996 1997
ASSETS -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash..................................................................... $ 656 $ 134 $ 13,390
Accounts receivable, net of reserves of $18,175, $4,700 and $4,700....... 549,189 322,960 547,969
Inventories.............................................................. 77,704 10,775 12,314
Deferred tax asset....................................................... 2,170 21,394 --
Prepaid expenses and other............................................... 16,122 47,288 41,997
-------- -------- ---------
Total current assets............................................... 645,841 402,551 615,670
PROPERTY AND EQUIPMENT, net................................................ 233,849 167,287 141,243
OTHER ASSETS............................................................... 74,856 75,185 69,492
-------- -------- ---------
$954,546 $645,023 $ 826,405
======== ======== =========
LIABILITIES AND
SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit........................................................... $ 40,000 $137,000 $ 179,000
Current portion of long-term debt........................................ 331,233 107,290 91,328
Accounts payable......................................................... 140,689 103,766 71,777
Accrued expenses and other............................................... 145,151 98,085 135,873
-------- -------- ---------
Total current liabilities.......................................... 657,073 446,141 477,978
-------- -------- ---------
LONG-TERM DEBT............................................................. 72,381 161,042 131,198
-------- -------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDER'S EQUITY:
Common stock, no par value, 750 shares authorized, 100 shares issued and
33.5 shares outstanding............................................... 100,000 100,000 100,000
Retained earnings........................................................ 408,496 221,244 400,633
Treasury stock........................................................... (283,404) (283,404) (283,404)
-------- -------- ---------
Total shareholder's equity......................................... 225,092 37,840 217,229
-------- -------- ---------
$954,546 $645,023 $ 826,405
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, MAY 31,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services............................ $2,352,885 $2,532,476 $1,968,908 $ 985,545 $1,205,342
Products............................ 80,998 550,778 405,029 320,955 104,200
---------- ---------- ---------- ---------- ----------
2,433,883 3,083,254 2,373,937 1,306,500 1,309,542
---------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Services............................ 1,563,701 1,826,755 1,659,297 811,676 669,374
Products............................ 72,264 431,319 240,863 185,964 86,105
Depreciation........................ 140,639 112,406 95,349 43,044 35,100
---------- ---------- ---------- ---------- ----------
1,776,604 2,370,480 1,995,509 1,040,684 790,579
---------- ---------- ---------- ---------- ----------
Gross profit........................ 657,279 712,774 378,428 265,816 518,963
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 616,507 707,928 580,731 306,273 299,304
---------- ---------- ---------- ---------- ----------
Operating income (loss)............. 40,772 4,846 (202,303) (40,457) 219,659
INTEREST EXPENSE...................... 31,635 30,942 35,983 17,456 16,648
INTEREST INCOME....................... (267) (1,871) (1,598) (292) (989)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes... 9,404 (24,225) (236,688) (57,621) 204,000
INCOME TAXES (BENEFIT)................ 2,424 (5,341) (49,436) (12,043) 24,611
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)..................... $ 6,980 $ (18,884) $ (187,252) $ (45,578) $ 179,389
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED TREASURY
SHARES AMOUNT EARNINGS STOCK TOTAL
------ -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1993......................... 100 $100,000 $421,405 $(283,404) $ 238,001
Net income....................................... -- -- 6,980 -- 6,980
---- -------- -------- --------- ---------
BALANCE, NOVEMBER 30, 1994......................... 100 100,000 428,385 (283,404) 244,981
Net loss......................................... -- -- (18,884) -- (18,884)
Dividends........................................ -- -- (1,005) -- (1,005)
---- -------- -------- --------- ---------
BALANCE, NOVEMBER 30, 1995......................... 100 100,000 408,496 (283,404) 225,092
Net loss......................................... -- -- (187,252) -- (187,252)
---- -------- -------- --------- ---------
BALANCE, NOVEMBER 30, 1996......................... 100 100,000 221,244 (283,404) 37,840
Net income (unaudited)........................... -- -- 179,389 -- 179,389
---- -------- -------- --------- ---------
BALANCE, MAY 31, 1997 (UNAUDITED).................. 100 $100,000 $400,633 $(283,404) $ 217,229
==== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-88
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, MAY 31,
--------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 6,980 $(18,884) $(187,252) $(45,578) $179,389
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation and amortization.................... 144,790 118,428 101,722 46,231 38,287
Deferred tax benefit............................. (16,448) (2,980) (21,502) -- 24,611
Gain on sale of assets........................... -- -- -- -- (18,895)
Changes in operating assets and liabilities-
Accounts receivable........................... (162,099) (65,733) 226,229 167,518 (225,009)
Inventories................................... (10,504) (50,887) 66,929 62,271 (1,539)
Prepaid expenses and other.................... (38,382) (5,058) (37,868) (10,382) 7,797
Accounts payable.............................. 58,636 33,574 (36,923) (35,349) (33,100)
Accrued expenses.............................. 4,966 59,113 (44,788) (43,102) 35,682
-------- -------- --------- -------- --------
Net cash provided by (used in) operating
activities................................ (12,061) 67,573 66,547 141,609 7,223
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (144,754) (84,648) (13,376) (21,045) (15,461)
Sale of property and equipment....................... 19,250 -- -- -- 25,300
-------- -------- --------- -------- --------
Net cash provided by (used in) investing
activities................................ (125,504) (84,648) (13,376) (21,045) 9,839
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank facilities.................... 137,293 17,840 -- -- --
Net payments on bank facilities...................... -- -- (53,693) (121,071) (3,806)
Dividends to shareholder............................. -- (1,005) -- -- --
-------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities................................ 137,293 16,835 (53,693) (121,071) (3,806)
-------- -------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH........................ (272) (240) (522) (507) 13,256
CASH, BEGINNING OF PERIOD.............................. 1,168 896 656 656 134
-------- -------- --------- -------- --------
CASH, END OF PERIOD.................................... $ 896 $ 656 $ 134 $ 149 $ 13,390
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-89
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
SIX MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
Image Memory Systems, Inc. (IMS) is an Ohio corporation located in Dayton,
Ohio. IMS offers total conversion and document management solutions and services
through various methods of document imaging technology.
IMS and its shareholder intend to enter into a stock acquisition agreement
with ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The financial statements as of May 31, 1997 and for the six months ended
May 31, 1996 and 1997 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of the results for those interim periods. The results of
operations for the six months ended May 31, 1997 are not necessarily indicative
of the results to be expected for the full fiscal year.
Inventories
Inventories represent materials used in the filming and scanning process
and are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are depreciated over the
lesser of their useful life or the term of the lease.
Revenue Recognition
Revenue is recognized when the related services are rendered on a
percentage-of-completion basis or the products are shipped to IMS's customers.
For the six months ended May 31, 1997, IMS had two customers that each accounted
for approximately 10% of revenues.
Income Taxes
IMS accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and income tax basis of assets and
liabilities measured using enacted income tax rates and laws that are expected
to be in effect when the differences reverse.
Effective December 1, 1996, IMS elected to be taxed under Subchapter S of
the Internal Revenue Code and, accordingly, the taxable income and loss of IMS
will be included in the shareholder's individual tax return subsequent to the
election date (see Note 6).
Supplemental Cash Flow Information
IMS paid cash for interest for the years ended November 30, 1994, 1995 and
1996, and the six months ended May 31, 1996 and 1997, of $31,263, $30,266,
$37,482, $16,780 and $17,099, respectively. IMS paid cash for income taxes for
the years ended November 30, 1994, 1995 and 1996, and the six months ended May
31, 1996 and 1997, of $3,663, $5,325, $2,596, $2,596 and $1,715, respectively.
For the years ended November 30, 1994, 1995 and 1996, and the six months ended
F-90
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
SIX MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
May 31, 1996 and 1997, IMS financed equipment purchases with capital leases in
the amount of $0, $6,850, $15,411, $15,411 and $0, respectively.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt approximates fair value on the
balance sheet dates.
Long-Lived Assets
IMS follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED NOVEMBER 30,
USEFUL LIVES ---------------------- MAY 31,
(YEARS) 1995 1996 1997
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Scanning and filming equipment............................ 5-7 $ 774,608 $ 798,189 $ 784,887
Furniture and office equipment............................ 5-7 74,623 79,829 79,829
Leasehold improvements.................................... 15 42,713 42,713 42,713
Vehicles.................................................. 5 17,972 17,972 18,933
--------- --------- ---------
909,916 938,703 926,362
Less- Accumulated depreciation............................ (676,067) (771,416) (785,119)
--------- --------- ---------
$ 233,849 $ 167,287 $ 141,243
========= ========= =========
</TABLE>
As of November 30, 1995 and 1996, and May 31, 1997, IMS had property net of
accumulated depreciation in the amount of $6,850, $17,810 and $15,584,
respectively, financed under capital leases.
F-91
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
SIX MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
4. DEBT:
Line of Credit
IMS had a line of credit in fiscal 1995 and 1996 which provided for maximum
borrowings of $150,000 and $200,000, respectively, at the bank's prime rate plus
.75%. The highest outstanding balance was $150,000 and $200,000 during fiscal
1995 and 1996, respectively. Average borrowings under the line were $76,000 and
$116,000 during fiscal 1995 and 1996, respectively. The weighted average
interest rate on the line of credit was 9.02% during fiscal 1995 and 1996.
Long-Term Debt
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------- MAY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Note payable to bank, payable in monthly installments of $8,000 plus
interest at the bank's prime rate plus 1% (9.75% and 9.25% at November
30, 1995 and 1996, respectively), note was refinanced in February 1997
(see below).............................................................. 136,645 210,459 --
Note payable to bank, payable in monthly installments of $1,250 including
interest at the bank's prime rate plus 1% (9.75% at November 30, 1995)
through June 1996........................................................ 7,500 -- --
Note payable to bank, payable in full plus interest at the bank's prime
rate plus 1% (9.75% at November 30, 1995) in January 1996................ 200,000 -- --
Term note payable to bank, payable in monthly installments of $5,333 plus
interest at the bank's prime rate plus .75% (9.25% at May 31, 1997)
through February 2000.................................................... -- -- 184,225
Note payable to lender, payable in monthly installments of $1,355 including
interest at 4% through June 1998......................................... 39,838 24,902 17,208
Other...................................................................... 19,631 32,971 21,093
-------- -------- --------
403,614 268,332 222,526
Less- Current portion...................................................... (331,233) (107,290) (91,328)
-------- -------- --------
$ 72,381 $161,042 $131,198
======== ======== ========
</TABLE>
In February 1997, IMS entered into a $250,000 line of credit agreement and
a $192,000 term note due to a new bank. The new line expires in May 1998 and
accrues interest at the bank's prime rate plus .75%. Proceeds from the new line
and the term note were used to refinance the existing notes payable with the
remainder to be used for working capital purposes.
Based on the terms of the new note payable, maturities on long term debt as
of November 30, 1996, are $107,290, $78,074, $67,766 and $15,202 in fiscal 1997,
1998, 1999 and 2000, respectively.
F-92
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
SIX MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
5. COMMITMENTS AND CONTINGENCIES:
IMS leases office space from its sole shareholder under a noncancelable
operating lease. Rent expense for all operating leases for the year ended
November 30, 1996, was $86,400. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 89,008
1998..................................................... 90,312
1999..................................................... 87,704
2000..................................................... 86,400
2001..................................................... 86,400
--------
$439,824
========
</TABLE>
IMS is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on IMS's financial position or results
of operations.
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 3,850 $(1,510) $(29,561)
State............................................................. 2,171 (852) (16,672)
------- ------- --------
Total.......................................................... 6,021 (2,362) (46,233)
------- ------- --------
Deferred:
Federal........................................................... (2,300) (1,905) (2,048)
State............................................................. (1,297) (1,074) (1,155)
------- ------- --------
Total.......................................................... (3,597) (2,979) (3,203)
------- ------- --------
$ 2,424 $(5,341) $(49,436)
======= ======= ========
</TABLE>
The reconciliation of the statutory federal income tax rate to IMS's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax rate........................................................ 34.0% (34.0)% (34.0)%
Reduction due to graduated federal tax rates........................... (19.0) 19.0 19.0
State income taxes, net of federal tax benefit......................... 6.6 (6.6) (6.6)
Nondeductible expenses................................................. 4.2 (0.4) 0.7
----- ----- -----
25.8% (22.0)% (20.9)%
===== ===== =====
</TABLE>
F-93
<PAGE>
IMAGE MEMORY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
SIX MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
6. INCOME TAXES: -- (CONTINUED)
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Gross deferred tax assets:
Accruals and reserves not currently deductible.................. $ 2,170 $ 3,094
Net operating loss carryforwards................................ -- 18,300
------- -------
2,170 21,394
Gross deferred tax liability:
Other........................................................... (3,142) (864)
------- -------
$ (972) $20,530
======= =======
</TABLE>
IMS did not have any valuation allowances against deferred tax assets at
November 30, 1995 and 1996, as it believes it is more likely than not that the
deferred tax assets will be realized.
In connection with IMS's election to be taxed under Subchapter S of the
Internal Revenue Code on December 1, 1996 (see Note 2), IMS charged its net
deferred tax asset of $20,530 to expense, as it no longer represents a future
tax benefit to IMS. In addition, IMS recorded a $4,081 deferred tax liability
representing future income that will be taxed at the corporate level. If IMS had
not been an S corporation for the six months ended May 31, 1997, based on the
tax laws in effect, the resulting income tax provision of $24,611 would have
been $76,341 on an unaudited pro forma basis.
7. PROFIT SHARING AND EMPLOYEE BENEFIT PLAN:
IMS has a profit sharing plan that covers all qualified employees and
provides for discretionary profit sharing contributions by IMS. Contributions
for the years ended November 30, 1994, 1995 and 1996, and the six months ended
May 31, 1996 and 1997, were $7,500, $20,000, $0, $0 and $10,000, respectively.
In addition, IMS sponsors a 401(k) plan that covers all eligible full-time
employees. In fiscal 1994 and 1995, IMS made matching contributions of 30% of
participant pre-tax contributions, up to a maximum of $300. During the first
eight months of fiscal year 1996, IMS made matching contributions of 50% of
participants' pre-tax contributions up to a maximum of $500. Subsequent to July
1996, IMS discontinued matching contributions to the plan. IMS's matching
contributions for the years ended November 30, 1994, 1995 and 1996, and the six
months ended May 31, 1996 and 1997, were $7,342, $8,110, $12,281, $10,325 and
$0, respectively.
8. RELATED-PARTY TRANSACTIONS:
The sole shareholder of IMS periodically makes advances to IMS in the form
of interest bearing notes. Included in the accompanying balance sheets are notes
payable to the shareholder in the amount of $930, $11,847 and $6,015 at November
30, 1995 and 1996, and May 31, 1997, respectively.
9. SALE OF BUSINESS (UNAUDITED):
In September 1997, IMS and its shareholder entered into a definitive stock
acquisition agreement with ImageMAX (see Note 1).
F-94
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Data Services of New York, Inc.:
We have audited the accompanying balance sheets of International Data Services
of New York, Inc. (a New York corporation) as of August 31, 1995 and 1996 and
the related statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended August 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 International Data Services of
New York, Inc. as of August 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 22, 1997
F-95
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
------------------- MAY 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $177,900 $ 36,079 $210,799
Accounts receivable, net of reserves of zero,
$18,337 and $59,787.............................. 390,620 315,419 370,324
Deferred income taxes............................... 55,493 5,295 5,295
Prepaid income taxes................................ -- 7,080 --
Prepaid expenses and other.......................... 3,633 -- --
-------- -------- --------
Total current assets............................. 627,646 363,873 586,418
PROPERTY AND EQUIPMENT, net......................... 58,921 58,326 64,137
OTHER ASSETS........................................ 2,110 2,110 2,110
-------- -------- --------
$688,677 $424,309 $652,665
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit...................................... $ -- $ 25,000 $ --
Accounts payable.................................... 122,007 155,444 108,173
Accrued expenses.................................... 78,734 85,153 74,952
Accrued bonuses..................................... 240,000 -- 247,500
Due to shareholders................................. -- 31,641 --
Income taxes payable................................ 57,348 -- 16,033
-------- -------- --------
Total current liabilities........................ 498,089 297,238 446,658
-------- -------- --------
DEFERRED INCOME TAXES................................. 6,977 10,814 10,814
-------- -------- --------
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 200 shares authorized,
100 shares issued and outstanding................ 10,000 10,000 10,000
Retained earnings................................... 173,611 106,257 185,193
-------- -------- --------
Total shareholders' equity.......................... 183,611 116,257 195,193
-------- -------- --------
$688,677 $424,309 $652,665
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-96
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
AUGUST 31, MAY 31,
------------------------------------ ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................... $1,375,227 $1,775,549 $1,203,083 $829,447 $1,828,772
---------- ---------- ---------- -------- ----------
COST OF REVENUES:
Cost of services........... 745,662 997,874 809,424 555,860 1,152,851
Depreciation............... 4,375 11,044 13,847 10,385 13,692
---------- ---------- ---------- -------- ----------
Total cost of
revenues............. 750,037 1,008,918 823,271 566,245 1,166,543
---------- ---------- ---------- -------- ----------
Gross profit......... 625,190 766,631 379,812 263,202 662,229
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.... 566,663 732,560 435,238 337,187 558,126
---------- ---------- ---------- -------- ----------
Operating income
(loss)............ 58,527 34,071 (55,426) (73,985) 104,103
INTEREST EXPENSE............. 126 12,177 15,724 11,429 3,793
INTEREST INCOME.............. (2,501) (3,756) (3,796) (2,763) (1,739)
---------- ---------- ---------- -------- ----------
Income (loss) before
income taxes...... 60,902 25,650 (67,354) (82,651) 102,049
INCOME TAX PROVISION......... 13,920 6,027 -- -- 23,113
---------- ---------- ---------- -------- ----------
NET INCOME (LOSS)............ $ 46,982 $ 19,623 $ (67,354) $(82,651) $ 78,936
========== ========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-97
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED TOTAL
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1993.......................... 100 $10,000 $107,006 $117,006
Net income..................................... -- -- 46,982 46,982
--- ------- -------- --------
BALANCE, AUGUST 31, 1994......................... 100 10,000 153,988 163,988
Net income..................................... -- -- 19,623 19,623
--- ------- -------- --------
BALANCE, AUGUST 31, 1995......................... 100 10,000 173,611 183,611
Net loss....................................... -- -- (67,354) (67,354)
--- ------- -------- --------
BALANCE, AUGUST 31, 1996......................... 100 10,000 106,257 116,257
Net income (unaudited)......................... -- -- 78,936 78,936
--- ------- -------- --------
BALANCE, MAY 31, 1997 (UNAUDITED)................ 100 $10,000 $185,193 $195,193
=== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-98
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 31, ENDED MAY 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 46,982 $ 19,623 $(67,354) $(82,651) $ 78,936
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities-
Depreciation......................... 4,375 11,044 13,847 10,385 13,692
Provision for loss on accounts
receivable......................... -- -- 18,439 18,339 39,466
Deferred income taxes................ (37,630) (12,375) 54,035 -- --
Change in operating assets and
liabilities-
Accounts receivable................ (305,513) 103,231 56,762 163,586 (94,372)
Prepaid income taxes............... -- -- (7,080) -- 7,080
Prepaid expenses and other......... (13,459) 13,459 3,633 3,633 --
Other assets....................... (18,778) 13,035 -- -- --
Accounts payable................... 65,679 (51,235) 33,437 (20,912) (47,271)
Income taxes payable............... 39,204 8,684 (57,348) (10,393) 16,033
Accrued expenses................... 9,050 21,299 6,419 (19,008) (10,201)
Accrued bonuses.................... 168,000 72,000 (240,000) (231,575) 247,500
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities........................... (42,090) 198,765 (185,210) (168,596) 250,863
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (31,609) (17,752) (13,252) (5,667) (19,502)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) line of
credit............................... -- -- 25,000 -- (25,000)
Net borrowings (repayments) of amounts
due to shareholder................... 14,000 (28,000) 31,641 36,641 (31,641)
-------- -------- -------- -------- --------
Net cash provided by financing
activities......................... 14,000 (28,000) 56,641 36,641 (56,641)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (59,699) 153,013 (141,821) (137,622) 174,720
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. 84,586 24,887 177,900 177,900 36,079
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.................................. $ 24,887 $177,900 $ 36,079 $ 40,278 $210,799
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-99
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
NINE MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
International Data Services of New York, Inc. ("IDS"), a New York
corporation, is a provider of offshore data entry services for the indexing of
microfilm and scanned documents, litigation support and other traditional data
entry services including addresses and full text. IDS maintains no production
facilities in the United States. The production work is subcontracted
principally to foreign companies located in Jamaica, India, Zimbabwe and the
Philippines. All IDS transactions are denominated in United States Dollars.
IDS and its shareholders intend to enter into a merger agreement with
ImageMAX, Inc. ("ImageMAX") which would close upon consummation of the initial
public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of May 31, 1997 and for the nine months ended
May 31, 1996 and 1997 are unaudited and, in the opinion of management of IDS,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for those interim periods. The results of operations for the nine
months ended May 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
Cash and Cash Equivalents
IDS considers highly liquid investments with original maturities of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value. At August 31, 1995 and 1996, and May 31, 1997,
IDS had $133,233, $36,520 and $146,910 invested in a money market account.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expenses as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets.
Revenue Recognition
Service revenue is recognized on a percentage-of-completion basis as the
services are performed.
Major Customers
For the year ended August 31, 1995, IDS had two customers that accounted
for 20% and 31% of revenues, respectively. For the year ended August 31,1996,
IDS had two customers that accounted for 13% and 11% of revenues, respectively.
For the nine months ended May 31, 1997, IDS had three customers that each
accounted for 19%, 19% and 10% of revenues, respectively. The same customer
accounted for 13% of revenues for the year ended August 31, 1996 and for 19% of
revenues for the nine months ended May 31, 1997.
Income Taxes
IDS accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and income tax basis of assets and
liabilities measured using enacted income tax rates and laws that are expected
to be in effect when the differences reverse.
F-100
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
NINE MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Supplemental Cash Flow Information
For the years ended August 31, 1994, 1995 and 1996 and for the nine months
ended May 31, 1996 and 1997, IDS paid interest of $126, $302, $724, $179 and
$668 and income taxes of $12,346, $9,718, $10,393, $10,393 and $9,095,
respectively.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to the short-term nature
of those instruments.
Long-Lived Assets
IDS follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED AUGUST 31,
USEFUL LIVES ----------------- MAY 31,
YEARS 1995 1996 1997
------------ ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment.................... 5 $31,940 $40,129 $ 56,671
Furniture and office equipment........ 7 27,841 32,904 35,865
Leasehold improvements................ 10 26,027 26,027 26,027
------- ------- --------
85,808 99,060 118,563
Less--Accumulated depreciation........ (26,887) (40,734) (54,426)
------- ------- --------
$58,921 $58,326 $ 64,137
======= ======= ========
</TABLE>
Depreciation expense for the years ended August 31, 1994, 1995 and 1996 and
the nine months ended May 31, 1996 and 1997, was $4,375, $11,044, $13,847 and
$10,385 and $13,692, respectively.
4. LINE OF CREDIT:
IDS maintains a line of credit with a maximum borrowing available
thereunder of $50,000. The line of credit bears interest at 1% over the bank's
base (9.25% at August 31, 1996). Borrowings under the line are secured by all of
IDS's assets. The highest and average outstanding balance was $0 and $25,000
during fiscal 1995 and 1996, respectively. The line was repaid in 1997.
F-101
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
NINE MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
5. COMMITMENTS:
IDS leases office space under noncancelable operating leases. Rent expense
for all operating leases for the years ended August 31, 1994, 1995, 1996 and the
nine months ended May 31, 1996 and 1997 was $16,320, $16,320, $16,320, $12,240
and $12,240, respectively. Future minimum lease payments under noncancelable
operating leases as of August 31, 1996 are as follows:
<TABLE>
<S> <C>
1998....................................... $13,248
1999....................................... 5,520
-------
$18,768
=======
</TABLE>
6. INCOME TAXES:
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 31, ENDED MAY 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Current:
Federal..................... $ 31,067 $11,089 $(41,682) $(11,281) $13,930
State....................... 20,483 7,312 (27,483) (7,439) 9,183
-------- ------- -------- -------- -------
51,550 18,401 (69,165) (18,720) 23,113
-------- ------- -------- -------- -------
Deferred:
Federal.................. (22,677) (7,457) 41,682 11,281 --
State.................... (14,953) (4,917) 27,483 7,439 --
-------- ------- -------- -------- -------
Total.................... (37,630) (12,374) 69,165 18,720 --
-------- ------- -------- -------- -------
$ 13,920 $ 6,027 $ -- $ -- $23,113
======== ======= ======== ======== =======
</TABLE>
The reconciliation of the statutory federal income tax rate to IDS's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 31, ENDED MAY 31,
--------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate........... 34.0% 34.0% 34.0% 34.0% 34.0%
Effect of graduated federal income tax
rates..................................... (19.0) (19.0) (19.0) (19.0) (19.0)
State income taxes, net of federal tax
benefit................................... 7.7 7.7 7.7 7.7 7.7
Nondeductible expenses and interest......... 0.2 0.8 -- -- (0.1)
Losses not benefited........................ -- -- (22.7) (22.7) --
----- ----- ----- ----- -----
22.9% 23.5% --% --% 22.6%
===== ===== ===== ===== =====
</TABLE>
F-102
<PAGE>
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MAY 31, 1997 AND FOR THE
NINE MONTHS ENDED MAY 31, 1996 AND 1997 IS UNAUDITED.)
6. INCOME TAXES: -- (CONTINUED)
Deferred taxes are determined based upon the estimated future tax effects
of differences between the financial statements and income tax basis of assets
and liabilities given the provisions of the enacted tax laws. The tax effect of
temporary differences as established in accordance with SFAS No. 109 that gives
rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Current deferred tax assets:
Accruals and reserves not currently deductible.......... $55,493 $ 5,295
Operating loss carryforwards............................ -- 15,131
Valuation reserve....................................... -- (15,131)
------- -------
55,493 5,295
Non-current deferred tax liability:
Differences in book/tax depreciation.................... (6,977) (10,814)
------- -------
Net deferred tax asset (liability)...................... $48,516 $(5,519)
======= =======
</TABLE>
Due to the uncertainty of the ultimate realization of certain net operating
losses, IDS has provided a valuation reserve for the deferred tax assets as of
August 31, 1996. At August 31, 1996, IDS had a net operating loss carryforward
for United States federal income tax purposes of approximately $67,000.
7. EMPLOYEE BENEFIT PLAN:
IDS maintains a simplified employee pension. IDS contributed to the
shareholders and its employees $45,000, $50,000, $44,000, $32,787 and $39,952
for the years ended August 31, 1994, 1995 and 1996, and the nine months ended
May 31, 1996 and 1997.
8. RELATED-PARTY TRANSACTIONS:
Leasing Transactions
The shareholders receive $300 monthly to rent office space attached to
their home. Included in property and equipment at May 31, 1997 is $26,027 of
leasehold improvements on this office space.
Due to Shareholder
As of August 31, 1996, the shareholders had advanced $31,641 to IDS.
9. SUBSEQUENT EVENT:
In September 1997, IDS and its shareholders entered into a merger agreement
with ImageMAX (Note 1).
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oregon Micro-Imaging, Inc.:
We have audited the accompanying balance sheets of Oregon Micro-Imaging,
Inc. (an Oregon Corporation) as of October 31, 1995 and 1996 and July 31, 1997,
and the related statements of operations, stockholders' equity and cash flows
for each of the two years in the period ended October 31, 1996 and for the nine
months ended July 31, 1997. 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 Oregon Micro-Imaging, Inc.
as of October 31, 1995 and 1996 and July 31, 1997, and the results of its
operations and its cash flows for each of the two years in the period ended
October 31, 1996 and the nine months ended July 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
August 15, 1997
F-104
<PAGE>
OREGON MICRO-IMAGING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------- JULY 31,
1995 1996 1997
ASSETS -------- -------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 268 $ 7,751 $ 711
Accounts receivable................................ 238,866 200,143 349,959
Inventories........................................ 258,996 266,507 407,062
Prepaid expenses................................... -- 1,988 --
Deferred income taxes.............................. 51,963 51,963 44,794
-------- -------- ----------
Total current assets............................ 550,093 528,352 802,526
PROPERTY AND EQUIPMENT, net.......................... 181,473 335,229 370,624
-------- -------- ----------
$731,566 $863,581 $1,173,150
======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit..................................... $ 87,000 $ 83,000 $ --
Bank overdraft..................................... 57,715 -- 58,936
Current portion of long-term debt.................. 18,701 24,026 28,978
Accounts payable................................... 48,205 59,331 106,081
Accrued expenses................................... 9,949 2,649 27,846
Accrued profit sharing............................. 33,829 58,168 63,181
Deferred revenue................................... 178,000 178,000 178,000
Income taxes payable............................... 15,412 34,288 108,421
-------- -------- ----------
Total current liabilities....................... 448,811 439,462 571,443
-------- -------- ----------
LONG-TERM DEBT....................................... 23,254 56,641 42,046
-------- -------- ----------
DEFERRED INCOME TAXES................................ 14,541 19,347 25,129
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 500 shares authorized,
405 shares issued and outstanding............... 10,125 10,125 10,125
Retained earnings.................................. 234,835 338,006 524,407
-------- -------- ----------
Total stockholders' equity...................... 244,960 348,131 534,532
-------- -------- ----------
$731,566 $863,581 $1,173,150
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-105
<PAGE>
OREGON MICRO-IMAGING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Services............................ $1,779,085 $2,269,098 $1,688,506 $1,787,633
Products............................ 1,193,089 1,476,537 1,248,022 1,358,424
---------- ---------- ---------- ----------
2,972,174 3,745,635 2,936,528 3,146,057
---------- ---------- ---------- ----------
COST OF REVENUES:
Services............................ 1,473,136 1,963,539 1,422,611 1,457,614
Products............................ 709,669 836,852 698,583 772,471
Depreciation........................ 59,502 84,012 50,071 74,147
---------- ---------- ---------- ----------
2,242,307 2,884,403 2,171,265 2,304,232
---------- ---------- ---------- ----------
Gross profit..................... 729,867 861,232 765,263 841,825
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 591,300 688,083 508,675 528,012
---------- ---------- ---------- ----------
Operating income................. 138,567 173,149 256,588 313,813
INTEREST EXPENSE...................... 21,468 17,020 13,785 14,513
LOSS ON SALE OF EQUIPMENT............. 27,427 1,620 1,620 --
---------- ---------- ---------- ----------
Income before income taxes....... 89,672 154,509 241,183 299,300
INCOME TAXES.......................... 24,192 51,338 79,258 112,899
---------- ---------- ---------- ----------
NET INCOME............................ $ 65,480 $ 103,171 $ 161,925 $ 186,401
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-106
<PAGE>
OREGON MICRO-IMAGING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1994........................ 405 $10,125 $169,355 $179,480
Net income..................................... -- -- 65,480 65,480
--- ------- -------- --------
BALANCE, OCTOBER 31, 1995........................ 405 10,125 234,835 244,960
Net income..................................... -- -- 103,171 103,171
--- ------- -------- --------
BALANCE, OCTOBER 31, 1996........................ 405 10,125 338,006 348,131
Net income..................................... -- -- 186,401 186,401
--- ------- -------- --------
BALANCE, JULY 31, 1997........................... 405 $10,125 $524,407 $534,532
=== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-107
<PAGE>
OREGON MICRO-IMAGING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, JULY 31,
------------------- ----------------------
1995 1996 1996 1997
-------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 65,480 $103,171 $161,925 $186,401
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation.......................................... 59,502 84,012 50,071 74,147
Losses from property and equipment disposals.......... 27,427 1,620 1,620 --
Deferred income taxes................................. -- 4,806 4,806 12,951
Change in operating assets and liabilities-
Accounts receivable................................ 5,621 38,723 (95,582) (149,816)
Inventories........................................ 14,180 (7,511) (140,788) (140,555)
Prepaid expenses................................... -- (1,988) -- 1,988
Bank overdraft..................................... 4,885 (57,715) 164 58,936
Accounts payable................................... (25,206) 11,126 (8,223) 46,750
Accrued expenses................................... 4,682 (7,300) 61,102 5,012
Accrued profit sharing............................. 33,829 24,339 9,432 25,198
Income taxes payable............................... 6,650 18,876 49,611 74,133
-------- -------- -------- --------
Net cash provided by operating activities........ 197,050 212,159 94,138 195,145
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (117,490) (239,388) (103,658) (109,542)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. -- 38,712 26,915 --
Principal payments on long-term debt...................... (2,612) -- -- (9,643)
Principal payments on line of credit...................... (77,000) (4,000) (16,000) (83,000)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities..................................... (79,612) 34,712 10,915 (92,643)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (52) 7,483 1,395 (7,040)
CASH AND CASH EQUIVALENTS,
Beginning of Period....................................... 320 268 268 7,751
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
End of Period............................................. $ 268 $ 7,751 $ 1,663 $ 711
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-108
<PAGE>
OREGON MICRO-IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
JULY 31, 1996 IS UNAUDITED.)
1. BACKGROUND:
Oregon Micro-Imaging, Inc. ("OMI") was incorporated on December 9, 1980.
OMI provides microfilming and scanning services, microfilm processing, and sales
and servicing of micrographic and optical imaging equipment and supplies. The
principal markets for OMI's products and services are the Eugene and Portland,
Oregon metropolitan areas. Canon and Fuji are major suppliers of the equipment
sold and used by OMI.
OMI and its stockholders intend to enter into a merger agreement with
ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements for the nine months ended July 31, 1996 are
unaudited and, in the opinion of management of OMI, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results for that interim period. The results of operations
for the nine months ended July 31, 1996 and 1997 are not necessarily indicative
of the results to be expected for the full year.
Cash and Cash Equivalents
OMI considers highly liquid investments with original maturities of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value.
Inventories
Inventories are stated at the lower of cost or market value, determined on
a first-in, first-out basis.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are depreciated over the
lesser of their useful life or the term of the lease.
Revenue Recognition
Revenue is recognized when the services are rendered or products are
shipped to customers. Deferred revenue represents billings in advance of
providing services to OMI's monthly service customers.
Income Taxes
OMI accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and income tax basis of assets and
liabilities measured using enacted income tax rates and laws that are expected
to be in effect when the differences reverse.
F-109
<PAGE>
OREGON MICRO-IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JULY 31, 1996 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Supplemental Cash Flow Information
For the years ended October 31, 1995, 1996 and for the nine months ended
July 31, 1996 and 1997, OMI paid interest of $21,468, $17,020, $13,785 and
$14,513, respectively. For the years ended October 31, 1995 and 1996 and the
nine months ended July 31, 1996 and 1997, OMI paid income taxes of $17,542,
$32,462, $29,647 and $38,766, respectively.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable and accounts payable are reflected in the
financial statements at fair value due to their short-term nature. The carrying
amount of long-term debt approximates fair value on the balance sheet dates.
Long-Lived Assets
OMI follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31,
USEFUL LIVES ------------------- JULY 31,
YEARS 1995 1996 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Scanning and filming equipment.............. 5-7 $182,973 $329,988 $377,578
Furniture and office equipment.............. 5-7 324,760 156,283 207,363
Leasehold improvements...................... 5-10 36,043 39,481 39,481
Vehicles.................................... 5 91,524 152,017 162,888
-------- -------- --------
635,300 677,769 787,310
Less-Accumulated depreciation and
amortization.............................. (453,827) (342,540) (416,686)
-------- -------- --------
$181,473 $335,229 $370,624
======== ======== ========
</TABLE>
F-110
<PAGE>
OREGON MICRO-IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JULY 31, 1996 IS UNAUDITED.)
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- JULY 31,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Promissory note with interest at 9.25%, due
$292.54 monthly including interest until June
1999, secured by all Key Bank accounts and a
lien on equipment.............................. $ -- $ 8,249 $ 6,130
Promissory note with interest at 8.5%, due
$576.78 monthly including interest until
January 2002, secured by related vehicle....... -- 25,823 19,523
Promissory note with variable interest at 10.50%,
due $416.67 monthly, plus interest until
January 15, 1999, collateralized by accounts
receivable, inventory and equipment............ 16,250 11,250 7,917
Promissory note with 9.75% interest, due $375.38
monthly including interest until October 13,
2001, secured by related vehicle............... -- 17,699 13,199
Promissory note with 9.25% interest, due $239.87
monthly including interest until December 1,
1998, secured by related vehicle............... -- 5,618 3,797
Promissory note with variable interest at 9.5%,
due $306.38 monthly, including interest until
June 1998, collateralized by related
vehicle........................................ 7,408 4,313 1,787
Promissory note with variable interest at 9.25%,
due $230.36 monthly, including interest until
January 15, 1999, collateralized by accounts
receivable, inventory and equipment............ 9,654 7,715 5,718
Lease payable with institution, payable in
monthly installments of $505, including
interest, maturing June 30, 2000, secured by
related equipment.............................. -- -- 12,953
Note payable to bank, repaid in 1996............. 4,476 -- --
Note payable to bank, repaid in 1996............. 4,167 -- --
------- ------- -------
41,955 80,667 71,024
Less-Current portion............................. (18,701) (24,026) (28,978)
------- ------- -------
$23,254 $56,641 $42,046
======= ======= =======
</TABLE>
As of July 31, 1997, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDING OCTOBER 31,
- ---------------------------------
<S> <C>
1997..................................... $ 7,934
1998..................................... 28,351
1999..................................... 20,870
2000..................................... 10,065
2001..................................... 3,804
-------
$71,024
=======
</TABLE>
F-111
<PAGE>
OREGON MICRO-IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JULY 31, 1996 IS UNAUDITED.)
OMI has a $250,000 line of credit line with a bank. The line bears interest
at 10% as of July 31, 1997. This line of credit is secured by a security
interest in all accounts receivable, inventories and equipment. Average
borrowings were $133,458, $116,458 and $84,667 and the maximum borrowings
outstanding were $226,000, $173,000 and $206,000 during the years ended October
31, 1995 and 1996 and the nine months ended July 31, 1997, respectively.
5. COMMITMENTS AND CONTINGENCIES:
OMI leases office space from OMI's stockholders under noncancelable
operating leases. Rent expense for all operating leases for the years ended
October 31, 1995 and 1996 and the nine month periods ended July 31, 1996 and
1997 was $194,142, $211,805, $152,427 and $177,515, respectively. Future minimum
lease payments at July 31, 1997 under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
- -----------------------
<S> <C>
1997.................................. $ 204,232
1998.................................. 212,343
1999.................................. 220,429
2000.................................. 224,224
2001.................................. 157,935
Thereafter............................ 96,000
----------
$1,115,163
==========
</TABLE>
OMI is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on OMI's financial position or results
of operations.
6. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED
----------------- JULY 31,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Current provision:
Federal....................................... $19,584 $39,885 $ 89,427
State......................................... 4,608 6,647 10,521
------- ------- --------
24,192 46,532 99,948
Deferred provision.............................. -- 4,806 12,951
------- ------- --------
$24,192 $51,338 $112,899
======= ======= ========
</TABLE>
F-112
<PAGE>
OREGON MICRO-IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JULY 31, 1996 IS UNAUDITED.)
6. INCOME TAXES: -- (CONTINUED)
The reconciliation of the statutory federal income tax rate to OMI's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED
----------- JULY 31,
1995 1996 1997
---- ---- -----------
<S> <C> <C> <C>
Income tax rate....................................... 34% 34% 34%
Reduction due to graduated federal tax rates.......... (12) (6) --
State income taxes, net of federal tax benefit........ 4 4 4
Nondeductible expenses, principally meals and
entertainment....................................... 1 1 --
--- --- ---
27% 33% 38%
=== === ===
</TABLE>
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- JULY 31,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Gross deferred tax asset:
Deferred revenue............................... $67,640 $67,640 $67,640
======= ======= =======
Gross deferred tax liabilities:
Inventory capitalization....................... $15,677 $15,677 $22,846
Property, plant and equipment.................. 14,541 19,347 25,129
------- ------- -------
$30,218 $35,024 $47,975
======= ======= =======
</TABLE>
OMI did not have any valuation allowances against deferred tax assets at
July 31, 1997, as it believes it is more likely than not that the deferred tax
asset will be realized.
7. EMPLOYEE BENEFIT PLAN:
OMI sponsors a profit sharing 401(k) plan covering all eligible employees,
as defined. OMI may make a discretionary matching contribution equal to a
percentage of each employee's contribution. In addition a discretionary amount
determined by OMI is contributed. Contributions to this plan totaled $41,800,
$63,438 and $50,304 for the years ending October 31, 1995 and 1996 and for the
nine months ending July 31, 1997, respectively.
8. RELATED-PARTY TRANSACTIONS:
Leasing Transactions
OMI leases office and production space and computer equipment from its sole
stockholders and officers under operating leases which expire August 2003 and
May 2001 (see Note 5). Total rent expense was $176,266, $189,126, $134,147 and
$152,058 for the years ended October 31, 1995 and 1996 and for the nine months
ended July 31, 1996 and 1997, respectively.
9. SALE OF THE BUSINESS (UNAUDITED):
In September, 1997, OMI and its stockholders entered a merger agreement
with ImageMAX (see Note 1).
F-113
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Semco Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Semco
Industries, Inc. (a Massachusetts corporation) and Subsidiary as of June 30,
1996 and 1997, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended June 30, 1997. 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 Semco Industries, Inc. and
Subsidiary as of June 30, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 20, 1997
F-114
<PAGE>
SEMCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 225,206 $ 169,645
Accounts receivable, net of reserves of $34,790 and
$25,000................................................ 1,423,406 1,544,468
Inventories............................................... 568,881 580,291
Prepaid expenses and other................................ 157,945 98,635
---------- ----------
Total current assets................................... 2,375,438 2,393,039
PROPERTY, PLANT AND EQUIPMENT, net.......................... 1,151,463 1,100,562
OTHER....................................................... 150,090 136,109
---------- ----------
$3,676,991 $3,629,710
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable.............................................. $ 243,333 $ 171,333
Accounts payable.......................................... 428,536 512,687
Accrued expenses.......................................... 420,476 399,195
Deferred revenue.......................................... 671,131 624,149
---------- ----------
Total current liabilities.............................. 1,763,476 1,707,364
---------- ----------
DEFERRED REVENUE............................................ 45,889 42,678
---------- ----------
DEFERRED COMPENSATION....................................... 2,287,795 2,294,614
---------- ----------
COMMITMENTS (Note 6)
STOCKHOLDERS' DEFICIT:
Preferred stock, $100 par value, 620 shares authorized,
596 shares issued and 360 shares outstanding........... 59,600 59,600
Common stock, $10 par value, 100,000 shares authorized,
69,649 shares issued and 47,937 shares and 46,653
shares outstanding..................................... 696,490 696,490
Additional paid-in capital................................ 846,846 846,846
Retained earnings......................................... 68,088 137,510
Less--Treasury stock, 21,948 shares and 23,232 shares at
cost................................................... (2,091,193) (2,155,392)
---------- ----------
Total stockholders' deficit............................ (420,169) (414,946)
---------- ----------
$3,676,991 $3,629,710
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-115
<PAGE>
SEMCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Services........................................ $4,949,198 $4,748,049 $5,019,595
Products........................................ 4,590,194 3,956,036 3,813,793
---------- ---------- ----------
9,539,392 8,704,085 8,833,388
---------- ---------- ----------
COST OF REVENUES:
Services........................................ 2,831,246 2,764,641 2,746,366
Products........................................ 3,458,201 2,863,612 2,948,496
Depreciation and amortization................... 181,689 192,370 178,945
---------- ---------- ----------
6,471,136 5,820,623 5,873,807
---------- ---------- ----------
Gross profit................................. 3,068,256 2,883,462 2,959,581
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 2,826,643 3,018,421 2,631,676
---------- ---------- ----------
Operating income (loss)...................... 241,613 (134,959) 327,905
INTEREST EXPENSE.................................. 205,467 209,933 212,207
INTEREST INCOME................................... (61,647) (63,365) (5,262)
---------- ---------- ----------
NET INCOME (LOSS)................................. $ 97,793 $ (281,527) $ 120,960
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-116
<PAGE>
SEMCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------- ----------------- PAID-IN RETAINED FROM TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ESOP STOCK
------ ------- ------ -------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994........... 596 $59,600 69,649 $696,490 $846,846 $404,869 $(947,562) $(1,029,631)
Dividends...................... -- -- -- -- -- (91,108) -- --
Purchase of treasury stock..... -- -- -- -- -- -- -- (4,545)
Receipt of principal payment on
note receivable.............. -- -- -- -- -- -- 24,779 --
Net income..................... -- -- -- -- -- 97,793 -- --
--- ------- ------ -------- -------- -------- --------- -----------
BALANCE, JUNE 30, 1995........... 596 59,600 69,649 696,490 846,846 411,554 (922,783) (1,034,176)
Dividends...................... -- -- -- -- -- (61,939) -- --
Purchase of treasury stock..... -- -- -- -- -- -- -- (1,057,017)
Receipt of principal payment on
note receivable.............. -- -- -- -- -- -- 922,783 --
Net loss....................... -- -- -- -- -- (281,527) -- --
--- ------- ------ -------- -------- -------- --------- -----------
BALANCE, JUNE 30, 1996........... 596 59,600 69,649 696,490 846,846 68,088 -- (2,091,193)
Dividends...................... -- -- -- -- -- (51,538) -- --
Purchase of treasury stock..... -- -- -- -- -- -- -- (64,199)
Net income..................... -- -- -- -- -- 120,960 -- --
--- ------- ------ -------- -------- -------- --------- -----------
BALANCE, JUNE 30, 1997........... 596 $59,600 69,649 $696,490 $846,846 $137,510 $ -- $(2,155,392)
=== ======= ====== ======== ======== ======== ========= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, JUNE 30, 1994........... $ 30,612
Dividends...................... (91,108)
Purchase of treasury stock..... (4,545)
Receipt of principal payment on
note receivable.............. 24,779
Net income..................... 97,793
----------
BALANCE, JUNE 30, 1995........... 57,531
Dividends...................... (61,939)
Purchase of treasury stock..... (1,057,017)
Receipt of principal payment on
note receivable.............. 922,783
Net loss....................... (281,527)
----------
BALANCE, JUNE 30, 1996........... (420,169)
Dividends...................... (51,538)
Purchase of treasury stock..... (64,199)
Net income..................... 120,960
----------
BALANCE, JUNE 30, 1997........... $ (414,946)
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-117
<PAGE>
SEMCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 97,793 $ (281,527) $120,960
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization......................... 181,689 192,370 178,945
(Gain) loss on sale or retirement of property and
equipment.......................................... (80,897) (13,834) 13,182
Changes in operating assets and liabilities-
Accounts receivable................................ 188,845 70,119 (121,062)
Inventories........................................ 88,329 201,090 (11,410)
Prepaid expenses and other......................... (4,592) 114,753 59,310
Other assets....................................... (24,731) 62,484 13,981
Accounts payable and accrued expenses.............. 6,410 135,697 62,870
Deferred revenue................................... (107,640) (28,616) (50,193)
Deferred compensation.............................. (7,882) 6,327 6,819
-------- ---------- --------
Net cash provided by operating activities........ 337,324 458,863 273,402
-------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (142,054) (130,568) (141,226)
Proceeds from disposals of property and equipment......... 115,500 -- --
-------- ---------- --------
Net cash used in investing activities............ (26,554) (130,568) (141,226)
-------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock............................... (4,545) (1,057,017) (64,199)
Payments on note payable.................................. (168,000) (72,000) (72,000)
Dividends paid............................................ (91,108) (61,939) (51,538)
Payments on note receivable from ESOP..................... 24,779 922,783 --
-------- ---------- --------
Net cash used in financing activities............ (238,874) (268,173) (187,737)
-------- ---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 71,896 60,122 (55,561)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 93,188 165,084 225,206
-------- ---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $165,084 $ 225,206 $169,645
======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-118
<PAGE>
SEMCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
Semco Industries, Inc., which does business through its wholly owned
subsidiary Spaulding Company (together "Spaulding"), is incorporated in
Massachusetts and provides data and information conversion services ranging from
CD-ROM scanning/imaging to microfilm processing. Spaulding is also an equipment
dealer, selling various microfilm/microfiche readers and other related
equipment.
Semco Industries, Inc. intends to enter into a net asset acquisition
agreement with ImageMAX, Inc. ("ImageMAX") which would close upon the
consummation of the initial public offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Semco
Industries, Inc. and Spaulding Company, its wholly owned subsidiary. All
material intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
Spaulding considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. There were no cash equivalents at June
30, 1997.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories primarily represent microfiche viewing and imaging
equipment, service parts and related supplies.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions and
improvements are capitalized and repairs and maintenance are charged to expense
as incurred. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of their useful life or the term of the lease.
Other Assets
Other assets consist of the net cash surrender value of life insurance
policies on current and former executives of Spaulding. The face value of the
policies at June 30, 1997 is $1,043,000.
Revenue Recognition
Revenue is recognized when services are rendered, using the
percentage-of-completion basis, or as products are shipped to customers.
Deferred revenue represents payments from customers with service contracts.
Service contract revenues are recognized ratably over the term of the contract.
Income Taxes
Spaulding accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates that are expected to be in
effect when the differences reverse.
F-119
<PAGE>
SEMCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Supplemental Cash Flow Information
For the years ended June 30, 1995, 1996 and 1997, Spaulding paid interest
of $205,467, $209,933 and $212,207, respectively. For the years ended June 30,
1995, 1996 and 1997, Spaulding paid income taxes of $3,520, $1,350 and $5,256,
respectively.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
For certain of Spaulding's financial instruments including accounts
receivable, accounts payable and accrued expenses, management believes that the
carrying amounts approximate fair value due to their short-term maturities. The
carrying amount of the note payable approximates fair value on the balance sheet
dates.
Concentration Risks
Spaulding purchases materials and equipment from various suppliers. For the
years ended June 30, 1995, 1996 and 1997, Spaulding had three suppliers which
accounted for 67%, 64%, and 65%, respectively, of total purchases.
Long-Lived Assets
Spaulding follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
F-120
<PAGE>
SEMCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIVES -----------------------
YEARS 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
Land............................................... -- $ 166,059 $ 166,059
Building and improvements.......................... 15-40 927,169 927,169
Computer and computer production equipment......... 5 1,232,433 1,308,561
Furniture and office equipment..................... 5-7 394,250 448,402
Leasehold improvements............................. 3-5 185,458 192,339
---------- ----------
2,905,369 3,042,530
Less--Accumulated depreciation (1,753,906) (1,941,968)
---------- ----------
$1,151,463 $1,100,562
========== ==========
</TABLE>
4. NOTE PAYABLE:
At June 30, 1997, Spaulding has a mortgage note payable to a bank with
interest at 9.5% and due in monthly installments of $6,000 plus interest with
the balance due December 1, 1997. Spaulding has failed to meet certain financial
covenants as specified in the note, therefore, the Note is due on demand. The
mortgage is secured by the related land and building.
As of June 30, 1997, future payments on the mortgage are $171,333 in the
year ended June 30, 1998.
5. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Accrued payroll......................................... $ 49,965 $116,588
Accrued vacation........................................ 116,552 121,640
Accrued severance....................................... 169,676 127,411
Other................................................... 84,283 33,556
-------- --------
$420,476 $399,195
======== ========
</TABLE>
6. COMMITMENTS:
Spaulding leases office space and certain equipment under noncancelable
operating leases. Rent expense for all operating leases for the years ended June
30, 1995, 1996 and 1997 was $33,600, $41,992 and $57,810, respectively. Future
minimum lease payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998..................................... $39,577
1999..................................... 27,168
2000..................................... 27,168
2001..................................... 4,528
-------
$98,441
=======
</TABLE>
Spaulding has arrangements with several of its former executives whereby
upon the individual's retirement, Spaulding makes monthly payments to the
executive or his designated beneficiary.
F-121
<PAGE>
SEMCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS: -- (CONTINUED)
Deferred compensation represents the present value of these estimated future
payments to be made under such arrangements. Payments are currently $265,000 per
year and are subject to adjustment in the event of death of the recipient.
Spaulding has entered into agreements with one of its officers and a
consultant which provide for an aggregate bonus of $200,000 to be paid in the
event of a sale of substantially all of Spaulding's net assets.
7. INCOME TAXES:
There is no current income tax provision for the years ended June 30, 1995,
1996 and 1997 as taxable income, if any, was offset by net operating loss
carryforwards. In addition, there is no deferred income tax provision as the net
deferred tax asset has been fully reserved for all periods presented as
realization is uncertain.
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards................... $1,702,000 $1,654,000
Deferred compensation.............................. 921,000 924,000
Accruals and reserves not currently deductible..... 201,000 202,000
---------- ----------
2,824,000 2,780,000
========== ==========
Gross deferred tax liability:
Depreciation....................................... (39,000) (37,000)
Other.............................................. (4,000) (4,000)
---------- ----------
(43,000) (41,000)
Less--Valuation allowance.......................... (2,781,000) (2,739,000)
---------- ----------
Net deferred tax asset.......................... $ -- $ --
========== ==========
</TABLE>
At June 30, 1997, the Company has a net operating loss carryforward
available for income tax purposes of approximately $1,400,000, which begins to
expire in 2006.
8. RETIREMENT PLANS:
Spaulding maintains a trusted profit sharing plan (Section 401(k)) to
provide retirement benefits for qualified employees. Employer contributions are
made at the discretion of Spaulding. No Spaulding contributions were made during
the years ended June 30, 1995, 1996 and 1997.
In fiscal 1988, Spaulding established an employee stock ownership plan
("ESOP") for qualified employees. Spaulding guaranteed the debt of the ESOP,
which has been fully repaid. Contributions are made by Spaulding on a
discretionary basis and were $42,522, $42,522, and $0 for the years ended June
30, 1995, 1996 and 1997, respectively.
9. SALE OF THE BUSINESS (UNAUDITED):
In September 1997, Semco Industries, Inc. entered into an agreement with
ImageMAX providing for the sale of certain net assets of Spaulding Company to
ImageMAX (see Note 1).
F-122
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Total Information Management Corporation:
We have audited the accompanying balance sheets of Total Information
Management Corporation (a California corporation) as of December 31, 1995 and
1996, and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the 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 Total Information Management
Corporation as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
August 8, 1997
F-123
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
ASSETS ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 47,098 $ 13,009 $ 34,927
Accounts receivable............................. 692,036 911,650 748,655
Prepaid expenses and other...................... 61,676 60,000 60,185
---------- ---------- ----------
Total current assets......................... 800,810 984,659 843,767
PROPERTY AND EQUIPMENT, net....................... 422,902 271,630 270,138
INTANGIBLE ASSETS................................. 110,395 147,158 130,453
---------- ---------- ----------
$1,334,107 $1,403,447 $1,244,358
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................. $ 366,792 $ 230,793 $ 10,793
Current portion of long-term debt............... 63,776 95,150 81,949
Accounts payable................................ 84,328 66,303 91,671
Accrued payroll................................. 97,015 96,825 89,003
Other accrued expenses.......................... 24,223 35,672 38,290
Current portion of deferred compensation........ 45,550 197,271 185,434
---------- ---------- ----------
Total current liabilities.................... 681,684 722,014 497,140
---------- ---------- ----------
LONG-TERM DEBT.................................... 340,067 225,475 190,704
---------- ---------- ----------
DEFERRED COMPENSATION............................. 173,775 -- --
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $4.17 par value, 20,000 shares
authorized, 11,000 shares issued and
outstanding.................................. 45,870 45,870 45,870
Additional paid-in capital...................... 123,130 123,130 123,130
Retained earnings (deficit)..................... (30,419) 286,958 387,514
---------- ---------- ----------
Total stockholders' equity................... 138,581 455,958 556,514
---------- ---------- ----------
$1,334,107 $1,403,447 $1,244,358
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-124
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services and storage.... $4,131,740 $4,420,111 $4,991,198 $2,306,359 $2,159,688
---------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Cost of services and
storage.............. 3,024,956 3,110,439 3,275,708 1,525,343 1,393,709
Depreciation............ 73,659 95,690 76,104 56,027 41,897
---------- ---------- ---------- ---------- ----------
3,098,615 3,206,129 3,351,812 1,581,370 1,435,606
---------- ---------- ---------- ---------- ----------
Gross profit......... 1,033,125 1,213,982 1,639,386 724,989 724,082
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 941,720 1,369,953 1,180,651 525,894 480,794
AMORTIZATION.............. 31,708 75,325 42,620 19,274 16,703
---------- ---------- ---------- ---------- ----------
Operating income
(loss)............ 59,697 (231,296) 416,115 179,821 226,585
INTEREST EXPENSE.......... 46,726 56,755 98,738 51,652 28,029
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)......... $ 12,971 $ (288,051) $ 317,377 $ 128,169 $ 198,556
========== ========== ========== ========== ==========
PRO FORMA DATA
(UNAUDITED):
Historical net income
(loss)............ $ 12,971 $ (288,051) $ 317,377 $ 128,169 $ 198,556
Pro forma income tax
expense
(benefit)......... 5,206 (115,618) 127,389 51,444 79,696
---------- ---------- ---------- ---------- ----------
Pro forma net income
(loss)............ $ 7,765 $ (172,433) $ 189,988 $ 76,725 $ 118,860
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-125
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
---------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.......... 11,400 $47,537 $137,463 $261,761 $446,761
Net income........................ -- -- -- 12,971 12,971
Distributions..................... -- -- -- (17,100) (17,100)
Repurchase of common stock........ (400) (1,667) (14,333) -- (16,000)
------ ------- -------- -------- --------
BALANCE, DECEMBER 31, 1994.......... 11,000 45,870 123,130 257,632 426,632
Net loss.......................... -- -- -- (288,051) (288,051)
------ ------- -------- -------- --------
BALANCE, DECEMBER 31, 1995.......... 11,000 45,870 123,130 (30,419) 138,581
Net income........................ -- -- -- 317,377 317,377
------ ------- -------- -------- --------
BALANCE, DECEMBER 31, 1996.......... 11,000 45,870 123,130 286,958 455,958
Net income (Unaudited)............ -- -- -- 198,556 198,556
Distributions (Unaudited)......... -- -- -- (98,000) (98,000)
------ ------- -------- -------- --------
BALANCE, JUNE 30, 1997
(Unaudited)....................... 11,000 $45,870 $123,130 $387,514 $556,514
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-126
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
-------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 12,971 $(288,051) $317,377 $128,169 $198,556
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization.............. 105,367 171,015 118,724 75,301 58,600
Losses (gains) on sale of property and
equipment............................... (5,847) (1,428) 115,457 (4,250) (1,177)
Change in operating assets and liabilities-
Accounts receivable..................... (199,599) 25,601 (219,614) (94,139) 162,995
Prepaid expenses and other.............. 5,802 (1,676) 1,676 1,676 (185)
Accounts payable........................ 70,042 (13,321) (18,025) (5,528) 25,368
Accrued payroll-related liabilities..... 28,015 (21,008) (190) 37,257 (7,822)
Other accrued expenses.................. 7,556 (166) 11,449 (12,939) 2,618
Deferred compensation................... -- 219,325 (22,054) (11,836) (11,837)
-------- --------- -------- -------- --------
Net cash provided by operating
activities.......................... 24,307 90,291 304,800 113,711 427,116
-------- --------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (328,536) (15,221) (52,699) (18,131) (39,226)
Proceeds from sales of property and
equipment.................................... 5,847 10,313 12,410 -- --
Payment for other assets....................... -- (95,009) (79,383) (52,402)
-------- --------- -------- -------- --------
Net cash used in investing
activities.......................... (322,689) (99,917) (119,672) (70,533) (39,226)
-------- --------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt................... 180,140 113,000 40,000 -- --
Principal payments on long-term debt........... (96,687) (50,677) (123,218) (73,727) (47,972)
Distributions.................................. (17,100) -- -- -- (98,000)
Proceeds from line of credit................... 254,380 -- -- 32,001 --
Repurchase of common stock..................... (16,000) -- -- -- --
Payments under line of credit, net............. -- (17,588) (135,999) -- (220,000)
-------- --------- -------- -------- --------
Net cash provided by (used in)
financing activities................ 304,733 44,735 (219,217) (41,726) (365,972)
-------- --------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 6,351 35,109 (34,089) 1,452 21,918
CASH AND CASH EQUIVALENTS, beginning of
period......................................... 5,638 11,989 47,098 47,098 13,009
-------- --------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period......... $ 11,989 $ 47,098 $ 13,009 $ 48,550 $ 34,927
======== ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-127
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
Total Information Management Corporation ("TIMCO") was incorporated on
December 22, 1980. TIMCO provides document management services to customers in
the San Francisco Bay Area, Sacramento, and San Jose including document and data
conversion services, records management services; namely active storage and
maintenance of documents and files and archival storage of inactive documents.
TIMCO and its stockholders intend to enter into a net asset agreement with
ImageMAX, Inc. ("ImageMAX") which would close the consummation of the initial
public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited and, in the opinion of management of TIMCO,
include all adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation of the results for those interim periods. The
results of operations for the six months ended June 30, 1996 and 1997 are not
necessarily indicative of the results to be expected for the full year.
Cash and Cash Equivalents
TIMCO considers highly liquid investments with original maturities of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are depreciated over the
lesser of their useful lives or the terms of the leases.
Intangible Assets
Intangible assets consist of goodwill and noncompete agreements and are
amortized on a straight-line basis over fifteen and three years, respectively.
Revenue Recognition
Revenue is recognized when the services are rendered, or products are
shipped. Service revenues are recognized on a percentage-of-completion basis.
Income Taxes
TIMCO has elected to be taxed under Subchapter S of the Internal Revenue
Code, and accordingly, all taxable income and loss of TIMCO is included in the
stockholders' individual tax returns.
TIMCO reports certain income and expense items for income tax purposes on a
different basis rather than that reflected in the accompanying financial
statements. The primary differences are due to revenue recognition and accruals
not currently deductible for tax purposes. The cumulative amount of these
differences at June 30, 1997 was approximately $239,000. If the S Corporation
status is terminated, then a deferred income tax liability related to these
cumulative differences would need to be reflected in the accompanying financial
statements.
F-128
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
For informational purposes, the accompanying statements of operations
include an unaudited pro forma adjustment for income taxes which would have been
recorded if TIMCO had not been an S Corporation, based on the tax laws in effect
during the respective periods. The differences between the federal statutory
income tax rate and the pro forma income tax rate primarily relates to state
income taxes and expenses not deductible for tax purposes.
Supplemental Cash Flow Information
For the years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997, TIMCO paid interest of $46,726, $56,755, $98,738,
$51,652 and $28,029, respectively. During 1994, TIMCO issued a note payable
totaling $100,000 in exchange for the purchase of fixed assets.
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value due to their short-term
nature. The carrying amount of long-term debt approximates fair value on the
balance sheet dates.
Concentration of Business Risk
TIMCO lost a major client during 1996 which accounted for 10% of TIMCO's
sales in 1996. Management plans to replace the lost client's work with new
customers.
Long-Lived Assets
TIMCO follows Statement of Financial Accounting Standards 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 assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------- JUNE 30,
(YEARS) 1995 1996 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Production equipment................ 5-7 $658,379 $507,000 $543,731
Furniture and fixtures.............. 5-12 8,543 8,543 8,543
</TABLE>
F-129
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
3. PROPERTY AND EQUIPMENT: -- (CONTINUED)
<TABLE>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------- JUNE 30,
(YEARS) 1995 1996 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Leasehold improvements.............. 5-10 150,930 182,587 184,739
Vehicles............................ 3-5 100,446 100,446 99,446
Machinery and equipment............. 5-7 37,820 42,416 44,226
-------- -------- --------
956,118 840,992 880,685
Less-Accumulated depreciation....... (533,216) (569,362) (610,547)
-------- -------- --------
$422,902 $271,630 $270,138
======== ======== ========
</TABLE>
4. LINE OF CREDIT:
TIMCO has a $400,000 line of credit with a bank expiring June 23, 1998,
subject to renewal. Borrowings under the line of credit bear interest at the
bank's prime rate plus 2.5% and are collateralized by all accounts and general
intangibles. The line of credit agreement requires TIMCO to maintain certain
financial ratios. At June 30, 1997 TIMCO was in violation of one of the
financial ratios. Management intends to obtain a waiver from the lender, however
if they are unable to do so management believes there would be no material
effect based on the amount outstanding of $10,793 as of June 30, 1997. The line
of credit is classified as a current liability in the accompanying financial
statements. Average borrowings were $364,272, $341,708 and $35,793 and the
maximum borrowings outstanding were $400,000, $398,793 and $230,793 during the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively.
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable-Small Business Administration; due December
1, 2001, interest at prime plus 2.5%, monthly payments
of principal and interest of $3,346, secured by
accounts receivable and equipment..................... $180,408 $155,767
Note payable-bank; due October 17, 1999, interest at
prime plus 2.5%, monthly principal payments of $1,112,
secured by accounts receivable and equipment.......... -- 37,776
Note payable; due April 1999, monthly principal and
interest payments of $1,942, secured by autos......... 66,435 49,605
Note payable-related party, no expiration date, interest
at 8%, unsecured...................................... 20,000 --
Note payable-Kalmon; a related party; no expiration
date, interest at 8% per annum, unsecured............. 40,000 7,027
Note payable-Roger Blue; a related party; due February
1, 1999, interest at 10% per annum, principal and
interest payments of $1,710 per month, secured by
assets of the Company................................. 53,000 38,450
Note Payable; due August 1, 1999 at $1,000 per month,
without interest, unsecured........................... 44,000 32,000
-------- --------
403,843 320,625
</TABLE>
F-130
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
5. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Less-Current portion.................................... (63,776) (95,150)
-------- --------
$340,067 $225,475
======== ========
</TABLE>
As of December 31, 1996, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997.............................. $ 95,150
1998.............................. 94,901
1999.............................. 63,066
2000.............................. 35,786
2001.............................. 31,722
--------
$320,625
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
TIMCO leases its office building, storage buildings and certain office and
production equipment under operating leases. While all of the agreements provide
for minimum lease payments, some provide for additional costs for utilities and
maintenance of the properties. Future minimum lease payments required under
operating leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................. $217,020
1998.............................. 212,549
1999.............................. 175,732
2000.............................. 118,560
2001.............................. 100,560
--------
$824,421
========
</TABLE>
TIMCO is party to various claims and other legal matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on TIMCO's financial position or
results of operations.
7. RELATED-PARTY TRANSACTIONS:
During late 1995, TIMCO entered into a severance agreement with TIMCO's
former President. The terms of the severance agreement provide for payments of
$4,187 per month for the first thirty-two months, $3,687 per month for the next
sixteen months and $5,250 per month for the last twelve months. TIMCO recorded a
compensation charge of $219,326 in the year ended December 31, 1995,
representing the present value of these severance payments.
As part of the severance agreement, if at any time prior to January 1,
1998, TIMCO sells 100% of its operating assets and the sales price is in excess
of $1.5 million, TIMCO shall pay $100,000 as a deferred bonus to the former
President and all remaining payments under the severance agreement will be
accelerated and due within thirty days from the date of sale. Given the
contingent nature of this deferred bonus, no amount has been accrued in the
accompanying financial statements.
F-131
<PAGE>
TOTAL INFORMATION MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
7. RELATED-PARTY TRANSACTIONS: -- (CONTINUED)
On January 2, 1996, TIMCO's President purchased 2,400 shares of TIMCO's
stock from TIMCO's former President for the total consideration of $108,000
including a promissory note of $75,027, payable in forty-eight monthly payments
of $1,563 commencing February 1, 1996. The balance of the note on December 31,
1996 was $57,834. TIMCO has guaranteed full performance of this note.
8. SALE OF THE BUSINESS (UNAUDITED):
In September, 1997, TIMCO and its stockholders entered into an asset
purchase agreement with ImageMAX (see Note 1).
F-132
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TPS Micrographics, Inc.:
We have audited the accompanying balance sheets of TPS Micrographics, Inc.
(a Virginia corporation) as of March 31, 1996 and 1997, and the related
statements of operations, stockholder's deficit and cash flows for each of the
three years in the period ended March 31, 1997. 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 TPS Micrographics, Inc. as
of March 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1997 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 13, 1997
F-133
<PAGE>
TPS MICROGRAPHICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------- JUNE 30,
1996 1997 1997
ASSETS -------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of reserves of $37,193,
$31,499
and $32,158................................... $457,081 $ 711,142 $ 867,892
Inventories...................................... 173,276 151,374 137,249
Prepaid expenses and other....................... 11,165 18,813 34,965
Deferred income taxes............................ 10,474 16,041 16,041
-------- ---------- ----------
Total current assets....................... 651,996 897,370 1,056,147
PROPERTY AND EQUIPMENT, net........................ 204,206 362,378 334,090
RECEIVABLE FROM STOCKHOLDER........................ 34,750 43,263 49,287
OTHER.............................................. 28,548 22,448 20,923
-------- ---------- ----------
$919,500 $1,325,459 $1,460,447
======== ========== ==========
LIABILITIES AND
STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Bank overdraft................................... $ 41,569 $ 11,836 $ 104,389
Line of credit................................... 250,000 236,000 350,000
Current portion of long-term debt................ 52,502 178,517 142,683
Current portion of capitalized lease
obligations................................... 10,575 32,890 33,694
Accounts payable................................. 130,737 232,279 285,315
Accrued expenses................................. 68,688 135,040 117,314
Deferred revenue................................. 52,269 124,994 20,203
-------- ---------- ----------
Total current liabilities.................. 606,340 951,556 1,053,598
-------- ---------- ----------
LONG-TERM DEBT..................................... 512,170 489,856 483,812
-------- ---------- ----------
CAPITALIZED LEASE OBLIGATIONS...................... 10,702 72,453 62,813
-------- ---------- ----------
DEFERRED INCOME TAXES.............................. 2,326 12,608 12,608
-------- ---------- ----------
COMMITMENTS (NOTE 6)
STOCKHOLDER'S DEFICIT:
Common stock, $10 par value, 200 shares
authorized, 100 shares issued and 25 shares
outstanding................................... 1,000 1,000 1,000
Additional paid-in capital....................... 225,464 225,464 225,464
Retained earnings................................ 111,498 122,522 171,152
Less--Treasury stock, 75 shares at cost.......... (550,000) (550,000) (550,000)
-------- ---------- ----------
Total stockholder's deficit................ (212,038) (201,014) (152,384)
-------- ---------- ----------
$919,500 $1,325,459 $1,460,447
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-134
<PAGE>
TPS MICROGRAPHICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------ -----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services................. $1,538,699 $1,819,451 $2,428,121 $ 541,340 $ 822,854
Products................. 693,677 927,648 1,055,714 267,631 461,307
---------- ---------- ---------- ---------- ----------
2,232,376 2,747,099 3,483,835 808,971 1,284,161
---------- ---------- ---------- ---------- ----------
COST OF REVENUES:
Services................. 1,013,204 1,239,229 1,519,645 360,072 515,255
Products................. 642,934 768,917 963,854 224,037 385,991
Depreciation and
amortization.......... 47,356 67,626 95,687 19,000 31,275
---------- ---------- ---------- ---------- ----------
1,703,494 2,075,772 2,579,186 603,109 932,521
---------- ---------- ---------- ---------- ----------
Gross profit.......... 528,882 671,327 904,649 205,862 351,640
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................. 530,917 604,548 798,642 162,253 244,259
---------- ---------- ---------- ---------- ----------
Operating income
(loss)............. (2,035) 66,779 106,007 43,609 107,381
INTEREST EXPENSE........... 4,788 68,855 87,274 19,356 27,850
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes....... (6,823) (2,076) 18,733 24,253 79,531
INCOME TAXES (BENEFIT)..... (3,509) (405) 7,709 9,981 30,901
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......... $ (3,314) $ (1,671) $ 11,024 $ 14,272 $ 48,630
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-135
<PAGE>
TPS MICROGRAPHICS, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS STOCK DEFICIT
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31,
1994....................... 100 $1,000 $225,464 $116,483 $ -- $ 342,947
Purchase of treasury
stock................ -- -- -- -- (550,000) (550,000)
Net loss................ -- -- -- (3,314) -- (3,314)
--- ------ -------- -------- --------- ---------
BALANCE, MARCH 31,
1995....................... 100 1,000 225,464 113,169 (550,000) (210,367)
Net loss................ -- -- -- (1,671) -- (1,671)
--- ------ -------- -------- --------- ---------
BALANCE, MARCH 31,
1996....................... 100 1,000 225,464 111,498 (550,000) (212,038)
Net income.............. -- -- -- 11,024 -- 11,024
--- ------ -------- -------- --------- ---------
BALANCE, MARCH 31,
1997....................... 100 1,000 225,464 122,522 (550,000) (201,014)
Net income
(unaudited).......... -- -- -- 48,630 -- 48,630
--- ------ -------- -------- --------- ---------
BALANCE, JUNE 30, 1997
(UNAUDITED)................ 100 $1,000 $225,464 $171,152 $(550,000) $(152,384)
=== ====== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-136
<PAGE>
TPS MICROGRAPHICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------ -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (3,314) $ (1,671) $ 11,024 $ 14,272 $ 48,630
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation and amortization.................. 47,356 67,626 95,687 19,000 31,275
Deferred income taxes (benefit)................ (5,300) (2,848) 4,715 1,179 --
Changes in operating assets and liabilities-
Accounts receivable......................... 216,492 (66,946) (254,061) (118,026) (156,750)
Inventories................................. (42,314) (86,861) 21,902 36,287 14,125
Prepaid expenses and other.................. (11,520) (9,645) (16,161) (3,758) (20,651)
Accounts payable and accrued expenses....... (164,458) (106,648) 167,894 (1,284) 35,310
Deferred revenue............................ 19,288 32,981 72,725 (29,457) (104,791)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities.............................. 56,230 (174,012) 103,725 (81,787) (152,852)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........... (58,054) (89,950) (139,205) (2,539) (2,987)
Acquisition of customer list....................... -- (30,500) -- -- --
-------- -------- -------- -------- --------
Net cash used in investing activities..... (58,054) (120,450) (139,205) (2,539) (2,987)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit... -- 250,000 (14,000) -- 114,000
Bank overdraft..................................... 5,142 36,427 (29,733) 93,252 92,553
Proceeds from long-term debt....................... -- 32,000 137,000 -- --
Payments on long-term debt and capitalized lease
obligations...................................... (3,318) (23,965) (57,787) (8,926) (50,714)
-------- -------- -------- -------- --------
Net cash provided by financing
activities.............................. 1,824 294,462 35,480 84,326 155,839
-------- -------- -------- -------- --------
NET INCREASE IN CASH................................. -- -- -- -- --
CASH, BEGINNING OF PERIOD............................ -- -- -- -- --
-------- -------- -------- -------- --------
CASH, END OF PERIOD.................................. $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-137
<PAGE>
TPS MICROGRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
1. BACKGROUND:
TPS Micrographics, Inc. ("TPS") was incorporated in Virginia on August 24,
1990. TPS provides data and information conversion services ranging from CD-ROM
scanning/imaging to microfilm processing. TPS is also an authorized Canon
dealer, selling various microfilm/microfiche readers and other related
equipment.
TPS and its stockholder intend to enter into a stock acquisition agreement
with ImageMAX, Inc. ("ImageMAX") which would close upon the consummation of the
initial public offering of the common stock of ImageMAX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of June 30, 1997 and for the three months ended
June 30, 1996 and 1997 are unaudited and, in the opinion of the management of
TPS, include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results for those interim periods. The
results of operations for the three months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories primarily represent microfiche viewing and imaging
equipment, production and related supplies.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized and repairs and maintenance are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of their useful life or the term of the lease.
Other Assets
Other assets consist of an acquired customer list which is being amortized
on a straight-line basis over five years. Amortization expense was $1,952 and
$6,100 for the years ended March 31, 1996 and 1997, respectively, and
accumulated amortization was $8,052 at March 31, 1997.
Revenue Recognition
Revenue is recognized when the services are rendered, using the
percentage-of-completion basis, or products are shipped to customers. Deferred
revenue represents payments for customer storage and certain services which are
billed in advance of performance.
Income Taxes
TPS accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates that are expected to be in effect when the
differences reverse.
Supplemental Cash Flow Information
For the years ended March 31, 1995, 1996 and 1997, TPS paid interest of
$4,788, $68,855 and $87,274, respectively. For the years ended March 31, 1995,
1996 and 1997, TPS paid income taxes of
F-138
<PAGE>
TPS MICROGRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
$1,791, $2,443 and $2,994, respectively. Capital lease obligations of $16,542,
$14,690 and $108,554 were incurred on equipment leases entered into in 1995,
1996 and 1997, respectively. In fiscal 1995, TPS purchased 75 shares of its
common stock for $550,000 through the issuance of debt (see Note 4).
Use of Estimates in Financial Statements
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 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.
Fair Value of Financial Instruments
For certain of TPS' financial instruments including accounts receivable,
accounts payable and accrued expenses, management believes that the carrying
amounts approximate fair value due to their short-term maturities. The carrying
amount of long-term debt approximates fair value on the balance sheet dates.
Long-Lived Assets
TPS follows 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 assets'
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIVES ------------------- JUNE 30,
YEARS 1996 1997 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Scanning and filming equipment...... 5-7 $311,487 $487,643 $487,643
Furniture and office equipment...... 5-7 39,905 61,913 63,374
Delivery equipment.................. 5 76,786 123,618 123,618
-------- -------- --------
428,178 673,174 674,635
Less- Accumulated depreciation...... (223,972) (310,796) (340,545)
-------- -------- --------
$204,206 $362,378 $334,090
======== ======== ========
</TABLE>
Depreciation expense for the years ended March 31, 1995, 1996 and 1997 was
$47,356, $65,674, $89,587, respectively. As of March 31, 1997, TPS had $126,958
in property and equipment, net of accumulated amortization, financed under
capital leases.
F-139
<PAGE>
TPS MICROGRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
4. DEBT FINANCING:
<TABLE>
<CAPTION>
MARCH 31,
------------------- JUNE 30,
1996 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Note payable, interest at 8.5%, due in monthly
installments of principal and interest of $5,416
through April 2010.................................. $532,672 $512,170 $506,767
Notes payable to bank, interest at prime plus 1%, due
in monthly installments of principal and interest of
$6,667.............................................. -- 100,000 79,997
Notes payable, interest at 8%, due in monthly
installments of principal and interest of $5,828
through March 1998.................................. 32,000 56,203 39,731
-------- -------- --------
564,672 668,373 626,495
Less- Current portion................................. (52,502) (178,517) (142,683)
-------- -------- --------
$512,170 $489,856 $483,812
======== ======== ========
</TABLE>
At March 31, 1997, TPS has a line of credit agreement with a bank which
provides for borrowings of up to $450,000. The line bears interest at the prime
rate plus 1% and is made available at the bank's discretion. The line of credit
is secured by substantially all of TPS' assets and the personal guarantee of the
stockholder.
The note payable with an outstanding principal of $512,170 at March 31,
1997 is collateralized by the outstanding common stock of TPS. The other notes
payable are secured by accounts receivable, equipment and the personal guarantee
of the stockholder.
As of March 31, 1997, maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998...................................... $178,517
1999...................................... 24,286
2000...................................... 26,432
2001...................................... 28,770
2002...................................... 31,315
Thereafter................................ 379,053
--------
$668,373
========
</TABLE>
F-140
<PAGE>
TPS MICROGRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
5. CAPITALIZED LEASE OBLIGATIONS:
TPS leases certain property and equipment under capitalized leases with
interest ranging from 7% to 18%. Future minimum lease payments as of March 31,
1997 are as follows:
1998...................................... $ 43,323
1999...................................... 40,560
2000...................................... 27,154
2001...................................... 13,706
--------
Total minimum lease payments.............. 124,743
Less- Amount representing interest........ (19,400)
--------
Present value of minimum lease payments... 105,343
Less- Current portion..................... (32,890)
--------
$ 72,453
========
6. COMMITMENTS:
TPS leases office space and certain equipment under noncancelable operating
leases. Rent expense for the years ended March 31, 1995, 1996 and 1997 was
$63,222, $83,298 and $90,564, respectively. Future minimum lease payments are as
follows:
1998...................................... $115,709
1999...................................... 105,431
2000...................................... 17,721
--------
$238,861
========
7. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current Provision:
Federal......................................... $ 1,155 $ 1,745 $ 2,153
State........................................... 636 698 841
------- ------- -------
1,791 2,443 2,994
------- ------- -------
Deferred Provision:
Federal......................................... (4,505) (2,421) 4,008
State........................................... (795) (427) 707
------- ------- -------
(5,300) (2,848) 4,715
------- ------- -------
$(3,509) $ (405) $ 7,709
======= ======= =======
</TABLE>
F-141
<PAGE>
TPS MICROGRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED.)
7. INCOME TAXES: -- (CONTINUED)
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Gross deferred tax assets for accruals and reserves not
currently deductible.................................... $10,474 $16,041
Gross deferred tax liability for differences in basis of
property and equipment.................................. (2,326) (12,608)
------- -------
$ 8,148 $ 3,433
======= =======
</TABLE>
TPS did not have any valuation allowances against deferred tax assets at
March 31, 1997, as it believes it is more likely than not that the deferred tax
assets will be realized.
8. PROFIT SHARING PLAN:
Effective November 30, 1996, TPS terminated its trusteed profit sharing
plan for qualified employees. Upon termination, participants in the plan became
fully vested in TPS' contributions and all plan assets were distributed to the
plan participants. TPS did not make any contributions to the plan for the years
ended March 31, 1995, 1996 and 1997.
9. STOCKHOLDER RECEIVABLE:
At March 31, 1996 and 1997, TPS had a receivable due from its sole
stockholder of $34,750 and $43,263, respectively. The receivable has no fixed
repayment schedule and bears interest at 5%.
10. SALE OF THE BUSINESS (UNAUDITED):
In September 1997, TPS and its stockholder entered into a stock purchase
agreement with ImageMAX (see Note 1).
F-142
<PAGE>
[PHOTOGRAPHS DEPICTING VARIOUS OPERATIONS OF CERTAIN OF THE FOUNDING COMPANIES.]
<PAGE>
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 9
The Company............................. 16
Use of Proceeds......................... 19
Dividend Policy......................... 19
Capitalization.......................... 20
Dilution................................ 21
Selected Financial Data................. 22
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 24
Business................................ 51
Management.............................. 61
Certain Transactions.................... 67
Principal Shareholders.................. 69
Description of Capital Stock............ 70
Shares Eligible for Future Sale......... 72
Underwriting............................ 73
Legal Matters........................... 74
Experts................................. 75
Additional Information.................. 75
Index to Financial Statements........... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
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.
3,100,000 SHARES
IMAGEMAX, INC.
COMMON STOCK
-------------------------------
PROSPECTUS
, 1997
-------------------------------
WILLIAM BLAIR & COMPANY
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses, all of which will be paid by the Company, in connection with the
issuance and distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- -------
<S> <C>
SEC Registration Fee........................................ $15,124
Nasdaq National Market Listing Fee.......................... 31,097
NASD Filing Fee............................................. 5,491
Printing and engraving fees................................. *
Registrant's counsel fees and expenses...................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses and counsel fees.......... *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
TOTAL $ *
=======
</TABLE>
- ------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Sections 1741-1747 of the BCL, Article XIV of the Company's
Bylaws provides that the Company shall, in the case of directors and officers,
and may, in the case of employees and agents, indemnify any such person who is
or was a party (other than a party acting on his or her own behalf) or who is
threatened to be made such a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including actions brought by or in the right of the Company where
certain standards of conduct have been met), by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company on behalf of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action if
he or she met certain requisite standards of conduct. In all such cases, the
Company shall indemnify any such person against all such expenses actually and
reasonably incurred by him or her in connection with any such action to the
extent that such person has been successful on the merits or in defense of any
such action. The indemnification provisions of the Bylaws are non-exclusive.
Pursuant to Section 1713 of the BCL, Article IV, Section 4.16 of the
Company's Bylaws provides that a director shall not be liable to the Company for
monetary damages as such for any action taken or omitted unless the director
breaches or fails to perform a duty of his office and that breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. This
limitation does not apply to criminal liability or liability for the payment of
taxes. The Company believes that the provisions will assist it in securing and
maintaining the services of directors who are not employees of the Company.
The Company intends to procure insurance, which would afford officers and
directors insurance coverage for losses arising from claims based on breaches of
duty, negligence, error and other wrongful acts, including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1996 the Company sold 423,077 shares of Common Stock to its
founding shareholders for an aggregate consideration of $5,000. Following
initial funding in November 1996, the Company sold 126,923 units comprised of
one share of convertible preferred stock and one share
II-1
<PAGE>
of common stock to certain of its founding shareholders, to David C. Utz, Jr.,
and to Brian K. Bergeron, an accredited investor, for an aggregate consideration
of $75,000.
In April 1997 the Company sold 88,846 shares of convertible preferred stock
to certain of its founding shareholders and two additional accredited investors
for an aggregate consideration of $105,000.
In June 1997 the Company sold 97,308 shares of Common Stock to certain of
its founding shareholders and its Chief Operating and Chief Financial Officers
for an aggregate consideration of $230,000.
On September 10, 1997 the Company sold 63,462 shares of Common Stock to an
accredited investor for an aggregate consideration of $300,000 and 227,721
shares of convertible preferred stock to 17 accredited investors for an
aggregate consideration of $1,076,500.
On September 9 and September 11, 1997, the Company entered into 14
acquisition agreements pursuant to which it agreed to issue an aggregate of
1,184,468 shares of Common Stock for an aggregate purchase price of $15,397,746
(based on an assumed initial public offering price of $13.00 per share) as
partial consideration for the Founding Companies.
The foregoing described issuances of securities did not involve
underwriters and were exempt from registration under the Securities Act by
virtue of the exemption provided by Section 4(2) thereof for transactions not
involving any public offering.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
1 -- Form of Underwriting Agreement by and between the Company
and the Underwriters.*
2.1 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, DocuTech Data Systems, Inc.,
and Rex Lamb and Mark Creglow (including escrow agreement).
2.2 -- Asset Purchase Agreement dated September 9, 1997 by and
among the Company Rex Lamb and Vicki Lamb (including escrow
agreement).
2.3 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, Utz Medical Enterprises,
Inc., and David C. Utz, Jr. (including escrow agreement).
2.4 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Jane Semasko and John Semasko, Oregon
Micro-Imaging, Inc. and the Company (including escrow
agreement).
2.5 -- Asset Purchase Agreement dated September 9, 1997 by and
among Spaulding Company, Inc., Semco Industries, Inc., and
the Company (including escrow agreement).
2.6 -- Asset Purchase Agreement dated September 9, 1997 by and
among Total Information Management Corporation and the
Company (including escrow agreement).
2.7 -- Stock Purchase Agreement dated September 9, 1997 by and
among Ovidio Pugnale, Image Memory Systems, Inc. and the
Company (including escrow agreement).
2.8 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, International Data Services
of New York, Inc., and Mitchell J. Taube and Ellen F.
Rothschild-Taube (including escrow agreement).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
2.9 -- Stock Purchase Agreement dated September 9, 1997 by and
among David Crowder, TPS Micrographics, Inc. and the Company
(including escrow agreement).
2.10 -- Agreement and Plan of Reorganization dated September 11,
1997 by and among the Company, Image and Information
Solutions, Inc. and Gary Blackwelder (including escrow
agreement).
2.11 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Madeline Solomon, David C. Yezbak, CodaLex
Microfilming Corporation and the Company (including escrow
agreement).
2.12 -- Asset Purchase Agreement dated September 9, 1997 by and
among Imaging Information Industries, Inc., Gerald P.
Gorman, Theodore J. Solomon, Jr., Charles P. Yezbak, III,
David C. Yezbak and the Company (including escrow
agreement).
2.13 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Gerald P. Gorman, Theodore J. Solomon, Theodore
J. Solomon, Jr., Charles P. Yezbak, III, David C. Yezbak,
Laser Graphics Systems & Services, Inc. and the Company
(including escrow agreement).
2.14 -- Asset Purchase Agreement dated September 9, 1997 by and
among DataLink Corporation, Judith E. DeMott, Geri E.
Davidson and the Company (including escrow agreement).
3.1 -- Amended and Restated Articles of Incorporation of the
Company.*
3.2 -- Bylaws of the Company.*
4.1 -- Specimen Stock Certificate.*
4.2 -- Shareholders Agreement between the Company and certain of
its shareholders dated November 17, 1996, as amended.*
10.1 -- 1997 Incentive Plan (including forms of option agreements).*
10.2 -- Employee Stock Purchase Plan.*
10.3 -- Management Agreement between GBL Capital Corporation and the
Company dated November 27, 1996.*
10.4 -- Employment Agreement between the Company and Bruce M. Gillis
dated as of August 1, 1997.
10.5 -- Employment Agreement between the Company and James D. Brown
dated as of August 18, 1997.
10.6 -- Employment Agreement between the Company and S. David Model
dated as of August 18, 1997.
10.7 -- Employment Agreement between the Company and Andrew R. Bacas
dated as of August 1, 1997.
10.8 -- Form of Employment Agreement between the Company and John E.
Semasko.
10.9 -- Form of Employment Agreement between the Company and Rex
Lamb.
10.10 -- Lease Agreement dated March 26, 1996 by and between Marlyn
D. Schwarz and Rex Lamb d/b/a DocuTech.
10.11 -- Lease Agreement dated February 24, 1992 by and between
Marlyn Schwarz d/b/a Old Cheney Plaza and Rex Lamb d/b/a
DocuTech.
10.12 -- Lease Agreement dated September 1, 1994 by and between
Jonstar Realty Corporation and Spaulding Company, Inc.
(renewed May 27, 1997).*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.13 -- Lease Extension Agreement dated October 1, 1986 by and
between H.S. & D Realty Corp., Landlord and Spaulding
Company, Inc., Tenant.*
10.14 -- Lease dated September 1, 1995 by and between Robert S. Greer
and Elvera A. Greer and American Micro-Med Corporation.
10.15 -- Lease dated February 8, 1994 and Lease Rider dated as of
February 1, 1994 by and between Oporto Development Corp. and
International Data Services of New York, Inc.
10.16 -- Amendment of Lease dated June 6, 1996 between East Cobb Land
Development and Investment Co., L.P. and Imaging Information
Industries/David Yezbak, extended by letter dated July 16,
1997.
10.17 -- Lease Agreement, Heinz Selig as Landlord to Oregon
Micrographics, Inc. as Tenant.*
10.18 -- Lease dated January 10, 1996 by and between Financial
Enterprises III and TPS Imaging Solutions, Inc.
10.19 -- Lease Agreement dated March 31, 1995 by and between
Technical Publications Service, Inc. and TPS Micrographics,
Inc.
10.20 -- Standard Industrial Commercial MultiTenant Lease-Gross dated
June 20, 1994 by and between Northgate Assembly of God,
North Sacramento, d/b/a Arena Christian Center and Total
Information Management Corporation.
10.21 -- Lease dated January 26, 1981 and Extension of Lease dated
October, 1992 by and between Trader Vic's Food Products and
Total Information Management Corporation.*
10.22 -- Standard Industrial Lease dated September 24, 1991 by and
between Charles F. Coss, Viola B. Coss, Tracey C. Quinn,
John Coss, Peter B. Coss, Elizabeth Coss, Tracey C. Quinn as
Trustee for Geoffrey C. Quinn and Elizabeth Coss, as Trustee
for Caitlin N. Shay and Total Information Management
Corporation extended by letter dated October 18, 1996 from
James Bunker to Peter Coss.
10.23 -- Lease dated January 1, 1993 between CSX Transportation, Inc.
and American Micro-Med Corporation.
21 -- Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Pepper, Hamilton & Scheetz LLP (included in
Exhibit 5.1).*
23.3 -- Consent of Rex Lamb.
23.4 -- Consent of John E. Semasko.
23.5 -- Consent of Steven N. Kaplan.
24 -- Powers of Attorney (included on Signature Pages).
27 -- Financial Data Schedule (in electronic format only).
</TABLE>
- ------------------
* To be filed by Amendment.
II-4
<PAGE>
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the underwriting agreement,
certificates in such denomination and registered in such names or required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act 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 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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 purposes of determining any liability under the Securities
Act, 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-5
<PAGE>
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 City of Philadelphia,
Commonwealth of Pennsylvania, on the 12th day of September, 1997.
IMAGEMAX, INC.
By: /s / BRUCE M. GILLIS
------------------------------------
Bruce M. Gillis
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Bruce M. Gillis and Andrew R. Bacas, and
each or any of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, 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 other registration
statements and amendments thereto relating to the Offering contemplated by this
Registration Statement (including registration statements under Rule 462
promulgated under the Securities Act of 1933, as amended), and to file the same,
with all exhibits thereto and other 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 said attorneys-in-fact and
agents, or any of them, or their, his or her substitutes or substitute, 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 and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s / BRUCE M. GILLIS Chief Executive Officer; Director September 12, 1997
- --------------------------------- (principal executive officer)
Bruce M. Gillis
/s / JAMES D. BROWN Chief Financial Officer September 12, 1997
- --------------------------------- (principal financial officer and
James D. Brown principal accounting officer)
/s / ANDREW R. BACAS Director September 12, 1997
- ---------------------------------
Andrew R. Bacas
/s / DAVID C. UTZ, JR. Director September 12, 1997
- ---------------------------------
David C. Utz, Jr.
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, DocuTech Data Systems, Inc.,
and Rex Lamb and Mark Creglow (including escrow agreement).
2.2 -- Asset Purchase Agreement dated September 9, 1997 by and
among the Company Rex Lamb and Vicki Lamb (including escrow
agreement).
2.3 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, Utz Medical Enterprises,
Inc., and David C. Utz, Jr. (including escrow agreement).
2.4 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Jane Semasko and John Semasko, Oregon
Micro-Imaging, Inc. and the Company (including escrow
agreement).
2.5 -- Asset Purchase Agreement dated September 9, 1997 by and
among Spaulding Company, Inc., Semco Industries, Inc., and
the Company (including escrow agreement).
2.6 -- Asset Purchase Agreement dated September 9, 1997 by and
among Total Information Management Corporation and the
Company (including escrow agreement).
2.7 -- Stock Purchase Agreement dated September 9, 1997 by and
among Ovidio Pugnale, Image Memory Systems, Inc. and the
Company (including escrow agreement).
2.8 -- Agreement and Plan of Reorganization dated September 9,
1997, by and among the Company, International Data Services
of New York, Inc., and Mitchell J. Taube and Ellen F.
Rothschild-Taube (including escrow agreement).
2.9 -- Stock Purchase Agreement dated September 9, 1997 by and
among David Crowder, TPS Micrographics, Inc. and the Company
(including escrow agreement).
2.10 -- Agreement and Plan of Reorganization dated September 11,
1997 by and among the Company, Image and Information
Solutions, Inc. and Gary Blackwelder (including escrow
agreement).
2.11 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Madeline Solomon, David C. Yezbak, CodaLex
Microfilming Corporation and the Company (including escrow
agreement).
2.12 -- Asset Purchase Agreement dated September 9, 1997 by and
among Imaging Information Industries, Inc., Gerald P.
Gorman, Theodore J. Solomon, Jr., Charles P. Yezbak, III,
David C. Yezbak and the Company (including escrow
agreement).
2.13 -- Agreement and Plan of Reorganization dated September 9, 1997
by and among Gerald P. Gorman, Theodore J. Solomon, Theodore
J. Solomon, Jr., Charles P. Yezbak, III, David C. Yezbak,
Laser Graphics Systems & Services, Inc. and the Company
(including escrow agreement).
2.14 -- Asset Purchase Agreement dated September 9, 1997 by and
among DataLink Corporation, Judith E. DeMott, Geri E.
Davidson and the Company (including escrow agreement).
10.4 -- Employment Agreement between the Company and Bruce M. Gillis
dated as of August 1, 1997.
10.5 -- Employment Agreement between the Company and James D. Brown
dated as of August 18, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.6 -- Employment Agreement between the Company and S. David Model
dated as of August 18, 1997.
10.7 -- Employment Agreement between the Company and Andrew R. Bacas
dated as of August 1, 1997.
10.8 -- Form of Employment Agreement between the Company and John E.
Semasko.
10.9 -- Form of Employment Agreement between the Company and Rex
Lamb.
10.10 -- Lease Agreement dated March 26, 1996 by and between Marlyn
D. Schwarz and Rex Lamb d/b/a DocuTech.
10.11 -- Lease Agreement dated February 24, 1992 by and between
Marlyn Schwarz d/b/a Old Cheney Plaza and Rex Lamb d/b/a
DocuTech.
10.14 -- Lease dated September 1, 1995 by and between Robert S. Greer
and Elvera A. Greer and American Micro-Med Corporation.
10.15 -- Lease dated February 8, 1994 and Lease Rider dated as of
February 1, 1994 by and between Oporto Development Corp. and
International Data Services of New York, Inc.
10.16 -- Amendment of Lease dated June 6, 1996 between East Cobb Land
Development and Investment Co., L.P. and Imaging Information
Industries/David Yezbak, extended by letter dated July 16,
1997.
10.18 -- Lease dated January 10, 1996 by and between Financial
Enterprises III and TPS Imaging Solutions, Inc.
10.19 -- Lease Agreement dated March 31, 1995 by and between
Technical Publications Service, Inc. and TPS Micrographics,
Inc.
10.20 -- Standard Industrial Commercial MultiTenant Lease-Gross dated
June 20, 1994 by and between Northgate Assembly of God,
North Sacramento, d/b/a Arena Christian Center and Total
Information Management Corporation.
10.22 -- Standard Industrial Lease dated September 24, 1991 by and
between Charles F. Coss, Viola B. Coss, Tracey C. Quinn,
John Coss, Peter B. Coss, Elizabeth Coss, Tracey C. Quinn as
Trustee for Geoffrey C. Quinn and Elizabeth Coss, as Trustee
for Caitlin N. Shay and Total Information Management
Corporation extended by letter dated October 18, 1996 from
James Bunker to Peter Coss.
10.23 -- Lease dated January 1, 1993 between CSX Transportation, Inc.
and American Micro-Med Corporation.
21 -- Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Rex Lamb.
23.4 -- Consent of John E. Semasko.
23.5 -- Consent of Steven N. Kaplan.
24 -- Powers of Attorney (included on Signature Pages).
27 -- Financial Data Schedule (in electronic format only).
</TABLE>
<PAGE>
EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
DOCUTECH DATA SYSTEMS, INC.
DOCUNET INC.
AND
DOCUTECH ACQUISITION CORP.
Dated September 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger.........................................................10
2.2. Effective Time of the Merger......................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation.....................................................................................11
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco.............................................................................11
2.5. Effect of Merger..................................................................................11
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................18
3.1. Organization; Qualification; Good Standing........................................................18
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................19
3.4. Enforceability....................................................................................21
3.5. Matters Affecting Shares; Title to Shares.........................................................21
3.6. Predecessor Status; etc...........................................................................21
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................22
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................26
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................27
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
3.24. Investment Portfolio..............................................................................36
3.25. Affiliate Transactions............................................................................36
3.26. Accounts, Power of Attorney.......................................................................36
3.27. Receivables.......................................................................................36
3.28. Officers and Directors............................................................................37
3.29. Corporate Records.................................................................................37
3.30. Broker's or Finders...............................................................................38
3.31. Customers.........................................................................................38
3.32. Investment Company................................................................................38
3.33. Absence of Changes................................................................................38
3.34. Accuracy and Completeness of Information..........................................................39
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO.....................................................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5 - COVENANTS............................................................................................41
5.1. Good Faith........................................................................................41
5.2. Approvals.........................................................................................41
5.3. Cooperation; Access to Books and Records..........................................................41
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchase Financing Transactions..........................................43
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................44
5.8. Negative Covenants................................................................................45
5.9. Exclusive Negotiation.............................................................................47
5.10. Public Announcements..............................................................................48
5.11. Amendment of Schedules............................................................................48
5.12. Cooperation in Preparation of Registration Statement..............................................48
5.13. Examination of Final Financial Statement..........................................................49
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.14. Lock-Up Agreements................................................................................50
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").............................................................50
5.16. Reorganization Status.............................................................................50
5.17. File Tax Returns..................................................................................50
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................51
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................51
6.2. Conditions Precedent to Company's and Sellers' Obligations........................................54
ARTICLE 7 - CLOSING..............................................................................................56
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................56
8.1. Confidentiality...................................................................................56
8.2. Covenant Not To Compete...........................................................................57
8.3. Specific Enforcement; Extension of Period.........................................................58
8.4. Disclosure........................................................................................59
8.5. Interpretation....................................................................................59
8.6. Sellers' Acknowledgment...........................................................................59
8.7. Applicability of Section 8.2......................................................................60
ARTICLE 9 - SURVIVAL.............................................................................................60
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................60
9.2. Intentionally Omitted.............................................................................60
9.3. Underwriter's Benefit.............................................................................60
ARTICLE 10 - INDEMNIFICATION.....................................................................................61
10.1. Sellers' Indemnification..........................................................................61
10.1A.No Indemnification of Projected Information.......................................................62
10.2. Purchaser's Indemnification.......................................................................62
10.3. Payment; Procedure for Indemnification............................................................62
10.4. Equitable Contribution Under the Securities Act...................................................65
10.5. Exclusiveness of Indemnification..................................................................66
10.6. Limitations on Indemnification....................................................................66
10.7. Value of DocuNet Common Stock.....................................................................66
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................67
11.1. Termination.......................................................................................67
11.2. Effect of Termination.............................................................................67
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................68
12.1. Maintenance and Access to Records.................................................................68
12.2. Disclosure........................................................................................68
12.3. Accounts Receivable...............................................................................68
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................69
13.1. Transfer Restrictions.............................................................................69
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................70
14.1. Compliance with Law...............................................................................70
14.2. Economic Risk; Sophistication.....................................................................70
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................71
15.1. Piggyback Registration Rights.....................................................................71
15.2. Registration Procedures...........................................................................71
15.3. Underwriting Agreement............................................................................72
15.4. Availability of Rule 144..........................................................................72
15.5. Survival..........................................................................................72
ARTICLE 16 - MISCELLANEOUS.......................................................................................72
16.1. Notices...........................................................................................72
16.2. No Third Party Beneficiaries......................................................................74
16.3. Schedules.........................................................................................74
16.4. Expenses..........................................................................................74
16.5. Further Assurances................................................................................74
16.6. Entire Agreement; Amendment.......................................................................75
16.7. Section and Paragraph Titles......................................................................75
16.8. Binding Effect....................................................................................75
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
16.9. Counterparts.....................................................................................75
16.10. Severability.....................................................................................75
16.11. Governing Law....................................................................................75
</TABLE>
-v-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), DOCUTECH ACQUISITION CORP., a Pennsylvania
corporation ("Newco"), DOCUTECH DATA SYSTEMS, INC., a Nebraska corporation (the
"Company"), and REX LAMB, SCOTT MATTHEWS and MARK CREGLOW (individually, a
"Seller", and together, the "Sellers"). Each of REX LAMB and MARK CREGLOW shall
be referred to herein as a "Signatory Shareholder" and together as the
"Signatory Shareholders."
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the Commonwealth of Pennsylvania, having been incorporated
solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Purchaser, a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to
this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Nebraska;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with
each of the other Founding Companies (as defined herein) and their
respective stockholders in order to acquire additional document
management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein) constitute
the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
-1-
<PAGE>
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4. Accountants' CAWCA Report shall have the meaning set forth in Section
2.8(c).
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4B. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.5. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.6. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.7. Balance Sheet Date shall mean December 31, 1996.
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1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually takes
place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.16. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.17. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17A. Combined Debt shall have the meaning set forth in Section 2.8(b).
1.18. Common Stock shall mean the common stock, $1.00 par value per share,
of the Company.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to Intellectual Property and information, materials, documents,
financial reports, business plans and marketing data that relate to the
business, strategies or operations of the parties hereto or a Potential Founding
Company, disclosed or otherwise made available by such party, such Affiliate or
Potential Founding Company (the "Discloser") to another party, affiliate or
Potential Founding Company (the "Recipient") in connection with the transactions
contemplated by this Agreement and (ii) each of the terms, conditions and other
provisions contained in this Agreement and in the agreements or documents to be
delivered pursuant to this Agreement. Notwithstanding the preceding sentence,
the definition of Confidential Information shall not include any information
that (i) is in the public
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domain at the time of disclosure to the Recipient or becomes part of the public
domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the time of disclosure to such
Recipient, (iii) is contained in the Registration Statement on Form S-1 to be
filed by Purchaser in connection with the Initial Public Offering or (iv) is
disclosed to a party or Potential Founding Company by any Person other than a
party to this Agreement or a Potential Founding Company; provided, that the
party to whom such disclosure has been made does not have actual knowledge that
such Person is prohibited from disclosing such information (either by reason of
contractual, or legal or fiduciary duty or obligation). For the purposes hereof,
public domain shall not include disclosure of information to a Potential
Founding Company or (except as otherwise provided herein) to any other person in
connection with the transactions contemplated hereby. Notwithstanding any
exception in this paragraph or elsewhere in this agreement, no Recipient shall
use any information regarding the software developed by DocuTech Data Services
Inc., whether developed for its own use, for DocuTech, Inc.'s use, or for sale
to customers, for the purpose of developing competitive software for use by
Recipient, affiliates of Recipient, or others or for sale by Recipient,
affiliates of Recipient, or by others.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
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1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.30. Escrow Amount shall mean the amount of cash and/or the Value of the
DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
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1.34. Financial Statements shall have the meaning set forth in Section
3.12(a).
1.35. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial public
offering of the Purchaser's common stock registered under the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright
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rights and all intellectual, industrial or proprietary rights and trade secrets,
technology and know-how relating to the Business, in each case together with any
amendments, modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor organization
thereto.
1.48. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
1.54. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or
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body whose finding, ruling or holding is legally binding or is enforceable as a
matter of right (in any case, whether preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.56. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.58. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.59. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.60. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning set forth in
Section 2.8(c).
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.63. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
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1.65. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.69. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.72. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
1.77. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the
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board of directors or other persons serving similar functions are at the time
directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.82. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Nebraska and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and
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Newco is sometimes hereinafter referred to as the Surviving Corporation. The
Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws
of the Surviving Corporation; and subsequent to the Effective Time of
the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: Bruce Gillis, Andy Bacas, Rex Lamb,
Mark Creglow and S. David Model. The Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of
the laws of the Commonwealth of Pennsylvania and of the Certificate of
Incorporation and Bylaws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 2.3 hereto, each of such officers to
serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until his or her successor
is duly elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule
2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized
capital stock of Purchaser will consist of 40 million shares of
DocuNet Common Stock, of which the number of issued and outstanding
shares will be set forth in the Registration Statement, and 10 million
shares of preferred stock, $.01 par value, of which no shares will be
issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital
stock of Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Nebraska. Except as herein
specifically set forth, the identity, existence,
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purposes, powers, objects, franchises, privileges, rights and immunities of the
Company shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Company shall be merged with and into
the Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in the Company and Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive
the number of shares of DocuNet Common Stock provided in Section 2.9
hereof with respect to such holder and (2) the right to receive the
amount of cash provided in Section 2.9 hereof with respect to such
holder (collectively, the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in
exchange therefor; and
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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 Purchaser,
automatically be converted into one fully paid and non-assessable
share of common stock of the Surviving Corporation which shall
constitute all of the issued and outstanding shares of common stock of
the Surviving Corporation immediately after the Effective Time of the
Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Articles 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined) and, subject to Section 2.8(e) below, the
Net Book Value of Assets and Liabilities Adjustment (as hereinafter defined), on
the terms and conditions set forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase
Price shall be Six Million Five Hundred Thousand dollars ($6,500,000),
subject to adjustments as set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by 70.65 cents for each $1.00 of Debt reflected on the Closing
Balance Sheet of the Company and DocuTech, Inc. (the "Closing Debt
Amount"). The Debt shall mean all of the liabilities of the Company and
DocuTech, Inc., contingent or otherwise, except Adjusted Current
Liabilities, in accordance with GAAP. The Adjusted Current Liabilities
shall mean all of the liabilities of the Company and DocuTech, Inc which
would be classified as current liabilities in accordance with GAAP, except
current amounts of principal, interest or penalties due and owing: (i)
under promissory notes or lines of credit to lending institutions; (ii) to
an employee or an Affiliate of the Company or DocuTech,
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Inc., or the Sellers; (iii) to a lessor under a capital lease; or (iv) on
account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Sellers' objection, if
any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Sellers' calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Sellers' CDA Objection,
the Purchaser will notify the Sellers whether it accepts or disputes the
Sellers' adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Sellers which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Sellers do not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Sellers' adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the "Final
Debt Amount"), if any, shall be paid by the Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value (as defined below) equal to such amount. The term "Value" in respect
of a share of DocuNet Common Stock shall mean the lower of the Initial
Public Offering Price and the average closing price of the DocuNet Common
Stock during the 20 trading- day period ending immediately prior to the
applicable payment date. If the Sellers object to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Sellers'
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Sellers and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, such
amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to,
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providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Sellers shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by 70.65 cents for each $1.00 that the
Combined Adjusted Working Capital of the Company and of DocuTech, Inc. (as
hereinafter defined) is less than $400,000 on the Closing Date (the
"Closing Adjusted Working Capital Amount"). The Combined Adjusted Working
Capital shall mean the current assets of the Company and of DocuTech, Inc.,
plus deferred revenue of DocuTech, Inc. and the Company and less Adjusted
Current Liabilities of the Company and DocuTech, Inc., calculated pursuant
to GAAP. Promptly following the Closing, and in order to verify the
accuracy of the adjustment made at the Closing, the Purchaser agrees to
cause the Accountants to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to the
Sellers no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Sellers shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Sellers' objection, if any, to the Accountants' CAWCA Report (the "Sellers'
CAWCA Objection") shall set forth in reasonable detail the Sellers'
objection(s) to the Accountants' CAWCA Report and the Sellers' calculation
of the Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Sellers' CAWCA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, if any,
which notification shall set forth in reasonable detail the adjustments
made by the Sellers which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Sellers do not object to the
Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the "Final
Adjusted Working Capital Amount"), if any, shall be paid by Sellers to the
Purchaser in immediately available funds within five (5) business days of
such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Sellers shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Sellers object to the
Accountants' CAWCA Report as set forth above and the Purchaser does not
accept the Sellers' proposed adjustments, then an independent accounting
firm mutually satisfactory to the Sellers and the Purchaser shall be
engaged to determine the amount of the Closing
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Adjusted Working Capital Amount and the Final Adjusted Working Capital
Amount, based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount pursuant
to the Escrow Agreement and Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Sellers shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by 70.65 cents for
each $1.00 that the Net Book Value of the Combined Acquired Assets and
Liabilities of the Company and of DocuTech, Inc., as reflected on the
Closing Balance Sheet, is less than $700,000 on the Closing Date (the
"Closing Net Book Value Amount"). The Net Book Value of the Combined
Acquired Assets and Liabilities shall mean the Assets of the Company and
DocuTech, Inc., plus the deferred revenue of the Company and DocuTech, Inc.
and less (i) any intangible assets recorded by the Surviving Corporation to
reflect the merger and (ii) Adjusted Current Liabilities of the Company and
DocuTech, Inc., calculated pursuant to GAAP. Promptly following the
Closing, and in order to verify the accuracy of the adjustment made at the
Closing, the Purchaser agrees to cause the Accountants to verify the amount
of the Closing Net Book Value Amount. The Accountants shall issue a report
as to their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants shall
be conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CNBVA Report within fifteen (15) days following
their receipt of the Accountants' CNBVA Report. The Sellers' objection, if
any, to the Accountants' CNBVA Report (the "Sellers' CNBVA Objection")
shall set forth in reasonable detail the Sellers' objection(s) to the
Accountants' CNBVA Report and the Sellers' calculation of the Closing Net
Book Value Amount. Within ten (10) days after receipt of the Sellers' CNBVA
Objection, the Purchaser will notify the Sellers whether it accepts or
disputes the Sellers' adjustments, if any, which notification shall set
forth in reasonable detail the adjustments made by the Sellers which the
Purchaser continues to dispute (the "Purchaser's CNBVA Response Notice").
If the Sellers do not object to the
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Accountants' CNBVA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CNBVA Report, then the adjustment
based on the then final Closing Net Book Value Amount (the "Final Net Book
Value Amount"), if any, shall be paid by Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Sellers shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Sellers object to the
Accountants' CNBVA Report as set forth above and the Purchaser does not
accept the Sellers' proposed adjustments, then an independent accounting
firm mutually satisfactory to the Sellers and the Purchaser shall be
engaged to determine the amount of the Closing Net Book Value Amount and
the Final Net Book Value Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Sellers shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. The
parties hereto agree to cooperate fully with such independent accountants
at their own cost and expense, including, but not limited to, providing
such independent accountants with access to, and copies of, all books and
records that they shall reasonably request. The Purchaser and the Sellers
shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and Purchaser will request
that one be designated by the President of the Philadelphia office of the
American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Sellers to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and Liabilities
Adjustment, Sellers shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.9(c), a number of
shares of DocuNet Common Stock equal to (i) $3,753,750 (the "Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be issued
at Closing to Sellers in the individual amount for each Seller as indicated
on Schedule 2.4 attached hereto.
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(b) Cash Purchase Price. In addition, an aggregate amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) the
reductions, if any, to be made at Closing pursuant to Sections 2.8(b),
2.8(c) and 2.8(d), shall be payable at the Closing in cash to the Sellers
("Cash Purchase Price"). The specific amount of the Cash Purchase Price
shall be payable to each of the Sellers by a wire transfer to an account to
be designated by such DocuTech Shareholder in writing not less than three
(3) business days prior to the Closing, in the individual amount for each
DocuTech Shareholder as indicated on Schedule 2.9 attached hereto. If no
such designation is made, Purchaser will deliver a check in the appropriate
amount to the address of such DocuTech Shareholder as listed on the Books
and Records of the Company.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock equal to (i) $292,500 divided by (ii) the
Initial Offering Price be delivered at Closing to the Escrow Agent pursuant
to the Escrow Agreement by the Signatory Shareholders and $32,500 in cash
shall be delivered at Closing to the Escrow Agent pursuant to the Escrow
Agreement by Scott Matthews (together, the "Escrow Amount"), in the
individual amount for each Seller as indicated on Schedule 2.9 attached
hereto. The Escrow Amount shall be available to fund (but shall not be the
sole source of funding) any obligations of the Sellers under this Agreement
pursuant to the terms of the Escrow Agreement; provided, however, if the
amount of cash plus the value of the shares of DocuNet Common Stock (valued
at the Initial Public Offering Price) in the Escrow Amount falls below
$325,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional
cash or shares of DocuNet Common Stock to the Escrow Amount in an amount
necessary so that the amount of cash plus the value of the shares of
DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their respective incorporation or organization, (ii) have the power and
authority to own and operate their respective properties and assets and to
transact their respective Businesses and (iii) are duly qualified and authorized
to do business and are in good standing in all jurisdictions where the
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failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon their respective Businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Company or any of its Subsidiaries is qualified to do
business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or any of the Sellers, threatened against or affecting the Company
or any of its Subsidiaries revoking, limiting or curtailing, or seeking to
revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) contravene, violate or constitute,
with or without the passage of time or the giving of notice or both, a breach or
default under, any Requirement of Law applicable to the Company or any of its
properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
10,000 shares of a single class of common stock, having a par value of $1.00 per
share, all of which are issued and outstanding and collectively owned by the
Sellers as set forth in
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the Capitalization Table. The Company does not have any other authorized class
or classes of securities of any kind, whether debt or equity. All of the Shares
are validly issued, fully paid and non-assessable and have not been issued in
violation of applicable securities laws or of any preemptive rights or other
rights to subscribe for, purchase or otherwise acquire securities. The Company
does not hold any shares of its capital stock in its treasury or otherwise, and
no shares of the Company's capital stock are reserved by the Company for
issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary owns or controls, directly or
indirectly, any debt, equity or other financial or ownership interest in any
other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as
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applicable, or any Contract to which the Company or any such Subsidiary is a
party or may otherwise be bound or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Companyor any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the
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Company or any of its Subsidiaries, as the case may be. Neither the Company nor
any of the Sellers have knowledge of the existence of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against either
the Company or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such employee's position or function, the rate of hourly, monthly
or annual compensation (as the case may be) paid or to be paid to such employee
in 1995, 1996 and, to the extent known, 1997, any accrued sick leave or pay or
vacation and any incentive or bonus arrangement with respect to any such
employee. Except as is set forth in the Disclosure Schedule, since the Balance
Sheet Date, neither the Company nor any of its Subsidiaries has increased the
compensation payable to its employees or the rate of compensation payable to its
employees. The Disclosure Schedule also
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identifies those employees with whom the Company or any of its Subsidiaries has
entered into an employment Contract or a Contract obligating the Company or any
such Subsidiary to pay severance or similar payments to any employee. The
Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of such Contracts, all of which are
attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the employees of the Company or any of its
Subsidiaries. In addition, no dispute with or claim against the Company relating
to any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages and
hours, is outstanding or, to either of the Company or the Sellers' knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely
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manner apply for, a favorable determination letter from the IRS stating that
such Employee Benefit Plan meets the requirements of the Code and that any trust
or trusts associated therewith are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
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(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the combined balance sheets of the Company and
DocuTech, Inc. as of December 31, 1995 and 1996 and the related combined
statements of operations, shareholders' equity and cash flows for the years then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the combined financial position of
the Company and DocuTech, Inc. and their Subsidiaries as of the date of such
Financial Statements and the combined results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Company and the Sellers have also delivered or caused to be
delivered to the Purchaser and Newco a true and complete copy of the unaudited
interim combined financial statements of the Company and DocuTech, Inc.
consisting of a combined balance sheet as of June 30, 1997 and the related
combined statements of operations, shareholders' equity and cash flows for the
six-month period then ended (collectively, the "Interim Financial Statements").
A true and complete copy of Interim Financial Statements is attached to the
Disclosure Schedule. The Interim Financial Statements are in accordance with the
books and records of the Company, DocuTech, Inc. and their Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, were prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments), and fairly present the financial position of
the Company, DocuTech, Inc. and their Subsidiaries as of the date thereof and
the combined
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results of operations and changes in shareholders' equity and cash flows for the
periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its Subsidiaries to operate, their respective Businesses in the normal
and ordinary course in a manner consistent with past practices, (ii) there has
been no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company, DocuTech, Inc. and their Subsidiaries, all
of which have been maintained in accordance with good business practice and in
the normal and ordinary course of business, and will be prepared in accordance
with GAAP applied on a consistent basis (except for the absence of notes and
subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company set
forth in the Adjusted Balance Sheet at December 31, 1996, prepared in accordance
with GAAP and attached hereto as Schedule 3.14 (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since December 31, 1996 ("Undisclosed Liabilities").
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3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
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(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new physical locations, expansion of any
existing operating locations or the acquisition of any Real Property, the lease
of Real Property or acquisition of new businesses, with respect to which the
Company or any Subsidiary has made any expenditure in the two-years prior to the
date of this Agreement in excess of $10,000, or which if pursued by the Company
would require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case
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may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
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(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Sellers,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person
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any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of
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the Intellectual Property, and neither the Company nor any such Subsidiary has
received any notice of infringement upon or conflict with any asserted right of
others nor, to the Company's and the Sellers' knowledge, is there a basis for
such a notice. To the Company's and the Seller's knowledge, no Person, is
infringing the Company's or any of its Subsidiaries rights to the Intellectual
Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
granted any license or other right to use, in any manner, any of the
Intellectual Property, whether or not requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
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3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon. The
Company duly and properly filed an election to be an S corporation and such
election is currently in effect, under section 1362 of the Code and the rules
and regulations promulgated thereunder. Such election has been in effect without
interruption, including without limitation any inadvertent termination which has
been reinstated, since the Company was incorporated. Since the Company was
incorporated, all of the current and former stockholders of the Company are and
have been permitted stockholders under Section 1362 of the Code and the rules
and regulations promulgated thereunder. The Company has never had a taxable year
in which it was other than an S corporation. The Company's federal S election is
recognized and given effect or
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the Company has made an appropriate and timely election to be treated as an S
corporation for state income taxation purposes in Nebraska. Such election was
made in 1995 and was effective as of the date of incorporation.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Company's or any of its
Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to make, nor
is any of them required to make, any adjustment under Section 481(a) of the Code
for any period ending after the Closing Date by reason of a change in accounting
method or
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otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
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3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28), pursuant to
which the Company or any of its Subsidiaries is, or, at any time during the
previous five (5) years has been, a party or otherwise bound with any Affiliate
of any Seller, the Company, any Subsidiary of the Company (an "Affiliate
Transaction"). Each Affiliate Transaction has been entered into the normal and
ordinary course of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or money manager, brokerage house and similar institution in
which the Company or any of its Subsidiaries maintains any account (whether
checking, savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto. The Disclosure Schedule also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off any accounts receivable, notes receivable or other miscellaneous
receivables owing to the Company or any of its Subsidiaries (the "Receivables").
All Receivables currently owing to the Company or any of its Subsidiaries are
completely and accurately listed and aged in the Disclosure Schedule attached to
this Agreement. The Receivables arose from bona fide transactions in the normal
and ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
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3.30. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser, Newco or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Sellers. Without degradation to any of the foregoing, the Company, its
Subsidiaries and the Sellers are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Company,
its Subsidiaries or the Sellers, including, without limitation, the Persons
identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1994, 1995 and 1996 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
on the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or
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agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Newco and Purchaser and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of their properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the
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Sellers or any of the other Founding Companies, such representation and warranty
shall be deemed based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with the Newco and the
Purchaser in connection with the transactions contemplated by this Agreement and
any Purchaser Financing Transaction, including, without limitation, cooperating
in the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and
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each of its Subsidiaries to, afford to the Purchaser, Newco and their agents,
legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Company or any of
its Subsidiaries (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Purchaser and Newco to make such investigation and
examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser or Newco, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
will, and each of the Sellers will cause the Company and each of its
Subsidiaries to, cause each of their respective directors, officers, employees
and representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser and Newco, in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Company and Sellers to make such investigation and examination of the
business and properties of the Purchaser and any of its Subsidiaries as the
Company and Sellers, in its discretion, shall deem necessary, appropriate, or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. Purchaser will cause each
of its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for the Company's and Sellers'
sole benefit, and shall not (i) impair or reduce any representation or warranty
made by the Purchaser in this Agreement, (ii) relieve the Purchaser from its
obligations with respect to such representations and warranties (including,
without limitation, the Purchaser's obligations under Article 10), or (iii)
mitigate the Purchaser's obligations to otherwise disclose all material facts to
the Company and the Sellers with respect to the Purchaser.
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5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
or Newco may exercise its termination right, it must afford the Company and
Sellers the opportunity to cure the matter giving rise to the termination right
(but for no longer than five days following the date Purchaser notifies the
Company or Seller of its intent to terminate) unless, in the judgement of the
managing underwriter of the Initial Public Offering, any such cure period might
adversely affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser and Newco with the following information:
(a) the Company's audited consolidated balance sheet as of December 31,
1996 and the related statements of operations, shareholders' equity and cash
flows for the year then ended, together with all proper exhibits, schedules and
notes thereto, audited by Arthur Andersen LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Company and its Subsidiaries for the year
then ended and the results of operations and changes in shareholders' equity and
cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser,
Newco or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the
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Company maintained in accordance with good business practice and in the normal
and ordinary course of business, (ii) be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments), (iii) present fairly the financial position
of the Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Sellers, Newco and the Purchaser to consummate the
transactions contemplated by this Agreement including, without limitation, all
conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact the
Company's and each such Subsidiary's business relationships with its agents,
customers, employees, creditors and others with whom the Company or each such
Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets, properties
and rights (including, without limitation, those held under leases, the
Intellectual Property and Accounts) necessary or advisable to the profitable
conduct of their respective Businesses;
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(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns when
due (including after applicable extensions); provided that no such payment shall
be required which is being contested in good faith and by proper proceedings and
for which appropriate reserves as may be required by GAAP have been established;
(g) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which the
Company or any such Subsidiary is a party or by which it or its properties are
bound or subject;
(i) to maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments over Ten Thousand Dollars ($10,000),
without the knowledge and consent of the Purchaser, which consent shall not be
unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or any
such Subsidiary's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings or
otherwise create, incur, assume or guaranty any indebtedness (except for the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the normal and ordinary course of the Business), issue any
commercial paper or refinance any existing borrowings or
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indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on any of
the Company's or any of its Subsidiaries' assets or the incurrence by the
Company or any of its Subsidiaries of liabilities (other than in the performance
of services for customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of Ten Thousand Dollars
($10,000) and cause the aggregate commitment under all such new Contracts to
exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a term of more
than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide, combine,
change or purchase any of the Company's or any of its Subsidiary's shares, notes
or other securities, whether debt or equity, or make any Contract or commitments
to do so;
(i) enter into any transaction with any Affiliate of any Seller, the
Company or any of its Subsidiaries including, without limitation the purchase,
sale or exchange of property with, the rendering of any service to, or the
making of any loans to, any such Affiliate (provided that the foregoing will not
restrict the Company's ability to pay dividends on its common stock to pay the
estimated tax liability of the Sellers with respect to the S corporation
income);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities, whether
debt or equity, and whether by conversion or otherwise, or make any commitment
to do so;
(l) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any of
such Subsidiaries assets having an aggregate fair market value in excess of
$10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
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(n) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended December 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(p) cause or permit the Company or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business;
(r) enter into any Contract or make any commitment to do any of the
foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser,
Newco, a Potential Founding Company or their representatives) with a view to
sell, exchange or dispose or solicit an offer for the acquisition of any of the
Shares or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written
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proposal concerning the Shares, the Company, any of its Subsidiaries, any part
of their respective Businesses or any material interest therein, and the terms
thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule or any other Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Company with a copy thereof and each amendment thereto in
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substantially the form in which it is to be filed as promptly as reasonably
practicable prior to such filing (it being understood that neither the Company
nor the Sellers has any obligation to review the same other than with respect to
information regarding the Company or the Sellers) and to diligently seek to
cause the Registration Statement to be declared effective and the Initial Public
Offering to be completed. The Purchaser agrees that neither the Company nor the
Sellers shall have any responsibility for pro forma adjustments that may be made
to the Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Hart-Scott
Act to be made. If filings under the Hart-Scott Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
5.17. Final Tax Returns. The Signatory Shareholders shall arrange for the
timely filing of all federal and state income tax returns for periods ending
through the Closing Date and shall deliver a copy of each such return to the
Purchaser at least 45 days prior to the due date for the filing of such return
(including applicable extensions) for the review and approval of the
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Purchaser, which approval shall not be unreasonably withheld. The Signatory
Shareholders shall select the accountants responsible for the preparation of
such returns, which accountants are to be reasonably acceptable to the
Purchaser. The Signatory Shareholders shall be responsible for the costs of
preparing such returns, and such returns shall be prepared in a manner
consistent with all prior such returns. Purchaser shall cooperate with the
Signatory Shareholders and their accountants in providing access to all books,
records, and other information reasonably required to prepare such returns. If
the Purchaser objects to an item or items in a tax return submitted for
approval, it will notify the Signatory Shareholders of such a disagreement in
writing within ten days after the receipt of such return (the "Return Notice").
If the parties cannot reach agreement within ten days after the Signatory
Shareholders receive the Return Notice the issue shall be submitted to Arthur
Andersen LLP for its review, and the decision of Arthur Andersen LLP as to the
correct reporting of the item shall be final and conclusive and the tax return
shall be filed consistently with that decision; provided, however, that if the
Arthur Andersen LLP position has a negative financial impact on Signatory
Shareholders, Signatory Shareholders can require Arthur Andersen LLP and
Signatory Shareholders' accountant to choose a mutually agreeable third
independent accountant whose decision will be binding on the parties.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date, except for those representations and
warranties which by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Company and each of the Sellers shall deliver to the
Purchaser and Newco a certificate dated the Closing Date, certifying that all of
the Company's and the Sellers' representations and warranties contained in this
Agreement are true and correct on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of the
Sellers shall have performed and complied in all material respects with each and
every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and each of the Sellers, as the case may
be, at or prior to the Closing Date. The Company and each of the Sellers shall
deliver to the Purchaser and Newco a certificate, dated the Closing Date,
certifying that the Company and the Sellers have fully performed and complied in
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all material respects with all the duties, obligations and conditions required
by this Agreement to be performed and complied with by them at or prior to the
Closing Date.
(c) Delivery of Documents. The Company and each of the Sellers shall have
delivered to the Purchaser and Newco all documents, certificates, instruments
and items (including, without limitation, certificates representing the Shares)
required to be delivered by him, her or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Intentionally omitted.
(g) Closing Balance Sheet The Company shall have delivered to the Purchaser
a true and complete copy of the Closing Balance Sheet, together with a
certificate dated the Closing Date, signed by the Company's chief financial
officer that the Closing Balance Sheet is in accordance with the Books and
Records and with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments) and presents fairly the
financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser or Newco to consummate the Merger;
(ii) imposing or seeking to impose limitations on the ability of the Purchaser
to combine and operate the business, operations and assets of the Company or any
of the Company's Subsidiaries with the Purchaser and Newco's business,
operations and assets; (iii) imposing or seeking to impose other sanctions,
damages or liabilities arising out of the transactions contemplated by this
Agreement on the Purchaser, Newco or any of the Purchaser or Newco's directors,
officers or employees; (iv) requiring or seeking to require divestiture by the
Newco or Purchaser of all or any material portion of the business, assets or
property of the
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Company or any of its Subsidiaries; or (v) restraining, enjoining or prohibiting
or seeking to restrain, enjoin or prohibit the consummation of transactions
contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and signed
on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the Merger, including as applicable, without limitation, the execution, delivery
and performance of this Agreement were duly adopted and continue in force and
effect (a copy of such resolutions to be annexed to such certificate); (ii)
setting forth the Company's incumbent officers and including specimen signatures
on such certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a material adverse effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of good standing certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Donald H. Bowman, counsel for the Company
and the Sellers, shall have delivered to the Purchaser and Newco their favorable
opinion, dated the Closing Date, as to the matters covered in Schedule 6.1(k).
In rendering such opinion, counsel may rely to the extent recited therein on
certificates of public officials and of officers of Seller as to matters of
fact, and as to any matter which involves other than federal or Nebraska law,
such counsel may rely upon the opinion of local counsel reasonably satisfactory
to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and the Sellers, Affiliates of the Company or Sellers, other
than those, if any, set forth on Schedule 6.1(l), shall have been canceled.
(m) Employment Agreements. Each of the persons listed on Schedule 6.1(m)
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with the Company substantially in the form of Exhibit C attached
hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers shall
have repaid the Company (including the Subsidiaries) in full all amounts owing
by the Sellers or employees of the Company to the Company (including the
Subsidiaries).
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(o) FIRPTA Certificate. Each Seller shall have delivered to the Purchaser a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(r) Closing of DocuTech, Inc. Transaction. The purchase by Purchaser of all
of certain assets and assumption of certain liabilities of DocuTech, Inc.
pursuant to that certain Asset Purchase Agreement by and among Purchaser,
DocuTech, Inc. and Certain Sellers dated as of the date hereof.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be true
and correct in all material respects on and as of the date of the Closing Date,
with the same force as though such representations and warranties had been made
on and as of the Closing Date except for those representations and warranties
that by their terms relate to an earlier date, which representations and
warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser and Newco shall each deliver to the Sellers a
certificate, executed by a duly authorized officer of the Purchaser and Newco,
respectively, dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco shall
each have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by them at or prior to the Closing Date. The Purchaser and Newco shall
each deliver to the Sellers a certificate, dated the Closing Date, certifying
that each of them has fully performed and complied in all material respects with
all the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have delivered to
the Sellers all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
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(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Sellers to consummate the Merger; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
on any of the Sellers; or (iii) restraining, enjoining or prohibiting or seeking
to restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (I)(A) the
copy of the Purchaser's or Newco's, as the case may be, articles or certificate
of incorporation attached to the certificate is true, correct and complete, (B)
no amendment to such articles or certificate of incorporation has occurred since
the date of the last amendment annexed (such date to be specified), (C) a true
and correct copy of the such entity's bylaws as in effect on the date thereof
and at all times since the adoption of the resolution referred to in (D) is
annexed to such certificate, (D) the resolutions by the entity's board of
directors authorizing the actions taken in connection with the Merger, including
as applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate) and (ii) setting forth the
incumbent officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers their
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(I). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of Purchaser as to
matters of fact, and such opinion may be limited to federal laws and the laws of
the Commonwealth of Pennsylvania.
(j) Closing of DocuTech, Inc. Transaction. The purchase by Purchaser of all
of certain assets and assumption of certain liabilities of DocuTech, Inc.
pursuant to that
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certain Asset Purchase Agreement by and among Purchaser, DocuTech, Inc. and
Certain Sellers dated as of the date hereof.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Article 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Nebraska in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, Hamilton &
Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA
19103. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Sellers shall be entitled to receive pursuant to the
Merger referred to in Article 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Article 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written
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consent of the party about whom such Confidential Information pertains, except
(i) to any party's directors, officers, employees, agents, advisors and
representatives who have a need to know such Confidential Information for the
performance of their duties as employees, agents or representatives, (ii) to the
extent strictly necessary to obtain any Consents including, without limitation,
any Regulatory Approvals, that may be required or advisable to consummate the
transactions contemplated by this Agreement, (iii) to enforce such party's
rights and remedies under this Agreement, (iv) with respect to disclosures that
are compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated July 7, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to acquire or
merge with, any Purchaser Targets until the later of 300 days after the date of
this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, each of the Signatory Shareholders shall
not, during the
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Restricted Period, do any of the following, directly or indirectly, without the
prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in any
business conducted by Purchaser or a Subsidiary (the "Restricted Business")
within any geographic area located within the United States of America, its
possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted Business
within the Restricted Area; provided, that nothing contained in this Section
8.2(b) shall prohibit any DocuTech Shareholder from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of any
class of any publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's, the Surviving Corporation's, the Company's or any of their
respective Related Companies' (A) customers or distributors or prospective
customers or distributors (wherever located) with respect to goods or services
that are competitive with those of the Purchaser, the Surviving Corporation, the
Company, or any of their respective Related Companies, (B) suppliers or vendors
or prospective suppliers or vendors (wherever located) to supply materials,
resources or services to be used in connection with goods or services that are
competitive with those of the Purchaser, the Surviving Corporation, the Company
or any of their respective Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies or (D) employees (other
than family members) to leave the employ of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach or threatened breach
by him or her of any provision of Sections 8.1 or 8.2, to the extent such
Section is applicable to such Seller, will cause continuing and irreparable
injury to the Purchaser, the Surviving Corporation, the Company and their
respective Related Companies for which monetary damages would not be an adequate
remedy. Accordingly, the Purchaser, the Surviving Corporation, the Company and
any of their respective Related Companies shall be entitled to injunctive relief
from a court of competent jurisdiction, including specific performance, with
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respect to any such breach or threatened breach. In connection therewith, none
of the Sellers shall, in any action or proceeding to so enforce any provision of
this Article 8 applicable to him, assert the claim or defense that an adequate
remedy at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser,
Newco, the Company or any of their respective Related Companies may provide a
copy of this Agreement or any portion of this Agreement to any Person with,
through or on behalf of which any of the Sellers may, directly or indirectly,
breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such jurisdiction, such amendment only to apply with respect to the operation of
such provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or any of their respective Related
Companies, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits to justify such restrictions. Each
of the Sellers
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also acknowledges and understands that these restrictions are reasonably
necessary to protect the Purchaser's, the Surviving Corporation's, the Company's
and their respective Related Companies' interests, and each Seller does not
believe that such restrictions will prevent him from earning a living in
businesses that are not competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies during the
term of such restrictions in the Restricted Area.
8.7. Applicability of Section 8.2. Notwithstanding anything to the
contrary, the parties hereto acknowledge that Section 8.2 hereof shall not apply
to Scott Matthews.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company, Newco and the Purchaser contained in
this Agreement shall survive until the second anniversary of the Closing Date,
except that the representations and warranties set forth in each of Section
3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive until the
expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Sellers, the Company,
Newco and of the Purchaser contained in this Agreement will survive the Closing
until, by their own respective terms, they have been fully performed. Any breach
of a representation, warranty, covenant or agreement that would otherwise
terminate in accordance with this Article 9 will continue to survive if an
Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under Article 10 on or prior to the date on
which such representation, warranty, covenant or agreement would have otherwise
terminated, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article 10. Any representation or warranty
contained in this Agreement made by any party or any written information
furnished by any party that was made by such party fraudulently or with intent
to defraud or mislead or with gross negligence shall indefinitely survive the
Closing. Any representation or warranty made by the Sellers or the Company in
this Agreement or any written information furnished or caused to be furnished by
any of the Sellers or the Company to the Purchaser that is incorporated in, or
is the basis for omitting information from, the Registration Statement,
prospectus or other document, or any amendment or supplement thereof in
connection with any Purchaser Financing Transaction shall survive until the
expiration of all applicable statutes of limitations regarding claims brought by
investors in such Purchaser Financing Transaction alleging material
misstatements or omissions in such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in
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connection with the transactions contemplated by this Agreement shall run to the
benefit of any Underwriter of the Purchaser's common stock subject to the
Initial Public Offering in addition to the benefit of the Purchaser.
Accordingly, any such Underwriter, and each person, if any, who controls any
such Underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, shall be (i) an intended beneficiary of this Agreement
and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal and accounting representatives, from and against all Indemnifiable Losses
that may be imposed upon, incurred by or asserted against any of them resulting
from, related to, or arising out of (i) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by the Company or
any of the Sellers under this Agreement or any document, instrument, certificate
or other item required to be furnished to the Purchaser or Newco pursuant hereto
or thereto or in connection with the transactions contemplated by this
Agreement; (ii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or Newco (provided that the Seller hereby acknowledges that the
information concerning the Seller and the Company in the Registration Statement
shall be deemed to be provided to the Purchaser and Newco for the purposes
hereof); (iii) any liability or obligation of any of the Sellers, the Company or
any of its Subsidiaries other than liabilities reflected in the determination of
the Closing Debt Amount under Section 28(b) and Net Book Value of the Combined
Assets and Liabilities made under Section 2.8(c); (iv) any liability for payment
of Taxes that accrued or relate to the period of time prior to the Closing Date;
(v) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) any non-compliance with the Worker Adjustment and Retraining
Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and regulations
promulgated thereunder and any
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similar Requirement of Law; and (viii) any Legal Proceeding or Order arising out
of any of the foregoing even though such Legal Proceeding or Order may not be
filed, become final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco and the Surviving Corporation shall indemnify and hold harmless
the Sellers and each of their respective legal and accounting representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any liabilities
reflected in the determination of the Closing Debt Amount under Section 28(b)
and Net Book Value of the Combined Acquired Assets and Liabilities made under
Section 2.8(c); (iii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser or Newco pursuant to this Agreement or upon
any untrue statement or omission contained in any information furnished or
caused to be furnished by the Purchaser or Newco; and (iv) any Legal Proceeding
or Order arising out of any of the foregoing even though such Legal Proceeding
or Order may not be filed, become final, or come to light until after the
Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for
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the delay in the delivery of, or the failure to deliver, the Indemnity Notice.
Within thirty (30) days after the receipt by the Indemnifying Party of the
Indemnity Notice, the Indemnifying Party shall either (i) pay to the Indemnified
Party an amount equal to the Indemnifiable Loss or (ii) object to such claim, in
which case the Indemnifying Party shall give written notice to the Indemnified
Party of such objection together with the reasons therefor, it being understood
that the failure of the Indemnifying Party to so object shall preclude the
Indemnifying Party from asserting any claim, defense or counterclaim relating to
the Indemnifying Party's failure to pay any Indemnifiable Loss. The Indemnifying
Party's objection shall not, in and of itself, relieve the Indemnifying Party
from its obligations under this Article 10. In the event that the parties are
unable to resolve the subject of the Indemnity Notice, the issue shall be
submitted for determination to a neutral third party designated by the President
of the Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall promptly, and in any event, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Promptly, but in any event within sixty (60) days
after the amount of such claim shall be finalized, resolved, or liquidated, the
Indemnified Party shall give the Indemnifying Party an Indemnity Notice, and the
Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or fourteen (14) days after receiving notice of the existence of a
claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Governmental Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing, but which is reasonably
satisfactory to the Indemnified Party; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the
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Indemnified Party and the Indemnifying Party and the Indemnified Party
reasonably concludes that there are defenses available to it that are different
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party may be reasonably deemed to conflict with those of the
Indemnifying Party, then the Indemnified Party shall have the right to select
separate counsel and to assume the Indemnified Party's defense of such claim,
demand or Legal Proceeding at its own expense. The Indemnifying Party shall give
the Indemnified Party notice in writing within ten (10) days after receiving the
Claim Notice from the Indemnified Party in the event of litigation, or otherwise
within thirty (30) days, of its intent to do so. In the case of any claim
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Purchaser shall have right to
control the defense thereof at the Indemnifying Party's expense; provided,
however, that the Indemnifying Party shall have the right, at its own expense,
to retain its own counsel to participate in the defense of the claim and to
promote the defenses of the Indemnifying Party in the proceedings. Whenever the
Indemnifying Party is entitled to defend any claim hereunder, the Indemnified
Party may elect, by notice in writing to the Indemnifying Party, to continue to
participate through its own counsel, at its own expense, but the Indemnifying
Party shall have the right to control the defense of the claim or the
litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Article 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary,
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no Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
(d) Notwithstanding any other provisions of this Agreement, the Signatory
Shareholders shall control all federal and state income tax controversies with
respect to periods ending on or before the Closing Date. The Signatory
Shareholders shall be permitted to resolve all such controversies to their own
satisfaction; provided, however, that if such resolution (or any later positions
consistent therewith) could result in a change to the income tax liabilities or
positions of Purchaser for periods after the Closing Date, or in an
Indemnifiable Loss with respect to Taxes, the Signatory Shareholders shall
obtain the advance written consent or Purchaser to such resolution which consent
shall not be unreasonably withheld. Should Purchaser receive any communications
from federal or state tax authorities with respect to tax periods ending on or
before the closing date, Purchaser shall notify the Signatory Shareholders of
such communication by facsimile within two business days after receipt, and
shall forward the original of such communication if in writing within five
business days.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, Newco,
the Surviving Corporation, the Company or any such controlling Person may be
subject (after contribution from others) as is appropriate to reflect the
relative fault of the Purchaser, Newco, the Surviving Corporation, the Company,
such controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed $37,500 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. Sellers shall
not assert any claim for indemnification hereunder against Purchaser, the
Company, Newco or the Surviving Corporation until such time as, the aggregate of
all claims which Sellers may have against Purchaser, the Company, Newco or the
Surviving Corporation shall exceed $37,500, whereupon such claims shall be
indemnified in full. The limitation of assertion of claims for indemnification
contained in this paragraph shall apply only to claims based upon inaccuracies
in, or breaches of, representations and warranties contained in this Agreement
or any document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
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ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Company's or any of the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority of
the Shares if any of the Purchaser's or Newco's representations or warranties
contained in this Agreement were materially incorrect when made or become
materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority of
the Shares, on the one hand, or by the Purchaser, on the other hand, upon any
material breach by such other party's covenants or agreements contained in this
Agreement and the failure of such other party to cure such breach, if curable,
within ten (10) days after written notice thereof is given by the non-breaching
party to the breaching party; or
(e) at any time after the date which is 270 days after the date of this
Agreement, by the Sellers holding a majority of the Shares, on the one hand, or
by the Purchaser on the other hand, upon notification to the non-terminating
party by the terminating party if the Closing shall not have occurred on or
before such date and such failure to consummate is not caused by a breach of
this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.9 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
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(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Company or any such Subsidiary on or prior to the Closing Date
and shall permit the Sellers or their respective representatives and agents
access to all such books and records, and to the Surviving Corporation's and its
Subsidiaries' employees and auditors for the purpose of obtaining information
relating to periods on or prior to the Closing Date, upon reasonable notice by
the Sellers and on terms not disruptive to the business, operation or employees
of the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries, to assist the Sellers in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Sellers after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Sellers, the Company or any of its Subsidiaries any litigation controlled by the
Sellers or (iii) complying with requests made of any of the Sellers by any
Taxing Authority or any Governmental or Regulatory Authority conducting an
audit, investigation or inquiry relating to the Company's or any of its
Subsidiaries' activities during periods prior to the Closing Date. Each of the
Sellers will hold all information provided to them pursuant to this Section 12.1
(and any information derived therefrom) in confidence to the same extent as
required by Section 8.1 of this Agreement with respect to Confidential
Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. Immediately prior to Closing, the Company will
distribute to the Sellers as a dividend the receivables more than 100 days past
their original invoice date and all charged off receivables. In the event that
the Company or the Sellers makes a
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payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Article 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Article
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under
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the Securities Act or any other state securities laws, and therefore may not be
resold without compliance with the Securities Act. The DocuNet Common Stock to
be acquired by such Sellers pursuant to this Agreement is being acquired solely
for their own respective accounts, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Seller acknowledges that such draft is
subject to completion and subject to change, and Seller acknowledges that his
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
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ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and 15.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of DocuNet Common
Stock; (ii) registrations of shares to be used solely as consideration for
acquisitions of additional businesses by the Purchaser; and (iii) registrations
relating to employee benefit plans, the Purchaser shall give each of the Sellers
prompt written notice of its intent to do so. Upon the written request of any of
the Sellers given within 30 days after receipt of such notice, Purchaser shall
cause to be included in such registration all of the DocuNet Common Stock which
any such Seller requests. However, if the Purchaser is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by such persons) to a number deemed satisfactory by such managing
underwriter or such managing underwriter can eliminate the participation of all
such persons in the offering, provided that, for each such offering made by the
Purchaser after the Initial Public Offering, a reduction shall be made first by
reducing the number of shares to be sold by persons other than the Purchaser,
the Sellers, the Founding Companies, the stockholders of the Founding Companies
and other stockholders (the "Other Stockholders") of the Company immediately
prior to the Initial Public Offering, and thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Sellers, the
Founding Companies, the stockholders of the Founding Companies and the Other
Stockholders, pro rata based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Sellers) shall be borne by the Purchaser. In connection with registrations under
Section 15.1, the Purchaser shall (i) prepare and file with the Securities and
Exchange Commission as soon as reasonably practicable, a registration statement
with respect to the DocuNet Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 90
days (or such shorter period during which holders shall have sold all DocuNet
Common Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the DocuNet Common Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the DocuNet Common Stock; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
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15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
DocuTech Data Systems, Inc.
5001 Rentworth Court
Lincoln, NE 68516
Attention: Rex Lamb
with a copy to:
Donald H. Bowman
Attorney at Law
1111 Lincoln Mall
Suite 360
Lincoln, NE 68508
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(b) If to any of the following Sellers:
(i) If to Rex Lamb:
Rex Lamb
c/o DocuTech Data Systems, Inc.
5001 Rentworth Court
Lincoln, NE 68516
(ii) If to Mark Creglow:
Mark Creglow
c/o Mark Creglow
DocuTech Data Systems, Inc.
5001 Rentworth Court
Lincoln, NE 68516
(iii) If to Scott Matthews:
Scott Matthews
7011 South 38th Street
Apartment 20
Lincoln, NE 68516
with a copy to:
Robert B. Creager, Esquire
Anderson, Creager & Whittsttuck, P.C.
1630 K Street
Lincoln, NE 68508
(c) If to the Purchaser or Newco:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
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with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Arthur Andersen LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be the
responsibility of Purchaser, provided that, notwithstanding the foregoing,
Sellers shall be responsible to pay $5,000 of such fees and expenses
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his or its own expense, from time to time upon the request
of the other, execute and deliver, or cause to be executed and delivered, at
such times as may reasonably be requested by the Purchaser, the Surviving
Corporation or the Sellers, such other documents, certificates and instruments
and take such actions as the Purchaser, the Surviving Corporation or the Sellers
deem reasonably necessary to consummate more fully the transactions contemplated
by this Agreement. In addition, the Sellers shall (i) provide or cause to be
provided such written information with respect to themselves or the Company,
(ii) execute and deliver or cause to be executed and delivered such other
documents, certificates or instruments, and (iii) take or cause to be taken such
actions, in each of the foregoing cases, as the Purchaser, the Surviving
Corporation, any Underwriter or any auditor reasonably deems necessary or
desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
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16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction, except that the provisions in Section 8.2 hereof shall be
governed by Nebraska law.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Sellers, the Purchaser, Newco and the
Company have caused this Agreement to be duly executed as of the date first
written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
DOCUNET ACQUISITION CORP.
By: /s/ S. David Model
_______________________________
Name:
Title:
DOCUTECH DATA SYSTEMS, INC.
By: /s/ Rex Lamb
_______________________________
[--------------]
President
Witness: /s/ Rex Lamb
_______________________ _______________________________
Rex Lamb, Individually
Witness: /s/ Mark Creglow
_______________________ _______________________________
Mark Creglow, Individually
Witness: /s/ Scott Matthews
_______________________ _______________________________
Scott Matthews, Individually
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Schedule 2.3
Officaers of Surviving Corporation
----------------------------------
DocuTech Acquisition Corp.
- --------------------------
S. David Model President
Andrew R. Bacas Secretary
James Brown Treasurer
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Schedule 2.4
Capitalization
--------------
To be delivered at a later date.
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Schedule 2.7
Capitalization Table
--------------------
To be delivered at a later date.
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Schedule 2.9
Distribution of Merger Consideration
------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of % of
Aggregate Purchase % of Purchase
Purchase Price paid Price Paid in Aggregate Stock Escrow
Shareholder Price in Cash Stock Purchase Price Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rex Lamb 51% 25% 75% $2,486,250 $165,750 (stock)
- --------------------------------------------------------------------------------------------------------
Mark Creglow 39% 50% 50% $1,267,500 $126,750 (stock)
- --------------------------------------------------------------------------------------------------------
Scott Matthews 10% 100% --% -- $32,500 (cash)
- --------------------------------------------------------------------------------------------------------
Total 100% $3,753,750 $325,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
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Schedule 6.1(k)
___________ __, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to __________________, a ________________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ____________ , 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ______________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Cenificate] [Articles] of Incorporation and Bylaws of
the Company. We have also made such examinations of laws, certificates of public
officials, instruments, documents, and corporate records and have made such
other investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Company and the Stockholders, (ii) the accuracy, completeness and authenticity
of all records and documents submitted to us as originals, (iii) the conformity
to the original of all documents submitted to us as certified, conformed Or
photostatic copies, and (iv) the legal capacity of all natural persons who are
parties to the Transaction Documents
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of ______________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
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We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of ______________ .
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
16.11.1.The Company is a corporation duly organized, validly existing and
ingood standing under the laws of the State of ________________ and has all
necessary corporate power and authority to enter into the Transaction Documents
and to consummate the transactions contemplated thereby.
16.11.2.The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite Corporate action on the
part of the Company.
16.11.3.The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
16.11.4.Neither the execution and the delivery of the Transaction Documents
nor the consummation of the transactions contemplated thereby, violate the
[Certificates][Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
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Our option, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give on prior written
consent. neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
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Schedule 6.1(1)
Related Party Agreements
------------------------
None.
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Schedule 6.1(m)
Employment Agreements
---------------------
Rex Lamb
Mark Creglow
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Schedule 6.2(i)
[__________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"], in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _____________, 1997 (the "Purchase Agreement"),
among the Purchaser, __________________, a ____________ corporation (the
"Seller"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ____________ of the Purchase Agreement.
In connection with rendering this option, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that.
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<PAGE>
16.11.5. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
16 11.6. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
16.11.7. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
16.11.8. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency reorgaruzation, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
------------------------------
A Partner
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among Rex Lamb, Mark Creglow and Scott Matthews
(collectively "Sellers," and each, a "Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Sellers and the Escrow Agent are sometimes collectively referred to herein as
the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of the
Purchaser.
(b) Market Price shall mean the average closing price of Common Stock
during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i) payment
of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of a
Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
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<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited into
the Escrow Account and registered to a Seller are delivered by the Escrow Agent
to the Purchaser, such Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL RELEASED
FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF SUCH
ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock deposited
into the Escrow Account, Sellers shall be entitled to vote said shares in any
meeting of shareholders, and shall be entitled to all dividends paid thereon.
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<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in Article 2
of the Purchase Agreement, the Parties have specified a mechanism for the final
determination of the Purchase Price of the Company (the "Purchase Price
Provision"). The amounts that may be payable by the Sellers to the Purchaser
under the Purchase Price Provision are herein called the "Covered Amounts." One
purpose of the Escrow Account is, to the extent herein provided, to provide a
source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure the
indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of the
Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers and
the Purchaser shall give a joint written notice to the Escrow Agent indicating
whether and to what extent the Escrow Account is to be disbursed to the
Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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<PAGE>
12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
c/o DocuTech Inc.
5048 Rentworth Court
Lincoln, NE 68516
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<PAGE>
With a copy to:
Donald H. Bowman
Attorney at Law
1111 Lincoln Mall
Suite 360
Lincoln, NE 68508
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
Rex Lamb
----------------------------------------
Mark Creglow
----------------------------------------
Scott Matthews
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
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<PAGE>
EXECUTION
DOCUNET INC.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
DOCUTECH, INC.
<PAGE>
TABLE OF CONTENTS
Page
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES..................................11
2.1. Agreement to Sell and Purchase Assets...........................11
2.2. Intentionally Omitted ..........................................11
2.3. Consideration and Payment.......................................11
2.4. Payment of Purchase Price.......................................15
2.5. Allocation of Purchase .........................................16
2.6. Assumption of Liabilities.......................................16
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER.............................................17
3.1. Organization; Qualification; Good Standing......................17
3.2. Authorization for Agreement.....................................17
3.3. Ownership; Subsidiaries and Affiliates..........................18
3.4. Enforceability..................................................18
3.5. Legal Proceedings and Orders....................................18
3.6. Title to the Purchased Assets and Related Matters...............19
3.7. Compliance with Laws............................................19
3.8. Labor Matters...................................................19
3.9. Employee Benefit Plans..........................................20
3.10. Financial Statements...........................................22
3.11. Absence of Undisclosed Liabilities.............................23
3.12. Real Property..................................................24
3.13. Tangible Personal Property.....................................25
3.14. Contracts......................................................26
3.15. Insurance......................................................28
3.16. Proprietary Rights.............................................28
3.17. Environmental Matters..........................................29
3.18. Permits........................................................30
3.19. Regulatory Filings.............................................30
3.20. Taxes and Tax Returns..........................................30
3.21. Affiliate Transactions.........................................31
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Page
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3.22. Accounts.......................................................32
3.23. Receivables....................................................32
3.24. Solvency.......................................................32
3.25. Officers and Directors.........................................33
3.26. Brokers or Finders.............................................33
3.27. No Other Agreements to Sell Assets.............................34
3.28. Customers......................................................34
3.29. Investment Company.............................................34
3.30. Absence of Changes.............................................34
3.31. Accuracy and Completeness of Information.......................35
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................36
4.1. Organization....................................................36
4.2. Authorization for Agreement.....................................36
4.3. Enforceability..................................................36
4.4. Litigation......................................................36
4.5. Registration Statement..........................................36
4.6. Brokers or Finders..............................................37
ARTICLE 5 - COVENANTS.......................................................37
5.1. Good Faith......................................................37
5.2. Approvals.......................................................37
5.3. Cooperation; Access to Books and Records........................37
5.4. Duty to Supplement..............................................38
5.5. Information Required for Purchaser Financing Transactions.......39
5.6. Performance of Conditions.......................................40
5.7. Conduct of Business.............................................40
5.8. Negative Covenants..............................................41
5.9. Exclusive Negotiation...........................................43
5.10. Public Announcements...........................................43
5.11. Amendment of Schedules.........................................43
5.12. Cooperation in Preparation of Registration Statement...........44
5.13. Examination of Final Financial Statement.......................45
5.13A Audit Opinion..................................................45
5.14. [Intentionally omitted.]........................................45
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Page
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5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott Act")...............................45
5.16. Final Tax Returns...............................................45
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................46
6.1. Conditions Precedent to Purchaser's Obligations.................46
6.2. Conditions Precedent to Seller's Obligations....................49
ARTICLE 7 - CLOSING.........................................................51
ARTICLE 8 - COVENANT NOT TO COMPETE.........................................51
8.1. Confidentiality.................................................51
8.2. Covenant Not To Compete.........................................53
8.3. Specific Enforcement; Extension of Period.......................53
8.4. Disclosure......................................................54
8.5. Interpretation..................................................54
8.6. Acknowledgment..................................................54
ARTICLE 9 - SURVIVAL........................................................55
9.1. Survival of Representations, Warranties, Covenants and Agreements55
9.2. [Intentionally omitted.]........................................55
9.3. Underwriter's Benefit...........................................55
ARTICLE 10 - INDEMNIFICATION................................................56
10.1. Seller and Shareholder's Indemnification.......................56
10.2. Purchaser's Indemnification....................................57
10.3. Payment; Procedure for Indemnification.........................57
10.4. Equitable Contribution Under the Securities Act..............60
10.5. Exclusiveness of Indemnification...............................60
10.6. Limitations on Indemnification..................................60
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ARTICLE 11 - TERMINATION AND REMEDIES.......................................61
11.1. Termination...................................................61
11.2. Effect of Termination..........................................62
ARTICLE 12 - POST-CLOSING COVENANTS.........................................62
12.1. Further Cooperation............................................62
12.2. Maintenance of Books and Records...............................63
12.3. By Seller and Shareholders.....................................63
12.4. Use of Name....................................................63
12.5. Discharge of Obligations.......................................64
12.6. Receivables....................................................64
12.7. Disclosure.....................................................64
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS.............................64
ARTICLE 14 - MISCELLANEOUS..................................................65
14.1. Notices........................................................65
14.2. No Third Party Beneficiaries...................................66
14.3. Schedules......................................................66
14.4. Expenses.......................................................66
14.5. Further Assurances.............................................66
14.6. Entire Agreement; Amendment....................................67
14.7. Section and Paragraph Titles...................................67
14.8. Binding Effect.................................................67
14.9. Counterparts...................................................67
14.10. Severability..................................................67
14.11. Governing Law.................................................67
SCHEDULES
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time
to time, this "Agreement") is hereby made this 9th day of September, 1997 by and
among DocuTech, Inc. (the "Seller"), a Nebraska corporation (the "Company"), Rex
Lamb ("Rex") and Vicki Lamb ("Vicki," and collectively, the "Shareholders"), and
Docunet Inc., a Pennsylvania corporation (the "Purchaser").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document
management services. Shareholders own one hundred percent (100%) of the issued
and outstanding shares of the Seller's capital stock. The Seller desires to sell
to the Purchaser and the Purchaser desires to purchase from the Seller all of
the Seller's assets that are used in or related to the operation of the Seller's
document management, document software and related businesses (the "Business"),
together with the goodwill related to the Business in accordance with the
provisions set forth in this Agreement. Except for those specific obligations
and liabilities of the Seller identified in this Agreement, the Purchaser is
assuming none of the Seller's obligations or liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Intentionally Omitted
1.2. Accounts shall have the meaning set forth in Section 3.22.
1.3. Accrued Expenses shall mean, as of any date of determination,
accrued expenses as would appear on a balance sheet of the Business as of such
date prepared in accordance with GAAP, but specifically excluding any amounts
payable to any of the Seller's or the Shareholder's Affiliates or to any of the
Seller's directors, officers or employees that is contingent upon or payable as
a result of the transactions contemplated by this Agreement.
1.4. Acquired Liabilities shall mean, as of the applicable date,
Seller's Payables, Accrued Expenses and deferred revenue under service and
maintenance agreements, as would appear on a balance sheet of the Company as of
such date prepared in accordance with GAAP and incurred in the ordinary course
of business consistent with past practices.
<PAGE>
1.5. Acquired Net Fixed Assets shall mean, as of the applicable
date, the Seller's fixed assets as categorized on the Seller Balance Sheet
reported in accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable
date, the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current
Assets, minus Seller's Acquired Liabilities, reported on the Seller Balance
Sheet in accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable
date, the Seller's Current Assets minus its Acquired Liabilities, as reported on
the Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in
Section 3.21.
1.10. Allocation Schedule shall have the meaning set forth in
Section 2.5.
1.11. Assignment and Assumption Agreement shall mean the Assignment
and Assumption Agreement to be executed and delivered by and between the
Purchaser and the Seller in the form attached to this Agreement as Exhibit A.
1.12. Assumed Liabilities shall have the meaning set forth in
Section 2.6.
1.13. Balance Sheet Date shall mean December 31, 1996.
1.14. Bill of Sale shall mean the Bill of Sale to be executed and
delivered by the Seller to the Purchaser in the form attached to this Agreement
as Exhibit B.
1.15. Books and Records shall mean all records, documents, lists and
files, relating to either or both of the Purchased Assets or the Business
including, without limitation, price lists, lists of accounts, customers,
suppliers and personnel, all product, business and marketing plans, historical
sales data and all books, ledgers, files and business records (including,
without limitation, all financial records and books of account) of or relating
to either or both of
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the Purchased Assets or the Business; in any of the foregoing cases, whether in
electronic form or otherwise.
1.16. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.17. Cash Purchase Price shall have the meaning set forth in
Section 2.4.
1.18. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.19. Closing shall have the meaning set forth in Section 7.
1.20. Closing Balance Sheet shall mean the unaudited balance sheet
delivered by the Seller to the Purchaser as of the date immediately prior to the
Closing Date, in accordance with Section 3.10(d).
1.21. Closing Date shall mean the date on which the Closing actually
takes place.
1.22. [Intentionally Omitted]
1.23. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.24. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to Intellectual Property and information, materials, documents,
financial reports, business plans and marketing data that relate to the
business, strategies or operations of the parties hereto or a Potential Founding
Company, disclosed or otherwise made available by such party, such Affiliate or
Potential Founding Company (the "Discloser") to another party, affiliate or
Potential Founding Company (the "Recipient") in connection with the transactions
contemplated by this Agreement and (ii) each of the terms, conditions and other
provisions contained in this Agreement and in the agreements or documents to be
delivered pursuant to this Agreement. Notwithstanding the preceding sentence,
the definition of Confidential Information shall not include any information
that (i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering, or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
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(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
Notwithstanding any exception in this paragraph or elsewhere in this agreement,
no Recipient shall use any information regarding the software developed by
DocuTech Data Services, Inc., whether developed for its own use, for DocuTech,
Inc.'s use, or for sale to customers, for the purpose of developing competitive
software for use by Recipient, affiliates of Recipient, or others or for sale by
Recipient, affiliates of Recipient, or by others.
1.25. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.26. Current Assets shall mean, as of the applicable date, the
Seller's Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.27. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person or such Person's properties are bound.
1.28. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.29. DocuNet Common Stock shall mean the common stock, no par
value, of DocuNet Inc., the sole shareholder of Purchaser.
1.30. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
for retirees) within the previous six plan years or with respect to which
contributions are or were (within such six year period) made or required to be
made by the Seller or any ERISA Affiliate or with respect to which the Seller
has any liability.
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1.31. Encumbrances shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, mortgages, conditional or
installment sales Contracts, title retention Contracts, transferability
restrictions and other claims or burdens of any nature whatsoever attached to or
adversely affecting such asset other than liens arising in the ordinary course
of business which are not incurred in connection with the borrowing of money and
which, in the aggregate, are not material.
1.32. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.33. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.34. ERISA Affiliate shall mean any Person that is included with
the Seller in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.35. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.36. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.4, substantially in
the form attached hereto as Exhibit C.
1.37. Escrow Amount shall have the meaning set forth in Section
2.4(b).
1.38. Excluded Assets shall mean those assets listed on Schedule
2.1(b) attached to this Agreement.
1.39. [Intentionally omitted]
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1.40. Financial Statements shall have the meaning set forth in
Section 3.10(a).
1.41. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements with the Purchaser
in anticipation of a simultaneous acquisition by Purchaser and Initial Public
Offering.
1.42. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for the
aforementioned; and shall also mean the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period unless specific exemption is noted in the financial statements
where a change of accounting method, principle or presentation has occurred.
1.43. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.44. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.48. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.50. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications,
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service mark rights, service mark applications, trade names, registered
copyrights, copyright rights and all intellectual, industrial or proprietary
rights and trade secrets, technology and know-how relating to either or both of
the Purchased Assets or the Business, in each case together with any amendments,
modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth
in Section 3.10(b).
1.52. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor
organization thereto.
1.54. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or, in the case of an
entity, the actual knowledge of any officer or director of such entity, and, in
the case of any such officer or director that knowledge that a reasonably
prudent officer or director should have if such person duly performed his or her
duties as an officer or director of such party or made reasonable and diligent
inquiry and exercised due diligence with respect thereto.
1.54A. Lease shall mean the lease of Real Property.
1.55. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.56. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.57. Obligations and liabilities and words of similar import
include, without limitation, any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
choate or inchoate, liquidated or unliquidated, secured or unsecured.
1.58. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
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1.59. Payables shall mean, as of any date of determination, the
Seller's accounts payable associated with the Business as of such date in
accordance with GAAP consistently applied, other than amounts that are payable
to any Affiliate of the Seller or any of the Shareholders.
1.60. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.61. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholder, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.63A Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.63B Pricing Date shall mean the date on which the Pricing takes
place.
1.64. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser, or its Affiliates, to
participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.65. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section
2.1.
1.67. Purchase Price shall have the meaning set forth in Section
2.3.
1.68. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
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1.69. [Intentionally omitted.]
1.70. Real Property shall mean all real property of Seller.
1.71. Receivables shall mean, as of any date of determination, the
Seller's accounts receivable, notes receivable and other miscellaneous
receivables associated with the Business at such date.
1.72. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.73. Related Companies shall have the meaning set forth in Section
8.2(a).
1.74. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
or any Order, to which, in each case, such Person or any of such Person's
properties, operations, business or assets is bound or subject.
1.75. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.76. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.77. Restricted Period shall mean, with respect to the Seller and
the Shareholders, the period commencing on the Closing Date and ending on the
later of (i) the first anniversary of the date on which such Shareholder's
employment with the Purchaser, if any, expires, is not renewed, or is otherwise
terminated, and (ii) the fifth anniversary of the Closing Date, as such period
may be extended pursuant to Section 8.3(b); provided that (with respect to the
Shareholders) the reference to "fifth anniversary" in this clause (ii) shall be
automatically changed to "fourth anniversary" if the average closing price of
the DocuNet Common Stock during any 20-trading day period within the 60-day
period prior to or following the date on which such Shareholder's employment
with the Purchaser terminates is less than 50% of the Initial Public Offering
Price (as adjusted proportionately for any stock splits, stock dividends or
reverse stock splits).
1.78. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.79. [Intentionally Omitted]
1.80. Seller Balance Sheet shall have the meaning set forth in
Section 3.11.
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1.81. Intentionally Omitted
1.82. Intentionally Omitted
1.83. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.84. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.85. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.86. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed, with or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.87. Trade Accounts Receivable shall mean, as of the applicable
date, the Seller's trade accounts receivable associated with the Business.
1.88. Transfer Taxes shall mean any applicable documentary, sales,
use, filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.90. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.91. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
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ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Seller and the Shareholders
to the Purchaser in this Agreement, the Seller shall sell to the Purchaser and
the Purchaser shall purchase and receive from the Seller, free and clear of all
Encumbrances and all obligations and liabilities (other than the Assumed
Liabilities), all of the tangible and intangible assets of the Seller, whether
real, personal or mixed, that are incremental or relating to, or used in
connection with, the Business, wherever located, including, without limitation
(i) the assets included on the Seller Balance Sheet, (ii) the assets listed on
Schedule 2.1(a) attached to this Agreement, and (iii) all assets acquired by the
Seller after December 31, 1996 and on or prior to the Closing Date, but
excluding the Excluded Assets (as set forth on Schedule 2.1(b)) and any assets
disposed of in the ordinary course of business consistent with past practice
(collectively, the "Purchased Assets").
2.2. Intentionally Omitted
2.3. Consideration and Payment. As full consideration for the
Purchased Assets being purchased pursuant to this Agreement (in addition to the
assumption of the Assumed Liabilities), the Purchaser shall pay, deliver or
cause to be delivered to the Seller, in the manner set forth in Section 2.4 of
this Agreement, the Base Purchase Price (as hereinafter defined), less the Debt
Adjustment (as hereinafter defined), the Working Capital Adjustment (as
hereinafter defined) and, subject to Section 2.3(f) below, the Net Book Value of
Assets and Liabilities Adjustment (as hereinafter defined), on the terms and
conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.4(d), the Purchaser
shall pay to the Seller at the Closing the sum of Two Million Seven
Hundred Thousand dollars ($2,700,000), subject to adjustments as set forth
herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by 29.35 cents for each $1.00 of Debt reflected on the Closing
Balance Sheet of the Seller and DocuTech Data Systems, Inc. (the "Closing
Debt Amount"). The Debt shall mean all of the liabilities of Seller and
DocuTech Data Systems, Inc., contingent or otherwise, except Adjusted
Current Liabilities, in accordance with GAAP. The Adjusted Current
Liabilities shall mean all of the liabilities of Seller and DocuTech Data
Systems, Inc which would be classified as current liabilities in
accordance with GAAP, except current amounts of principal, interest or
penalties due and owing: (i) under promissory notes or lines of credit to
lending institutions; (ii) to an employee or an Affiliate of the Seller or
DocuTech Data Systems, Inc., or the Shareholders; (iii) to a lessor under
a capital lease; or (iv) on
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account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Seller shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Seller's objection, if
any, to the Accountants' CDA Report (the "Seller's CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Seller's calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Seller's CDA Objection,
the Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Seller does not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Seller's adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the
"Final Debt Amount"), if any, shall be paid by the Seller to the Purchaser
in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Seller shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a
like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (as defined below) equal to such amount. The term "Value"
in respect of a share of DocuNet Common Stock shall mean the lower of the
Initial Public Offering Price and the average closing price of the DocuNet
Common Stock during the 20 trading-day period ending immediately prior to
the applicable payment date. If the Seller objects to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Seller's
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Seller and the Purchaser shall be engaged to determine
the amount of the Closing
Debt Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is
not received by Purchaser within such time period, such amount shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and the
Seller shall be obligated to replenish the Escrow Amount by depositing
with the Escrow Agent upon such payment either cash in a like amount or a
number of shares of DocuNet Common Stock having an aggregate Value equal
to such amount. The parties hereto agree to cooperate fully with such
independent accountants at their own cost and expense, including, but not
limited to, providing such
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independent accountants with access to, and copies of, all books and records
that they shall reasonably request. The Purchaser and the Seller shall each bear
one-half of all of the costs and expenses of such independent accounting firm,
and if the parties hereto are unable to agree upon an independent accounting
firm, the Seller and the Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
reduced, at Closing, by 29.35 cents for each $1.00 that the Combined
Adjusted Working Capital of the Seller and DocuTech Data Systems, Inc. (as
hereinafter defined) is less than $400,000 on the Closing Date (the
"Closing Adjusted Working Capital Amount"). The Combined Adjusted Working
Capital shall mean the current assets of the Seller and of DocuTech Data
Systems, Inc., plus deferred revenue of the Seller and DocuTech Data
Systems, Inc. and less Adjusted Current Liabilities, calculated pursuant
to GAAP. Promptly following the Closing, and in order to verify the
accuracy of the adjustment made at the Closing, the Purchaser agrees to
cause the internal accounting staff and the independent certified public
accountant of the Purchaser (the "Accountants") to verify the amount of
the Closing Adjusted Working Capital Amount. The Accountants shall issue a
report as to their determination of the Closing Adjusted Working Capital
Amount (the "Accountants' CAWCA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CAWCA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Adjusted
Working Capital Amount by the Accountants shall be conclusive and binding
upon the parties hereto unless the Seller shall object to the Accountants'
CAWCA Report within fifteen (15) days following its receipt of the
Accountants' CAWCA Report. The Seller's objection to the Accountants'
CAWCA Report. The Seller's objection, if any, to the Accountants' CAWCA
Report (the "Seller's CAWCA Objection") shall set forth in reasonable
detail the Seller's objection(s) to the Accountants' CAWCA Report and the
Seller's calculation of the Closing Adjusted Working Capital Amount.
Within ten (10) days after receipt of the Seller's CAWCA Objection, the
Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CAWCA Response Notice"). If the
Seller does not object to the Accountants' CAWCA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants'
CAWCA Report, then the adjustment based on the then final Closing Adjusted
Working Capital Amount (the "Final Adjusted Working Capital Amount"), if
any, shall be paid by Seller to the Purchaser in immediately available
funds within five (5) business days of such acceptance. If such amount is
not received by Purchaser within such time period, such amount shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment cash in a like amount If the Seller objects
to the Accountants' CAWCA Report as set forth above and the Purchaser does
not accept the Seller's proposed adjustments, then an independent
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accounting firm mutually satisfactory to the Seller and the Purchaser
shall be engaged to determine the amount of the Closing Adjusted Working
Capital Amount and the Final Adjusted Working Capital Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount discussed determined as provided
above shall be paid to the Purchaser in immediately available funds within
five (5) business days of the determination of such amount by such
accounting firm. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment cash in a
like amount. The parties hereto agree to cooperate fully with such
independent accountants at their own cost and expense, including, but not
limited to, providing such independent accountants with access to, and
copies of, all books and records that they shall reasonably request. The
Purchaser and the Seller shall each bear one-half of all of the costs and
expenses of such independent accounting firm, and if the parties hereto
are unable to agree upon an independent accounting firm, the Seller and
Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by 29.35 cents for
each $1.00 that the Net Book Value of the Combined Acquired Assets and
Liabilities of the Seller and of DocuTech, Inc., as reflected on the
Closing Balance Sheet, is less than $700,000 on the Closing Date (the
"Closing Net Book Value Amount"). The Net Book Value of the Combined
Acquired Assets and Liabilities shall mean the assets of the Seller and
DocuTech Data Systems, Inc., plus deferred revenue of the Seller and
DocuTech Data Systems, Inc. and less (i) any intangible assets recorded by
Purchaser to reflect the purchase of the Assets hereunder and (ii)
Adjusted Current Liabilities, calculated pursuant to GAAP. Promptly
following the Closing, and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the
Accountants to verify the amount of the Closing Net Book Value Amount. The
Accountants shall issue a report as to their determination of the Closing
Net Book Value Amount (the "Accountants' CNBVA Report") promptly after
their determination of such amount and the Purchaser shall deliver the
Accountants' CNBVA Report to the Seller not later than sixty (60) days
following the Closing Date. The determination of the Closing Net Book
Value Amount by the Accountants shall be conclusive and binding upon the
parties hereto unless the Seller shall object to the Accountants' CNBVA
Report within fifteen (15) days following their receipt of the
Accountants' CNBVA Report. The Seller's objection, if any, to the
Accountants' CNBVA Report (the "Seller's CNBVA Objection") shall set forth
in reasonable detail the Seller's objection(s) to the Accountants' CNBVA
Report and the Seller's calculation of the Closing Net Book Value Amount.
Within ten (10) days after receipt of the Seller's CNBVA Objection, the
Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's
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CNBVA Response Notice"). If the Seller does not object to the Accountants' CNBVA
Report, or if the Purchaser agrees to accept the Seller's adjustments to the
Accountants' CNBVA Report, then the adjustment based on the then final Closing
Net Book Value Amount (the "Final Net Book Value Amount"), if any, shall be paid
by Seller to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by Purchaser
within such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment cash in a
like amount. If the Seller objects to the Accountants' CNBVA Report as set forth
above and the Purchaser does not accept the Seller's proposed adjustments, then
an independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Net Book Value
Amount and the Final Net Book Value Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based on the
amount determined as provided above shall be paid to the Purchaser in
immediately available funds within five (5) business days of the determination
of such amount by such accounting firm. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the Escrow
Amount pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment cash in a like amount. The parties hereto agree to cooperate fully with
such independent accountants at their own cost and expense, including, but not
limited to, providing such independent accountants with access to, and copies
of, all books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree upon
an independent accounting firm, the Seller and Purchaser will request that one
be designated by the President of the Philadelphia office of the American
Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and
Liabilities Adjustment, Seller shall only be obligated to pay the greater
of the two adjustment amounts to Purchaser.
(f) Shareholder Obligation The Shareholders hereby agree that the
Shareholders will be jointly and severally liable for all obligations of
Seller under the Purchase Price adjustments set forth in this Section 2.3
of this Agreement including, but not limited to, the obligation to
replenish the Escrow Amount.
2.4. Payment of Purchase Price.
(a) Cash Purchase Price An amount equal to $2.7 million less
the reductions, if any, to be made at Closing pursuant to Sections 2.3(b),
2.3(c), 2.3(d), 2.3(e) and 2.3(f), shall be payable at the Closing in cash to
the Seller ("Cash Purchase Price"), as reduced by
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the Escrow Amount (as described below). The specific amount of the Cash Purchase
Price shall be payable to the Seller by a wire transfer to an account to be
designated by Seller in writing not less than three (3) business days prior to
the Closing.
(b) Delivery into Escrow. Notwithstanding the foregoing,
$135,000 of the Cash Purchase Price shall be paid directly to the Escrow Agent
pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount shall
be available to fund (but shall not be the sole source of funding) any
obligations of Seller under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash in the Escrow Account falls
below $135,000 (the "Threshold Value") due to payment from the Escrow Account
pursuant to Section 2.3 hereof, the Seller (or the Shareholders pursuant to
Section 2.3(e)) shall contribute additional cash in an amount necessary so that
the Escrow Account would equal the Threshold Value.
2.5. Allocation of Purchase Price. Seller shall on or before thirty
(30) days after the Closing Date initially determine and send to Purchaser a
schedule containing the allocation of the Purchase Price and the Assumed
Liabilities among the Purchased Assets as is required by Section 1060 of the
Code (the "Allocation Schedule"). The Allocation Schedule will be deemed to be
accepted by Purchaser unless Purchaser provides a written notice of disagreement
to Seller within five (5) business days after receipt of the Allocation
Schedule. If Purchaser provides such written notice, Seller and Purchaser shall
proceed to negotiate in good faith to create a mutually acceptable Allocation
Schedule. If no mutually acceptable Allocation Schedule is created within ten
(10) business days of Seller's receipt of the written notice of disagreement,
then an independent accountant mutually satisfactory to the Seller and Purchaser
(the "Independent Accountant') shall be engaged to determine the Allocation
Schedule. The fees for such determination shall be borne by Purchaser, unless
the Independent Accountant disagrees materially with the Allocation Schedule
originally submitted by Seller, in which case such fees shall be borne by
Seller. Such determination by the Independent Accountant, or the original
Allocation Schedule if not objected to by the Purchaser, shall be binding and
conclusive to all parties to the Agreement and all parties shall file all
relevant tax returns consistent with such final determination, unless otherwise
required by applicable law; provided, however, that if the Purchase Price or the
Assumed Liabilities are adjusted in accordance with Section 2.3 of this
Agreement, the Allocation Schedule otherwise determined shall be adjusted
accordingly, as required by Section 1060 of the Code.
2.6. Assumption of Liabilities. At the Closing, the Purchaser will
assume only the Seller's obligations and liabilities expressly listed on
Schedule 2.6 attached to this Agreement, if any (collectively, the "Assumed
Liabilities"). Except for the Assumed Liabilities, the Purchaser shall not, by
virtue of its purchase of the Purchased Assets or otherwise, acquire, assume or
become responsible for any obligations or liabilities of the Seller. Nothing
contained in this Agreement shall be construed as an assumption of any specific
Assumed Liability until any required Consent shall have been obtained.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Except as set forth on the disclosure schedule delivered by the
Seller and the Shareholders to the Purchaser on the date hereof (the "Disclosure
Schedule"), the numbers of which are numbered to correspond to the section
numbers of this Agreement to which they refer, the Seller and the Shareholders
hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
or organization, (ii) has the power and authority to own and operate its
properties and assets and to transact the Business and (iii) is duly qualified
and authorized to do business and is in good standing in all jurisdictions where
the failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon the Seller's Business, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of either of the Seller or the Shareholders, threatened against or
affecting the Seller revoking, limiting or curtailing, or seeking to revoke,
limit or curtail the Seller's power, authority or qualification to own, lease or
operate its properties or assets or to transact the Business.
(c) True and complete copies of the Seller's articles or
certificate of incorporation, bylaws and other constitutive documents are
attached to this Agreement as part of the Disclosure Schedule. Except as set
forth in Schedule 3.1(c), the minute books of the Seller, as heretofore made
available to the Purchaser, are correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller: (i) are within the Seller's corporate powers
and duly authorized by all necessary corporate and shareholder action on the
part of the Seller and (ii) do not (A) require any action by or in respect of,
or filing with, any Governmental or Regulatory Authority (B) contravene, violate
or constitute, whether with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable to
the Seller or any of its properties or any Contract to which the Seller or any
of its properties is bound or subject or (C) result in the creation of any
Encumbrance or any obligation and liability on any of the Purchased Assets.
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(b) The Shareholders. The Shareholders' execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by the Shareholders (i) are within the powers and authority,
corporate or otherwise, of the Shareholders and are duly authorized by all
necessary corporate and Shareholder action on the part of a corporate
Shareholder and (ii) do not (A) require any action by or in respect of, or
filing with, any Governmental or Regulatory Authority, or (B) contravene,
violate or constitute, whether with or without the passage of time or the giving
of notice or both, a breach or default under, any Requirement of Law applicable
to the Shareholders, any of his or its properties or any Contract to which the
Shareholders or any of his or its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than the Shareholders
own record, beneficial or equitable ownership of any of the Seller's securities,
whether debt or equity.
(b) No Interest in Other Entities. Seller does not own,
directly or indirectly, any debt, equity or other ownership or financial
interest in any other Person. No shares or other ownership or other interests,
either of record, beneficially or equitably, in any Person are included in the
Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete
and accurate list of all Persons (other than the Shareholders or any of the
Persons described in the first sentence of Section 1.8, subpart (iii)) that are
Affiliates of the Seller, detailing the nature of the relationship between the
Seller and each such Person that causes such Person to be an Affiliate of the
Seller.
(d) No Acquisitions. Since the Balance Sheet Date, the Seller
has not acquired, or agreed to acquire, whether by merger or consolidation, by
purchase of equity interests or assets, or otherwise, any business or any other
Person, or otherwise acquired, or agreed to acquire, any assets other than in
the ordinary course of business that are material, either individually or in the
aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Seller and the Shareholders and constitutes the legal, valid
and binding obligation of the Seller and the Shareholders, enforceable against
each of them in accordance with its terms.
3.5. Legal Proceedings and Orders. Except as set forth in the
Disclosure Schedule there is no Legal Proceeding or Order pending against, or to
either of the Seller's or the Shareholders' knowledge, threatened against or
affecting, the Seller, the Business, the Purchased Assets or the Assumed
Liabilities that could reasonably be expected to have a Material Adverse Effect
or to adversely affect or restrict the ability of the Seller to consummate fully
the transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. Neither the Seller nor any of the
Shareholders has knowledge of any fact, event, condition or circumstance that
may give rise to the commencement of any Legal
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Proceeding or the entering of any Order against the Seller or any of the
Seller's properties including, without limitation, any Legal Proceeding or Order
that could adversely affect or restrict the ability of any Seller to consummate
fully the transactions contemplated by this Agreement or that in any manner
could draw into question the validity of this Agreement.
3.6. Title to the Purchased Assets and Related Matters. Except for
the items of Tangible Personal Property leased by the Seller and disclosed in
the Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance
with all Requirements of Law applicable to it or any of its properties or to
which the Seller or its properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth on the Disclosure Schedule
attached to this Agreement, since January 1, 1992, none of the Seller or the
Shareholders has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Seller or
any of its properties or to which the Seller or any of its properties is bound
or subject including, without limitation, any of the Credit Acts. None of the
Seller, the Shareholders, any of their respective Affiliates (other than a
Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Seller is a
party or may otherwise be bound or subject, and the compensation to which each
consultant is entitled under its respective Contract. The Seller has delivered
or caused to be delivered to the Purchaser true and complete copies of all such
Contracts, each of which is attached to the Disclosure Schedule. Since the
Balance Sheet Date, the Seller has not increased the compensation payable to its
consultants or the rate of compensation payable to its consultants. No
individuals retained by the Seller as an independent contractor or consultant
would be reclassified by the IRS, the U.S. Department of Labor or any other
Governmental or Regulatory Authority as an employee of the Seller for any
purpose whatsoever.
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(b) Attached to the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Seller, together with such
employee's position or function, the rate of hourly, monthly or annual
compensation (as the case may be) paid or to be paid to such employee in 1995,
1996 and, to the extent known, 1997, any accrued sick leave or pay or vacation
and any incentive or bonus arrangement with respect to any such employee. Except
as is set forth on the Disclosure Statement, since the Balance Sheet Date, the
Seller has not increased the compensation payable to its employees or the rate
of compensation payable to its employees. The Disclosure Schedule also
identifies those employees with whom the Seller has entered into an employment
Contract or a Contract obligating the Seller to pay severance or similar
payments to any employee. The Seller and the Shareholders have delivered or
caused to be delivered to the Purchaser true and complete copies of such
Contracts, all of which are attached or listed on the Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated. To the knowledge of either of the
Seller or the Shareholders, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the Seller.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the Seller's employees or former
employees. In addition, no dispute with or claim against the Seller relating to
any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages and
hours is outstanding or, to either of the Seller's or the Shareholders'
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Seller with respect to any labor or employment matter.
3.9. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Seller and the Shareholders have delivered or caused
to be delivered to the Purchaser true and complete copies of (i) the plan
document, trust agreement and any other document governing such Employee Benefit
Plan, (ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Seller has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in
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connection with any Employee Benefit Plan (or other class of benefits that the
PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such in the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Seller has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan"
covering employees of the Seller within the meaning of Section 3(35) of ERISA
subject to Title IV of ERISA or any "Multiemployer Plan" within the meaning of
Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Seller with respect thereto.
(f) The Seller has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser or, the Seller to any Tax, penalty or
other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of either of the Seller or the
Shareholders threatened, and to the knowledge of the Seller or any of the
Shareholders, there are no facts, events, conditions or circumstances that could
give rise to any such Legal Proceeding or claim (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course).
(i) Neither the Seller or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
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(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Seller who
are on leave of absence under either of the Uniformed Services Employment or
Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Seller or any of its respective officers,
directors or significant employees (as such term is defined in Regulation S-K of
the Securities Act), or any other Person has made any statement or communication
or provided any materials to any employee or former employee of the Seller that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in any increase in or acceleration of any obligation or liability under any
Employee Benefit Plan or to any employee or former employee of the Seller.
3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused
to be delivered to the Purchaser a copy of the combined balance sheets of the
Seller and DocuTech Data Systems, Inc. as of December 31, 1995 and 1996 and the
related statements of operations, shareholders' equity and cash flows for the
years then ended, together with all proper exhibits, schedules and notes
thereto, (collectively, the "Financial Statements"). A true and complete copy of
the Financial Statements is attached to in the Disclosure Schedule. The
Financial Statements have been prepared in accordance with GAAP consistently
applied throughout the periods involved (except for changes required or
permitted by GAAP and noted thereon) and fairly represent the combined financial
position of the Seller and DocuTech Data Systems, Inc. as of the date of such
Financial Statements and the combined results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Seller and the Shareholders have also delivered or
caused to be delivered to the Purchaser a true and complete copy of the
unaudited interim combined financial statements of the Seller and DocuTech Data
Systems, Inc. consisting of a balance sheet as of June 30, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
period then ended (collectively, the "Interim Financial Statements"). A true and
complete copy of Interim Financial Statements is attached to this Agreement in
the Disclosure Schedule. The Interim Financial Statements are in accordance with
the books and records of the Seller and DocuTech Data Systems, Inc., all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, were prepared in accordance
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with GAAP applied on a consistent basis (except for the absence of notes and
subject to normal year-end audit adjustments), and present fairly the financial
position of the Seller and DocuTech Data Systems, Inc. as of the date thereof
and the results of its operations and changes shareholders' equity and cash
flows for the periods covered thereby. The books and records of the Seller and
DocuTech Data Systems, Inc. accurately and fairly reflect, in reasonable scope
and detail and in accordance with good business practice, the transactions and
assets and liabilities of the Seller and DocuTech Data Systems, Inc. and such
other information as is contained therein.
(c) Since the Balance Sheet Date: (i) the Seller has operated,
and the Shareholders have caused the Seller to operate, the Businesses in the
normal and ordinary course in a manner consistent with past practices; (ii)
there has been no development, event, condition, or circumstance that has had,
or could reasonably be expected to have, a Material Adverse Effect upon the
Seller; (iii) there has not been any change in the accounting methods or
practices followed by the Seller, except as required by GAAP and disclosed on
the Disclosure Schedule; (iv) the Seller has not sustained any material damage,
destruction, theft, loss or interference with the Purchased Assets or the
Business, whether or not covered by insurance; (v) the Seller has not (x) except
as set forth in the Disclosure Schedule, paid or declared any dividends or made
any distributions or payment in respect of, or made any payment on account of,
or set apart assets for a sinking or another analogous fund for, the purchase
redemption, defeasance, retirement or other acquisition of, the Seller's
securities, whether debt or equity, and whether in cash or in property or in
obligations of the Seller or (y) paid any management or similar fee to any
Person; (vi) no development, event, condition or circumstance that constitutes,
whether with or without the passage of time or the giving of notice or both, a
default under any of the Seller's outstanding debt obligations has occurred;
(vii) the Seller has not created, incurred, assumed or guaranteed any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business) other than (x) for trade indebtedness incurred in the normal and
ordinary course of the Business and (y) as described in the Disclosure Schedule;
(iv) the Seller has not made or committed to make any capital expenditure or
capital addition or betterments in excess of an aggregate of $10,000; and (v)
the Seller has not made a gift or contribution (charitable or otherwise) to any
Person (other than gifts made since the Balance Sheet Date which, in the
aggregate, do not exceed $5,000).
(d) On the Closing Date, the Seller and the Shareholders will
also deliver or caused to be delivered to the Purchaser a true and complete copy
of the Closing Balance Sheet. The Closing Balance Sheet will be prepared in
accordance with the books and records of the Seller, DocuTech Data Systems, Inc.
and their Subsidiaries, all of which have been maintained in accordance with
good business practice and in the normal and ordinary course of business, and
will be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments).
3.11. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Seller set forth in the Adjusted Balance Sheet at December 31, 1996, prepared in
accordance with GAAP and attached hereto as Schedule 3.14
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(the "Seller Balance Sheet"), the Seller has no liabilities or obligations,
whether direct or indirect, matured or unmatured, contingent or otherwise as of
such date required to be disclosed in the Seller Balance Sheet in accordance
with GAAP, and has incurred no such liabilities or obligations since such date,
except for liabilities or obligations that were incurred consistently with past
business practice in or as a result of the normal and ordinary course of
business since December 31, 1996.
3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The
Disclosure Schedule includes a complete and accurate list of all the locations
of all Real Property and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Seller and the Shareholders
have delivered or caused to be delivered to the Purchaser true and complete
copies of all Contracts relating to Real Property (including, without
limitation, all leases and all management, service, supply, security,
maintenance and similar Contracts, and all attornment Contracts, subordination
Contracts or similar Contracts, and all other Contracts affecting or relating to
the use and quiet and peaceful enjoyment of the Real Property) to which the
Seller is a party or is otherwise bound or subject, and all certificates of
occupancy required to be obtained and maintained with respect to any of such
Real Property, and, in each case, all amendments thereof, which relate to or
affect any of the Real Property. Except for the leases pertaining to the Real
Property identified in and attached to the Disclosure Schedule, neither the
Seller nor any of the Shareholders is a party to any Contract that commits or
purports to commit the Seller to purchase or otherwise acquire or lease any real
property including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Real Property, (iii) is free of all
Encumbrances, and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(c) The Seller has performed the obligations required to be
performed by it to date under all Contracts relating to or affecting the Real
Property and is not in default or breach thereof. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
and the Shareholders, has threatened to terminate or not renew any such Contract
or (iii) is to the knowledge of the Seller and the Shareholders, in breach or
default under any provision thereof, and to the knowledge of the Seller and the
Shareholder, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) The Real Property is in good condition and repair (ordinary wear
and tear excepted) and there has been no damage, destruction or loss to any of
the Real Property that
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remains unremedied to date, and the Real Property is suitable to carry out the
Business as conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of either the Seller or any of the Shareholders, threatened, against
any of the Real Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any obligation and liability upon the Seller or any
Encumbrance upon any of the Purchased Assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new physical locations, expansion
of any existing operating locations or the acquisition of any Real Property, the
lease of Real Property or acquisition of new businesses, with respect to which
the Seller has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Seller would require
additional expenditures of capital in excess of $10,000.
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are
presently used in the conduct of the Businesses and the Seller's operations. The
Seller and the Shareholders have delivered or caused to be delivered to the
Purchaser true and complete copies of all Contracts (including, without
limitation, leases and service, supply, maintenance and similar Contracts) to
which the Seller is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Seller (the "Tangible Personal Property"). A complete
and accurate list of all such Contracts set forth in, and true and complete
copies of such Contracts are attached to the Disclosure Schedule. Except (i) for
those assets disposed of in the normal and ordinary course of business since the
Balance Sheet Date, (ii) with respect to Tangible Personal Property that is
leased or rented by the Seller, and (iii) as otherwise set forth on the
Disclosure Schedule, the Seller, as the case may be, has good and valid title to
all of its Tangible Personal Property, including all items of Tangible Personal
Property reflected on the Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not incurred
or suffered any material physical damage, destruction, theft or loss of their
respective tangible items of material personal property, whether owned or
leased. All material Tangible Personal Property including, without limitation,
all computer hardware and software (including all operating and
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application systems), is in good working order, condition and repair (ordinary
wear and tear excepted) and suitable to carry out the Business as conducted
therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Seller
peaceful, undisturbed and exclusive possession of the applicable Tangible
Personal Property, (iii) is free of all Encumbrances and (iv) constitutes a
valid and binding obligation of, and is enforceable in accordance with its terms
against, the respective parties thereto.
(d) The Seller has performed the obligations required to be
performed by it to date under all Contracts relating to or affecting the
Tangible Personal Property and is not in default or breach thereof. In addition,
no party to any such Contract (i) has provided any notice to the Seller of its
intent to terminate or not renew any such Contract, (ii) to the knowledge of the
Seller and Shareholders, threatened to terminate or not renew any such Contract
or (iii) is, to the knowledge of the Seller and Shareholders, in breach or
default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrances upon any of the Purchased Assets under the terms of
any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which the Seller or any of its
properties is party or is otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
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(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either Seller's right to engage in, or compete with any Person in, any
business;
(iv) any Contract involving a pledge or encumbering of
Seller's assets or the incurrence by the Seller of liabilities (other than
liabilities to render services to customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of $10,000,
or that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either
Seller has created, incurred, assumed or guaranteed any indebtedness other than
for trade indebtedness incurred in the normal and ordinary course of the
Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of
the Purchased Assets; and
(viii) any Contract that (A) either (x) does not fit
within one of the foregoing categories described in (i) through (vii) above or
(y) is not otherwise identified in the Disclosure Schedule and (B) would be
required by Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act to be attached as an exhibit to any registration statement on Form S-1 filed
by the Seller under the Act if the Seller were to file such a registration
statement under the Act on the date on which this representation and warranty is
made.
(b) Each material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) is valid and binding
on each of the parties thereto in accordance with its terms, (ii) was made in
the normal and ordinary course of the Business and (iii) contains no provision
or covenant prohibiting or limiting the ability of the Seller or any Subsidiary
to operate their respective Businesses.
(c) No party to any material Contract to which the Seller or
any of its properties is a party or is otherwise bound or subject (i) has
provided any notice to the Seller of its intent to terminate or withdraw its
participation in any such Contract, (ii) has, to the knowledge of the Seller and
Shareholders, threatened to terminate or withdraw from participation in any such
Contract or (iii) is, to the knowledge of the Seller and Shareholders, in breach
or default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no
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event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject is required in connection
with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its properties is a party or is otherwise
bound or subject, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Contract or (iii) result in the creation or imposition of any
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes a complete and
accurate list of all insurance policies held by the Seller identifying all of
the following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and the Seller has not received any
notice of any cancellation, non-renewal or termination in respect of any such
policy. The Seller is not in default under any such policy. To the knowledge of
either the Seller or any of the Shareholders, no such insurer is the subject of
insolvency proceedings. Neither the Seller nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. The
Seller has notified its insurance carriers of all litigation, claims and facts
which could reasonably be expected to give rise to a claim, all of which are
disclosed in the Disclosure Schedule (including worker's compensation claims).
The liability insurance maintained by the Seller is and has at all times prior
to the date of this Agreement been on an "occurrence" basis.
3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and
accurate list and full description of each item of the Seller's Intellectual
Property together with, in the case of registered Intellectual Property: the (i)
applicable registration number; (ii) filing, registration, issue or application
date; (iii) record owner; (iv) country; (v) title or description; and (vi)
remaining life. In addition, the Disclosure Schedule identifies whether each
item of Intellectual Property is owned by the Seller or possessed and used by
the Seller under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but
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not owned by the Seller, such representation and warranty is given solely to the
knowledge of the Seller and Shareholders.
(b) There is neither pending, nor to either the Seller's or
any of the Shareholders knowledge, threatened, any Legal Proceeding against the
Seller contesting the validity or right of the Seller to use any of the
Intellectual Property, and the Seller has not received any notice of
infringement upon or conflict with any asserted right of others nor, to either
the Seller's or any of the Shareholders 'knowledge, is there a basis for such a
notice. To either the Seller's or any of the Shareholders' knowledge, no Person
is infringing the Seller's rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule,
the Seller does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided on the
Disclosure Schedule, the Seller has not granted any license or other right to
use, in any manner, any of the Intellectual Property, whether or not requiring
the payment of royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any obligation and liability upon the Seller or
any Encumbrances upon any of the Purchased Assets under the terms of any such
Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business is and has
been in compliance with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Seller or Shareholders (or to the knowledge of the
Seller or Shareholders, caused by a third party) that may give rise to any
common law or statutory liability, or otherwise form the basis of any Legal
Proceeding, Order or action involving or relating to the Seller, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Seller and Shareholders, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Seller and Shareholders, no polychlorinated
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byphenyls (PCBs) are present, in use or stored on any of the Real Property. No
radon gas or the presence of radioactive decay products of radon are present on,
or underground at any of the Real Property at levels beyond the minimum safe
levels for such gas or products prescribed by applicable Environmental Laws.
3.18. Permits.
(a) Each of the Seller and its employees, independent
contractors and agents has obtained and holds in full force, and the Disclosure
Schedule sets forth a complete and accurate list of, all Permits that are
necessary for the operation of their respective Businesses. Neither the Seller
nor any such employee, independent contractor or agent is in noncompliance with
the terms of any such Permit. Any Permits that cannot be transferred to the
Purchaser are identified as such on the Disclosure Schedule.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
(c) Except as set forth in the Disclosure Schedule there is no
Order outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholders' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Seller.
3.19. Regulatory Filings. The Seller has filed all registrations,
filings, reports, or submissions that are required by any Requirement of Law.
All such filings were made in compliance with applicable Requirements of Law
when filed and no deficiencies have been asserted by any Governmental or
Regulatory Authority with respect to such filings and submissions that have not
been finally resolved.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Each
such Tax Return is true, accurate and complete. The Seller has paid in full all
Taxes for the period covered by such Tax Return. All Taxes not yet due and
payable have been withheld or reserved for or, to the extent that they relate to
periods on or prior to the date of the Seller Balance Sheet, are reflected as a
liability thereon. The Seller duly and properly filed an election to be an S
corporation and such election is currently in effect, under section 1362 of the
Code and the rules and regulations promulgated thereunder. Such election has
been in effect without interruption, including without limitation any
inadvertent termination which has been reinstated, since January
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1, 1992. Since January 1, 1992, all of the current and former stockholders of
the Seller are and have been permitted stockholders under Section 1362 of the
Code and the rules and regulations promulgated thereunder. Except for its
initial short period ended December 31, 1991, the Seller has never had a taxable
year in which it was other than an S corporation. The Seller's federal S
election is recognized and given effect or the Seller has made an appropriate
and timely election to be treated as an S corporation for state income taxation
purposes in Nebraska. Such election was effective as of January 1, 1992.
(b) The Seller has complied with all applicable Requirements
of Law relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Section 1441 and 1442 of the Code,
or similar provisions under any foreign Requirements of Law) and have, within
the time and in the manner prescribed by applicable Requirements of Law,
withheld from employee wages and paid over, in a timely manner, to the proper
Taxing Authorities all amounts required to be so withheld and paid over under
applicable Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Seller that has not been resolved and paid in full or fully reserved
for and identified on the Seller Balance Sheet and, to the knowledge of the
Seller and Shareholders, no deficiency for any Taxes has been proposed that has
not been fully reserved for and identified on the Seller Balance Sheet. The
Seller has not received any outstanding and unresolved notices from the IRS or
any other Taxing Authority of any proposed examination or of any proposed change
in reported information relating to the Seller. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns is outstanding, nor, to the knowledge of the Seller and the
Shareholders, is any request for any such waiver or consent pending.
(e) None of the Purchased Assets is required to be treated as
owned by any other person pursuant to the "safe harbor lease" provisions of
former Section 168(f)(8) of the Code.
(f) No state of facts exists or has existed that would
constitute grounds for the assessment of Tax liability with respect to period
that have not been audited by the IRS or any other Taxing Authority.
3.21. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.8, 3.9
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and 3.25), pursuant to which the Seller is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of any or
all of the Seller and the Shareholders (an "Affiliate Transaction"). Each
Affiliate Transaction (i) has been entered into the normal and ordinary course
of the Business.
3.22. Accounts. The Disclosure Schedule attached to this Agreement
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Seller maintains any account (whether checking,
savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto.
3.23. Receivables. Except as disclosed in the Disclosure Schedule,
since the Balance Sheet Date, the Seller has not written-off any Receivables.
All Receivables currently owing to the Seller are completely and accurately
listed and aged in the Disclosure Schedule. The Receivables arose from bona fide
transactions in the normal and ordinary course of business and reflect credit
terms consistent with past practice. The Seller has good, valid and marketable
title to its Receivables, free and clear of all Encumbrances. The Seller has not
sold, factored, securitized, or consummated any similar transaction with respect
to any of its Receivables. Subject to proper reserves taken into account in
accordance with GAAP as reflected in the Disclosure Schedule, each Receivable is
fully collectable in the normal and ordinary course of business (i.e., without
resort to litigation or assignment to a collection agency), and is not subject
to any dispute, counterclaim, defense, set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after
giving effect to the Closing and any other transactions contemplated by this
Agreement, (i) the sum of the Seller's obligations and liabilities is not
greater than all of the assets of the Seller at a fair valuation, (ii) the
present fair salable value of the Seller's assets is not less than that will be
required to pay the probable liability of the Seller on its obligations and
liabilities (excluding those to be assumed by the Purchaser) as they become
absolutely mature, (iii) the Seller has not incurred, will not incur, does not
intent to incur and does not believe that it will incur, obligations and
liabilities beyond the Seller's ability to pay such obligations and liabilities
as they mature, (iv) the Seller is not engaged in, and is not about to engage
in, a business or transaction for which the Seller's assets constitutes or would
constitute unreasonably small capital, and (v) the Seller is not insolvent as
defined in, or otherwise in a condition which could in any circumstances then or
subsequently render any transfer or conveyance made by it voidable or fraudulent
pursuant to, any Requirements of Law pertaining to bankruptcy, insolvency or
creditors' rights generally including, without limitation the Bankruptcy Code of
1978, 11 U.S.C. ss.101, et. seq., as amended, or any other applicable
Requirements of Law relating to fraudulent conveyances, fraudulent transfers or
preferences. The Seller is receiving reasonably equivalent value and
consideration from the Purchaser for the Purchased Assets and is not selling the
Purchased Assets to the Purchaser with intent to hinder, delay or defraud any of
its creditors.
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3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Seller's directors, executive officers, and any of the Seller's
significant employees (as such terms are defined in Regulation S-K under the
Securities Act) (a "significant employee"), and the compensation payable to each
of them to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of
the Shareholders or any of the current directors, current executive officers or
current significant employees (as such term is defined in Section 3.25(a)) of
the Seller or any Shareholder has, within the past five (5) years:
(i) (x) filed or had filed against it, him or her a
petition under the Federal bankruptcy laws or any state insolvency or similar
law, or (y) had a receiver, conservator, fiscal agent or similar officer
appointed by a court for the business, property or assets of such individual or
corporation, or any partnership in which it, he or she was a general partner or
any other Person of which he or she was a director or an executive officer or
had a position having similar powers and authority at or within two (2) years of
the date of such filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting it, him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.26. Brokers or Finders. Except as set forth in the Disclosure
Letter, neither the Seller nor the Shareholders has engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the
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consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Seller or Shareholders. Without degradation to any of the foregoing,
the Seller and the Shareholders are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Seller or
Shareholders.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor any
of the Shareholders have granted, and there is not outstanding any option,
right, agreement, Contract or other obligation or commitment pursuant to which
any other Person could reasonably claim a right to acquire in any way the
Purchased Assets or any ownership or other material interest in either the
Seller or the Business.
3.28. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar volume
of purchases) of the Seller and details the Seller's total revenue attributable
to each such customer for the fiscal years ended 1994, 1995 and 1996 and the
current fiscal year to date. Except as set forth in the Disclosure Schedule,
there has been no adverse change in the Seller's business relationship with any
such customer that, in the aggregate, would have a Material Adverse Effect upon
the Seller or the Business.
3.29. Investment Company. The Seller is not an "investment company"
within the meaning of the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder, as amended from time to time, or any
successors thereto.
3.30. Absence of Changes. Since the Balance Sheet Date, except as
set forth on the Disclosure Schedule there has not been with respect to the
Seller:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments.
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by the Seller.
(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
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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 business to any person, including,
without limitation, the Shareholders and their Affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Shareholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Shareholders or any Affiliate thereof, other
than the negotiation and adjustment of bills in the course of
good faith disputes with customers in a manner consistent with
past practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by the Seller outside the ordinary
course of its respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.31. Accuracy and Completeness of Information. To the knowledge of
the Seller and Shareholders, all information furnished, to be furnished or
caused to be furnished to the Purchaser by either the Seller or the Shareholders
with respect to the Purchased Assets, the Assumed Liabilities, the Business, the
Seller or the Shareholders for the purposes of or in connection with this
Agreement, or any transaction contemplated by this Agreement is or, if furnished
after the date of this Agreement, will be true and complete in all material
respects and does not, and, if furnished after the date of this Agreement, will
not, contain any untrue statement
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of material fact or fail to state any material fact necessary to make such
information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Organization. The Purchaser (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser (i) are within the Purchaser's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental body, agency or official, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable to Purchaser or any of its properties or any
Contract to which the Purchaser or any of its properties is bound, except
filings and approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser, threatened against or affecting,
the Purchaser or any of its properties or otherwise that could adversely affect
or restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Seller, the Shareholders or any of the other
Founding Companies, such representation and warranty shall be deemed based on
the knowledge of the Purchaser.
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4.6. Brokers or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Seller or Shareholders for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Purchaser. Without degradation to any of the foregoing, the
Purchaser is solely responsible for the payment of the commissions, fees and
other compensation payable to any Person having any such right, interest or
claim on account of any action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders and the
Purchaser shall perform each and every of their respective obligations under
this Agreement and shall perform the transactions contemplated by this Agreement
in good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Seller, the Shareholders and the
Purchaser shall use their respective commercially reasonable best efforts to
obtain all Regulatory Approvals and Consents from such other third parties
including, without limitation, Consents required under any Contract, Permit or
Requirement of Law, that are necessary or advisable in connection with the
consummation of the transactions contemplated by this Agreement. The
Shareholders shall use their commercially reasonably best efforts to cause the
Seller to cooperate with the Purchaser to the fullest extent practicable in
seeking to obtain all such Regulatory Approvals and Consents, and shall provide,
and shall cause the Seller to provide, such information and communications to
all Governmental or Regulatory Authorities as they or the Purchaser may request
from time to time in connection therewith. Nothing contained herein shall
require either of the Seller or the Purchaser to amend the provisions of this
Agreement, to pay or cause any of its Affiliates to pay any money, or to provide
or cause any of its Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholders will and will cause
the Seller to, cooperate with the Purchaser in connection with the transactions
contemplated by this Agreement and any Purchaser Financing Transaction,
including, without limitation, cooperating in the determination of which
Regulatory Approvals and Consents are required or advisable to be obtained prior
to the Closing Date. Until the Closing Date, the Seller will, and the
Shareholders will and will cause the Seller to, afford to the Purchaser, its
agents, legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Seller
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(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Purchaser to make such investigation and examination of the business and
properties of the Seller as the Purchaser, in its discretion, shall deem
necessary, appropriate or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. The Seller will, and the Shareholders will cause the Seller to,
cause each of their respective directors, officers, employees and
representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser's sole benefit, and shall not (i) impair or
reduce any representation or warranty made by any or all of the Seller or the
Shareholders in this Agreement, (ii) relieve the Seller or the Shareholders from
its or their obligations with respect to such representations and warranties
(including, without limitation, the indemnification obligations under Article
10), or (iii) mitigate the Seller's or the Shareholders' obligations to disclose
all material facts to the Purchaser with respect to the Seller and the Business.
(b) The Purchaser will cooperate with the Seller in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Seller and its agents, legal advisors and accountants reasonable access to
all of the properties and books and records of the Purchaser (including those in
the possession or control or their accountants, attorneys and any other third
party), as the case may be, for the purpose of permitting the Seller to make
such investigation and examination of the business and properties of the
Purchaser and any of its Subsidiaries as the Seller, in its discretion, shall
deem necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Seller, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Seller's sole benefit, and shall not (i) impair or reduce any representation
or warranty made by the Purchaser in this Agreement, (ii) relieve the Purchaser
from its obligations with respect to such representations and warranties
(including, without limitation, the Purchaser's obligations under Article 10),
or (iii) mitigate the Purchaser's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholders' discovery
of the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Purchased Assets, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller, the
Shareholders shall, and shall cause the Seller to, as the case may be, notify
the
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Purchaser of such development, event, circumstance or condition. In the event
that the Purchaser receives such notice or otherwise discovers the fact of any
such development, event, circumstance or condition, the Purchaser shall be
entitled, in its sole discretion, to terminate this Agreement within ten (10)
days after so discovering without further obligation or liability upon the
delivery of written notice to the Seller to that effect; provided, however, that
before Purchaser may exercise its termination right, it must afford the Seller
the opportunity to cure the matter giving rise to the termination right (but for
no longer than five days following the date Purchaser notifies the Seller of its
intent to terminate) unless, in the judgement of the managing underwriter of the
Initial Public Offering, any such cure period might adversely affect the Initial
Public Offering.
(b) Promptly upon the Seller's or the Shareholders' discovery
of any fact, event, condition or circumstance that causes any representation or
warranty made by any or all of the Seller or the Shareholders to the Purchaser
in this Agreement to become untrue or inaccurate at any time after the date of
this Agreement, the Shareholders shall, and shall cause the Seller to, notify
the Purchaser of such fact, event, condition or circumstance.
5.5. Information Required for Purchaser Financing Transactions. The
Seller shall, and the Shareholders shall and shall cause the Seller to, furnish
the Purchaser with the following information:
(a) the Seller's audited balance sheet as of December 31,
1994, 1995 and 1996 and the related statements of operations, shareholders'
equity and cash flows for the year then ended, together with all proper
exhibits, schedules and notes thereto, audited by Arthur Andersen LLP, all of
which shall be prepared in accordance with GAAP consistently applied with prior
periods and shall present fairly the financial position of the Seller for the
years ended December 31, 1994, 1995 and 1996 and the results of operations and
changes in shareholders' equity and cash flows for the periods covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the Books and Records maintained in accordance with good
business practice and in the normal and ordinary course of business, (ii) be
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments), (iii)
present fairly the financial position of the Seller as of the date thereof and
the results of operations and changes in shareholders' equity and cash flows for
the periods covered thereby, and (iv) include comparable interim financial
statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
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5.6. Performance of Conditions. The Seller, the Shareholders and the
Purchaser shall, and the Shareholders shall cause the Seller to, take all
reasonable steps necessary or appropriate and use all commercially reasonable
efforts to effect as promptly as practicable the fulfillment of the conditions
required to be obtained that are necessary or advisable for the Seller and the
Purchaser to consummate the transactions contemplated by this Agreement
including, without limitation, all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Seller shall, and the
Shareholders shall cause the Seller to, operate the Business in the normal and
ordinary course in a manner consistent with past practice including, without
limitation, to do the following:
(a) to maintain the Seller's corporate existence and all
Permits, bonds, franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to
preserve intact the Seller's business relationships with its agents, customers,
employees, creditors and others with whom the Seller has a business
relationship;
(d) to preserve the Seller's assets, properties and rights
(including, without limitation, the Purchased Assets) necessary or advisable to
the profitable conduct of the Business;
(e) to pay when due all Taxes lawfully levied or assessed
against the Seller before any penalty or interest accrues on any unpaid portion
thereof and to file all Tax Returns when due (including after applicable
extensions) provided that no such payment shall be required which is being
contested in good faith and by proper proceedings and for which appropriate
reserves as may be required by GAAP have been established;
(f) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(g) to perform all material obligations under all Contracts to
which the Seller is a party or by which it or its properties are bound or
subject;
(h) to 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 the Purchaser, which consent shall not be unreasonably
withheld; and
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(i) to collect Receivables and pay Accrued Expenses in a
manner consistent with past practices.
5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Seller shall not, and the
Shareholders shall not cause the Seller to do, and shall not permit the Seller
to do, directly or indirectly, any of the following without the express prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld:
(a) make or adopt any changes to or otherwise alter the
Seller's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
(d) make any borrowings or otherwise create, incur, assume or
guaranty any indebtedness (except for the endorsement of negotiable instruments
for deposit or collection or similar transactions in the normal and ordinary
course of the Business), issue any commercial paper or refinance any existing
borrowings or indebtedness other than in the ordinary course of business;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or an
encumbrance on any of the Seller's assets or the incurrence by the Seller of
liabilities (other than in the performance of services for customers in the
ordinary course of business) in any one transaction or series of related
transactions in excess of ($10,000) and cause the aggregate commitment under all
such new Contracts to exceed ($100,000), or (ii) involve a term of more than one
(1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) enter into any transaction with any Affiliate of either or
both of the Seller or the Shareholders including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (provided that the foregoing will
not restrict the Seller's ability to pay dividends on its common stock to pay
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estimated tax liability of the Shareholders with respect to the S corporation
income and to distribute trade receivables more than 100 days old);
(i) grant or issue any subscription, warrant, option or other
right to acquire any of the Seller's securities, whether debt or equity, and
whether by conversion or otherwise, or make any commitment to do so;
(j) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(k) mortgage, pledge, hypothecate or grant a security interest
in, or otherwise permit or suffer to exist any Encumbrance upon, any of the
Purchased Assets;
(l) sell, lease, exchange, transfer or otherwise dispose of,
or agree to sell, lease, exchange, transfer or otherwise dispose of, any of the
Seller's assets with an individual fair market value of $5,000 or more, except
for the disposition of obsolete or worn-out assets in the normal and ordinary
course of business, which assets do not exceed, in the aggregate, 5% of the
Seller's assets as reflected on the Seller Balance Sheet;
(m) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended December 31, 1996, except, in
either case, as may be required by any applicable Requirement of Law, the IRS or
GAAP;
(n) enter into any Contract or make any commitment to make any
capital expenditures or capital additions or betterments in excess of an
aggregate of $10,000;
(o) cause or permit the Seller or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Employee Benefit Plan. As used
in this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA;
(p) enter into any transaction or conduct any operations not
in the normal and ordinary course of business; or
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(q) enter into any Contract or make any commitment to do any
of the foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholders shall
not: (i) provide any information about the Seller or the Business to any Person
(other than the Purchaser or its representatives) with a view to sell, exchange
or dispose or solicit an offer for the acquisition of any of the Purchased
Assets or any ownership or other material interest in the Seller or the
Business; (ii) solicit or accept any other offers for the sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; (iii) negotiate or discuss with
any Person (other than the Purchaser or any of its representatives) the possible
sale, exchange or other disposition of any of the Purchased Assets or any
ownership or other material interest in the Seller or the Business; or (iv)
sell, exchange or otherwise dispose of any of the Purchased Assets or any
ownership or other material interest in the Seller or the Business, in any of
the foregoing cases, whether by equity sale, merger, consolidation, equity
exchange, sale of assets or otherwise. The Seller shall, and the Shareholders
shall and shall cause the Seller to, advise the Purchaser promptly of its or his
receipt of any written offer or written proposal concerning any of the Purchased
Assets, the Seller, or the Business or any material interest therein, and the
terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller
nor any Shareholder shall issue any public report, statement, press release or
similar item or make any other public disclosure with respect to the substance
of this Agreement prior to the consultation with and approval of the Purchaser.
In addition, prior to Closing, before the Purchaser issues a public statement
that refers to the Seller or Shareholders (other than in the Registration
Statement) the Purchaser will endeavor to consult with the Seller to the extent
time permits. Nothing contained herein shall restrict the ability of the Seller
from contacting a third party in order to obtain a Consent to the transactions
contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedule
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 Seller that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect shall be effective
unless the Purchaser consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Articles 6 and 7 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 5.11. Except as otherwise provided herein, no amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement in connection with the
Initial Public Offering (the "Registration Statement").
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5.12. Cooperation in Preparation of Registration Statement.
(a) The Seller and the Shareholders shall furnish or cause to
be furnished to the Purchaser and the underwriters of the Initial Public
Offering (the "Underwriters") all of the information concerning the Seller or
the Shareholders reasonably requested by the Purchaser and the Underwriters, and
will cooperate with the Purchaser and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Seller and the Shareholders agree promptly
to advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Seller or the Shareholders becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Seller with a copy thereof and each amendment thereto in substantially the form
in which it is to be filed as promptly as reasonably practicable prior to such
filing (it being understood that neither the Seller nor any of the Shareholders
has any obligation to review the same other than with respect to information
regarding the Company or the Seller) and to diligently seek to cause the
Registration Statement to be declared effective and the Initial Public Offering
to be completed. The Purchaser agrees that neither the Seller nor any of the
Shareholders shall have any responsibility for pro forma adjustments that may be
made to the Financial Statements.
(b) The Seller and each of the Shareholders acknowledge and
agree (i) that, prior to the execution and delivery of a definitive underwriting
agreement, the Underwriters have made no firm commitment, binding agreement, or
promise or other assurance of any kind, whether express or implied, oral or
written, that the Registration Statement will become effective or that the
Initial Public Offering pursuant thereto will occur at a particular price or
within a particular range of prices or occur at all, (ii) that none of the
prospective Underwriters of the Purchaser's common stock, in the Initial Public
Offering nor any officers, directors, agents or representatives of such
Underwriters shall have any liability to the Shareholders, the Seller or any
other person affiliated or associated with the Seller for any failure of the
Registration Statement to become effective, the Initial Public Offering to occur
at a particular price or within a particular range of prices or occur at all,
and (iii) the decision of the Shareholders and the Seller to enter into this
Agreement and, if applicable, to vote in favor of or consent to the transactions
contemplated hereby, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications of, or due
diligence investigation which have been or will be made or performed by any
prospective Underwriter, relative to the Purchaser or the prospective Initial
Public Offering. The Seller acknowledges that shares of DocuNet Common Stock
received as a part of the Purchase Price, if any, will not be issued pursuant to
the Registration Statement; and, therefore, the Underwriters shall have no
obligation to the Seller or the Shareholders with respect to any disclosure
contained in the Registration Statement and
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neither Seller nor any Shareholder may assert any claim against the Underwriters
relating to the Registration Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall
provide to Purchaser prior to the Closing Date, the unaudited consolidated
balance sheets of the Seller for each month and fiscal quarter end between the
date of this Agreement and the Closing Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the Seller for such
subsequent fiscal months and quarters. In addition, the Seller shall prepare and
deliver to the Purchaser at Closing, the Closing Balance Sheet. Such financial
statements, which shall be deemed to be Financial Statements (as defined herein)
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except for the absence of notes and subject to normal year-end audit
adjustments).
5.13A Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.10(a) have been received by Arthur Andersen
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
5.14. [Intentionally omitted.]
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the Seller
and the Stockholder shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement, and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made. If filings under the Hart-Scott
Act are required, the costs and expenses thereof (including filing fees) shall
be borne by Purchaser. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott Act, if applicable.
5.16. Final Tax Returns. The Seller shall arrange for the timely
filing of all federal and state income tax returns for periods ending through
the Closing Date and shall deliver a copy of each such return to the Purchaser
at least 45 days prior to the due date for the filing of such return (including
applicable extensions) for the review and approval of the Purchaser, which
approval shall not be unreasonably withheld. The Seller shall select the
accountants responsible for the preparation of such returns, which accountants
are to be reasonably acceptable to the Purchaser. The Seller shall be
responsible for the costs of preparing such returns, and such returns shall be
prepared in a manner consistent with all prior such returns. Purchaser shall
cooperate with the Seller and their accountants in providing access to all
books, records, and
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other information reasonably required to prepare such returns. If the Purchaser
objects to an item or items in a tax return submitted for approval, it will
notify the Seller of such a disagreement in writing within ten days after the
receipt of such return (the "Return Notice"). If the parties cannot reach
agreement within ten days after the Sellers receive the Return Notice the issue
shall be submitted to Arthur Andersen LLP for its review, and the decision of
Arthur Andersen LLP as to the correct reporting of the item shall be final and
conclusive and the tax return shall be filed consistently with that decision;
provided, however, that if the Arthur Andersen LLP position has a negative
financial impact on Seller, Seller can require Arthur Andersen LLP and Seller's
accountant to choose a mutually agreeable third independent accountant whose
decision will be binding on the parties.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's Obligations. The
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Seller and the Shareholders contained in
this Agreement shall be true and correct on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date except for those representations and
warranties that by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Seller and each of the Shareholders shall execute and
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Seller's and the Shareholders' representations and warranties
contained in this Agreement are true and correct on and as of the Closing Date
as though such representations and warranties had been made on and as of the
Closing Date.
(b) Compliance with Covenants and Conditions. The Seller and
the Shareholders shall have each performed and complied in all material respects
with each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Seller and the Shareholders, as the case may
be, at or prior to the Closing Date. Each of the Seller and the Shareholders
shall execute and deliver to the Purchaser a certificate dated as of the Closing
Date, certifying that the Seller and the Shareholders have fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by them
at or prior to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholders
shall have each delivered to the Purchaser all documents, certificates,
instruments and items required to be delivered by him or it at or prior to the
Closing Date pursuant to this Agreement.
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(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(f) Closing Balance Sheet The Seller shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet together
with a certificate dated the Closing Date, signed by the Seller's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Seller as of the Closing Date.
(g) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Purchased
Assets, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Seller.
(h) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Purchased Assets; (ii) imposing
or seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the Purchaser
of all or any material portion of the business, assets or property of the
Seller; or (v) restraining, enjoining or prohibiting or seeking to restrain,
enjoin or prohibit the consummation of transactions contemplated by this
Agreement.
(i) Secretary's Certificate. The Seller shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (I)(A) the copy of the
Seller's articles or certificate of incorporation attached to the certificate is
true, correct and complete, (B) no amendment to such articles or certificate of
incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Seller's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Seller's board of directors and shareholders authorizing the actions taken in
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connection with the sale of the Purchased Assets, including, without limitation,
the execution, delivery and performance of this Agreement, were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the Seller's incumbent officers and including
specimen signatures on such certificate or certificates as their genuine
signatures; and (iii) the Seller is in good standing in all jurisdictions where
the ownership or lease of property or the conduct of its business requires it to
qualify to do business, except for those jurisdictions where the failure to be
duly qualified, authorized and in good standing would not have a material
adverse effect upon the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller. The
certification referred to above in (iii) shall attach certificates of good
standing certified by the Secretaries of State or other appropriate officials of
such states, dated as of a date not more than a five (5) days prior to the
Closing Date.
(j) Opinion of Counsel of Seller. Donald H. Bowman, counsel
for the Seller and the Shareholders, shall have delivered to the Purchaser their
favorable opinion concerning the matters set forth in Schedule 6.1(j), dated the
Closing Date and in form and substance reasonably satisfactory to the Purchaser
and its counsel. In rendering such opinion, counsel may rely to the extent
recited therein on certificates of public officials and of the Seller's officers
as to matters of fact, and as to any matter that involves other than federal or
Nebraska law, such counsel may rely upon the opinion of local counsel reasonably
satisfactory to the Purchaser and its counsel.
(k) Termination of Related Party Agreements. All existing
agreements between the Seller and the Shareholders or Affiliates of the Seller
or Shareholders, other than those set forth on Schedule 6.1(k), shall have been
canceled.
(l) Employment Agreements. Each of the persons listed on
Schedule 6.1(l) shall have entered into an employment or consulting agreement
(collectively, the "Employment Agreements") with the Purchaser substantially in
the form of Exhibit E attached hereto.
(m) Repayment of Indebtedness. Prior to the Closing Date, the
Shareholders shall have repaid the Seller in full all amounts owing by the
Shareholders or employees of the Seller to the Seller.
(n) FIRPTA Certificate. Each Shareholder shall have delivered
to the Purchaser a certificate to the effect that he is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(o) Escrow Agreement. Shareholders and the Seller shall have
executed the Escrow Agreement substantially in the form of Exhibit C attached
hereto.
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(p) Closing of DocuTech Data Systems, Inc. Transaction. The
Merger of DocuTech Data Systems, Inc. pursuant to that certain Agreement and
Plan of Reorganization by and among Purchaser, DocuTech Data Systems, Inc. and
certain sellers dated as of the date hereof.
6.2. Conditions Precedent to Seller's Obligations. The Seller's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Seller of, prior to
or at the Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and warranties
had been made on and as of the Closing Date except for those representations and
warranties that by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser shall execute and deliver to the Seller a
certificate dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by the Purchaser at or prior to the Closing Date. The Purchaser shall
execute and deliver to the Seller a certificate dated as of the Closing Date,
certifying the Purchaser has fully performed and complied in all material
respects with all the duties, obligations and conditions required by this
Agreement to be performed and complied with by it at or prior to the Closing
Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Shareholders all documents, certificates, instruments and items required
to be delivered by it at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to sell any of the Purchased
Assets; (ii) imposing or seeking to impose other sanctions, damages or
liabilities arising out of the transactions contemplated by this Agreement on
the Seller or any of its directors, officers or employees or on the Shareholder;
or (iv) restraining, enjoining or prohibiting or seeking to restrain, enjoin or
prohibit the consummation of transactions contemplated by this Agreement.
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(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into an employment agreement (collectively, the "Employment Agreements") with
each of the persons listed on Schedule 6.1(l).
(g) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (I)(A) the
copy of the Purchaser's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such articles or
certificate of incorporation has occurred since the date of the last amendment
annexed (such date to be specified), (C) a true and correct copy of the
Purchaser's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed to such certificate,
(D) the resolutions by the Purchasers's board of directors authorizing the
actions taken in connection with the purchase of the Purchased Assets including,
without limitation, the execution, delivery and performance of this Agreement
were duly adopted and continue in force and effect (a copy of such resolutions
to be annexed to such certificate) and (ii) setting forth the incumbent officers
of the Purchaser and including specimen signatures on such certificate or
certificates of such officers executing this Agreement on behalf of the
Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton &
Scheetz LLP, counsel for Purchaser, shall have delivered to the Seller and
Shareholder its favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(I). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
(j) Closing of DocuTech Data Systems, Inc. Transaction. The
Merger of DocuTech Data Systems, Inc. pursuant to that certain Agreement and
Plan of Reorganization by and among Purchaser, DocuTech Data Systems, Inc. and
certain sellers dated as of the date hereof.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to effect the sale of the Purchased
Assets and the assumption of the Assumed Liabilities referred to herein;
provided, that such actions shall not include the actual completion of the sale
and purchase of the Purchased Assets and the assumption of the Assumed
Liabilities, the delivery of the Bill of Sale and the Assignment and Assumption
Agreement, and the delivery of the check(s) (or wire transfers) referred to in
Article 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Seller advises
Purchaser are required by applicable laws of the State of Nebraska in order to
rescind any actions taken in furtherance of the sale of the Purchased Assets and
the assumption of the Assumed Liabilities as described in this Section. The
taking of the actions described above shall take place on the Pricing Date at
the offices of Pepper, Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and
Arch Streets, Philadelphia, PA 19103. On the Closing Date (i) (a) the Seller's
duly executed Bill of Sale, (b) the Seller's duly executed counterpart to the
Assignment and Assumption Agreement and (c) all such endorsements, assignments
and other instruments of transfer and conveyance including, without limitation,
waivers or consents of lessors and other third Persons, and releases,
satisfactions and termination statements from secured parties, as may be
necessary to vest in the Purchaser indefeasible and marketable legal and
beneficial title to the Purchased Assets, free and clear of all Encumbrances, to
effect the assignment and assumption of the Assumed Liabilities and to
consummate the transactions contemplated by this Agreement, all of which shall
be in form and substance reasonably satisfactory to the Purchaser, (ii) all
transactions contemplated by this Agreement, the delivery of a bank check or
checks or a wire transfer in an amount equal to the cash portion of the
consideration which the Seller shall be entitled to receive pursuant to Article
2 hereof, and the delivery of the documents contemplated to be delivered by
Purchaser, Seller and Shareholders pursuant to Article 6 hereof, and (iii) the
closing with respect to the Initial Public Offering shall occur and be deemed to
be completed. The date on which the actions described in the preceding clauses
(I), (ii) and (iii) occurs shall be referred to as the "Closing Date." Except as
otherwise provided in Article 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and not disclose any Confidential
Information about any other party to any Person unless the party
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desiring to disclose such Confidential Information receives the prior written
consent of the party about whom such Confidential Information pertains, except
(i) to any party's directors, officers, employees, agents, advisors and
representatives who have a need to know such Confidential Information for the
performance of their duties as employees, agents or representatives, (ii) to the
extent strictly necessary to obtain any Consents including, without limitation,
any Regulatory Approvals, that may be required or advisable to consummate the
transactions contemplated by this Agreement, (iii) to enforce such party's
rights and remedies under this Agreement, (iv) with respect to disclosures that
are compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the
Purchaser, the Seller and the Shareholders dated July 7, 1997, and (ii) survive
the termination of this Agreement, or the Closing, as applicable, for a period
of two years after the date of such termination or the Closing Date,
respectively; provided, that, if the Closing shall occur, then the Purchaser's
obligation of confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with Purchaser or a Potential Founding
Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to acquire or merge with, any Purchaser Targets until the later of 300
days after the date of this Agreement or 180 days after termination of this
Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Seller to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
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8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's consummation of the transactions contemplated by this Agreement,
each of the Seller and the Shareholders shall not, during the Restricted Period,
do any of the following, directly or indirectly, without the prior written
consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or any
of its Affiliates or Subsidiaries, or any of their respective successors or
assigns, whether now existing or hereafter created or acquired (collectively,
the "Related Companies"), or otherwise engage or participate, directly or
indirectly, in the business conducted by Purchaser or a Subsidiary (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Shareholders from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of any
class of any publicly-traded securities of any publicly held company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's or any of the Related Companies' (A) customers
or distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Purchaser or
any of the Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Purchaser or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related Companies
or (D) employees (other than family members) to leave the employ of the
Purchaser or any of the Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and each of the Shareholders acknowledges that
any breach or threatened breach by it or him of any provision of Sections 8.1 or
8.2 will cause continuing and irreparable injury to the Purchaser and the
Related Companies for which monetary damages would not be an adequate remedy.
Accordingly, the Purchaser and any of the Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Seller nor any of the Shareholders shall, in any action
or proceeding to so enforce any provision of this Article 8, assert the claim or
defense that an adequate remedy at law exists or that injunctive relief is not
appropriate under the circumstances. The rights and remedies of
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the Purchaser and any of the Related Companies set forth in this Section 8.3 are
in addition to any other rights or remedies to which the Purchaser or any of the
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's or the Shareholders' as applicable, first breach of the provisions
of Sections 8.1 or 8.2 or service of process upon the Seller or the
Shareholders, as applicable, through the expiration of all appeals related to
such litigation.
8.4. Disclosure. The Seller and each of the Shareholders acknowledge
that the Purchaser or any of the Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Seller or the Shareholders may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the parties that
the provisions of this Article 8 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if any
provision of this Article 8 shall be determined to be invalid, unenforceable or
illegal for any reason, then the validity and enforceability of all of the
remaining provisions of this Article 8 shall not be affected thereby. If any
particular provision of this Article 8 shall be adjudicated to be invalid or
unenforceable, then such provision shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such amendment to
apply only to the operation of such provision in the particular jurisdiction in
which such adjudication is made; provided that, if any provision contained in
this Article 8 shall be adjudicated to be invalid or unenforceable because such
provision is held to be excessively broad as to duration, geographic scope,
activity or subject, then such provision shall be deemed amended by limiting and
reducing it so as to be valid and enforceable to the maximum extent compatible
with the applicable laws and public policy of such jurisdiction, such amendment
only to apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
8.6. Acknowledgment. The Seller and each of the Shareholders
acknowledges that it or he has carefully read and considered the provisions of
this Article 8. The Seller and each of the Shareholders acknowledges and
understands that the restrictions contained in this Article 8 may limit their
respective ability to conduct a business similar to that of the Purchaser or any
of the Related Companies, but the Seller and each of the Shareholders
nevertheless believes that it and he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller and
each of the Shareholders also acknowledges and understands that these
restrictions are reasonably necessary to protect the Purchaser's and the Related
Companies' interests, and the Seller and each of the Shareholders does not
believe that such restrictions will
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prevent it or him from conducting businesses that are not competitive with those
of the Purchaser or any of the Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller and the Shareholders on the one
hand, and the Purchaser on the other hand, contained in this Agreement shall
survive until the second anniversary of the Closing Date, except that the
representations and warranties set forth in each of Section 3.9, Section 3.17,
Section 3.20 and Section 3.25 shall survive until the expiration of the statute
of limitations applicable to the subject matter addressed thereunder. The
covenants and agreements of the Seller and the Shareholders on the one hand, and
of the Purchaser on the other hand, contained in this Agreement will survive the
Closing until, by their own respective terms, they have been fully performed.
Any representation, warranty, covenant or agreement that would otherwise
terminate in accordance with this Article 9 will continue to survive if an
Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under Article 10 on or prior to the date on
which such representation, warranty, covenant or agreement would have otherwise
terminated, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article 10. Any breach of representation or
warranty contained in this Agreement made by any party or any written
information furnished by any party that was made by such party fraudulently or
with intent to defraud or mislead or with gross negligence shall indefinitely
survive the Closing. Any representation or warranty made by any or all of the
Seller or the Shareholders in this Agreement or any information furnished or
caused to be furnished by any or all of the Seller or the Shareholders to the
Purchaser that is incorporated in, or is the basis for omitting information
from, the Registration Statement, prospectus or other document, or any amendment
or supplement thereof in connection with any Purchaser Financing Transaction
shall survive until the expiration of all applicable statutes of limitations
regarding claims brought by investors in such Purchaser Financing Transaction
alleging material misstatements or omissions in such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by any or all of the Seller or the Shareholders contained in this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to Purchaser pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement shall run to the benefit of any
Underwriter of the Purchaser's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser. Accordingly, any such
Underwriter, and each person, if any, who controls any such Underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission
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thereunder, shall be (i) an intended beneficiary of this Agreement, and (ii)
deemed to be an Indemnified Party for the purposes of the indemnification
provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholder's Indemnification. From and after the
Closing Date, the Seller and the Shareholders shall, jointly and severally,
indemnify and hold harmless the Purchaser and any of its Affiliates, and each
Person who controls (within the meaning of the Securities Act) the Purchaser or
any such Affiliate, and each of their respective directors, officers, employees,
agents, successors and assigns and legal and accounting representatives, from
and against all Indemnifiable Losses that may be imposed upon, incurred by or
asserted against any of them resulting from, related to, or arising out of (i)
any misrepresentation, breach of any warranty or non-fulfillment of any covenant
to be performed by any or all of the Seller or the Shareholders under this
Agreement or any document, instrument, certificate or other item required
furnished or to be furnished to the Purchaser pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any untrue
statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by any or all of the Seller or the Shareholders pursuant to this Agreement
or upon any untrue statement or omission contained in any information furnished
or caused to be furnished by any or all of the Seller or the Shareholders to the
Purchaser (provided that the Seller and Shareholders shall not be liable with
respect to a prospectus that is distributed after they have notified the
Purchaser in writing to correct a misstatement or omission and, provided
further, that the Seller and the Shareholders hereby acknowledge that the
information concerning the Seller and the Shareholders in the Registration
Statement shall be deemed to be provided to the Purchaser for the purposes
hereof); (iii) any obligation and liability of the Seller or the Shareholders of
any nature whatsoever, whether now existing or hereafter arising or incurred,
except for the Assumed Liabilities; (iv) any non-compliance with applicable
Requirements of Law relating to bulk sales, bulk transfers and the like or to
fraudulent conveyances, fraudulent transfers, preferential transfers and the
like by the Seller; (v) any action, claim or demand by any holder of the
Seller's securities, whether debt or equity, in such holder's capacity as such,
whether now existing or hereafter arising or incurred; (vi) any non-compliance
with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as
amended, and the rules and regulations promulgated thereunder and any similar
Requirement Law; and (vii) any Legal Proceeding or Order, arising out of any of
the foregoing even though such Legal Proceeding or Order may not be filed,
become final, or come to light until after the Closing Date.
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10.1A No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser shall indemnify and hold harmless the Seller and the Shareholders
and each of their respective legal and accounting representatives, successors
and assigns from and against all Indemnifiable Losses imposed upon, incurred by
or asserted against, the Seller or the Shareholders resulting from, related to,
or arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser under this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to the Seller or the Shareholders pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) Assumed
Liabilities; (iii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except for any untrue statement or omission contained in
any information furnished or caused to be furnished by the Seller or
Shareholders; and (iv) any Legal Proceeding or Order, arising out of any of the
foregoing even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this
Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she
or it shall, within fourteen (14) days after obtaining knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim,
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defense or counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall, in and of itself,
not relieve the Indemnifying Party from its obligations under this Article 10.
In the event that the parties are unable to resolve the subject of the Indemnity
Notice, the issue shall be submitted for determination to a neutral third party
designated by the President of the Philadelphia Office of the American
Arbitration Association.
(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall promptly, and in any event, within fourteen (14) days
after obtaining sufficient information to articulate such grounds, give written
notice to the applicable Indemnifying Party thereof, together with such
information as is reasonably sufficient to describe the potential or contingent
claim to the extent then feasible (an "Unliquidated Indemnity Notice"). The
failure of an Indemnified Party to give the Indemnifying Party the Unliquidated
Indemnity Notice shall not release the Indemnifying Party of liability under
this Article 10; provided, however that the Indemnifying Party shall not be
liable for Indemnifiable Losses incurred by the Indemnified Party that would not
have been incurred but for the delay in the delivery of, or the failure to
deliver, the Unliquidated Indemnity Notice. Promptly, but in any event, within
sixty (60) days after the amount of such claim shall be finalized, resolved, or
liquidated, the Indemnified Party shall give the Indemnifying Party an Indemnity
Notice, and the Indemnifying Party's obligations under this Article 10 with
respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action, or threatened
claim or demand by any third Person against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or fourteen (14) days after
receiving notice of the existence of a claim or demand giving rise to the claim
for indemnification (which shall include a notice from any Government Authority
of an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.20, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing but
which is reasonably satisfactory to the Indemnified Party; provided, that if the
applicable claim or demand is against, or if the defendants in any such Legal
Proceeding shall include, both the Indemnified Party and the Indemnifying Party
and the Indemnified Party reasonably concludes that there are defenses available
to it that are different or additional to those available to the Indemnifying
Party or if the interests of the Indemnified Party may be reasonably deemed to
conflict with those of the Indemnifying Party, then the Indemnified Party shall
have the right to select separate counsel and to assume the Indemnified Party's
defense of such claim at its own
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expense. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.20, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense; provided, however, that the Indemnifying Party
shall have the right, at its own expense, to retain its own counsel to
participate in the defense of the claim and to promote the defenses of the
Indemnifying Party in the proceedings. Whenever the Indemnifying Party is
entitled to defend any claim hereunder, the Indemnified Party may elect, by
notice in writing to the Indemnifying Party, to continue to participate through
its own counsel, at its own expense, but the Indemnifying Party shall have the
right to control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser.
(d) Notwithstanding any other provisions of this Agreement,
the Shareholders shall control all federal and state tax controversies with
respect to periods ending on or before the Closing Date. The Shareholders shall
be permitted to resolve all such controversies
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to their own satisfaction; provided, however, that if such resolution (or any
later positions consistent therewith) could result in a change to the income tax
liabilities or positions of Purchaser for periods after the closing date, the
Shareholders shall obtain the advance consent or Purchaser to such resolution)
which consent shall not be unreasonably withheld. Should Purchaser receive any
communications from federal or state tax authorities with respect to tax periods
ending on or before the closing date, Purchaser shall notify the Shareholders of
such communication by facsimile within two business days after receipt, and
shall forward the original of such communication if in writing within five
business days.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser or any controlling Person of the Purchaser
(within the meaning of the Securities Act) makes a claim for indemnification
pursuant to Section 10.1(ii) but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
Section 10.1(ii) provides for indemnification in such case, then, the Purchaser,
each controlling Person, the Seller and the Shareholders will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
Person may be subject (after contribution from others) as is appropriate to
reflect the relative fault of the Purchaser, such controlling Person, the
Seller, and the Shareholders in connection with the statements or omissions
which resulted in such Indemnifiable Losses, as well as the relative benefit
received by the Purchaser, such controlling Person, the Seller and the
Shareholders as a result of the issuance of the securities to which such
Indemnifiable Losses relate, it being understood that the parties acknowledge
that the overriding equitable consideration to be given effect in connection
with this provision is the ability of one party or the other to correct the
statement or omission which resulted in such Indemnifiable Losses, and that it
would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser and the other
Persons or entities indemnified pursuant to Section 10.1 shall not assert any
claim for indemnification hereunder against the Seller or the Shareholders until
such time as the aggregate of all claims which such persons may have against the
Seller or the Shareholders shall exceed $27,000 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. None of the
Seller or the Shareholders shall assert any claim for indemnification hereunder
against Purchaser until such time as the aggregate of all claims which Seller or
the Shareholders may have against
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Purchaser shall exceed $27,000, whereupon such claims shall be indemnified in
full. The limitation on assertion of claims for indemnification contained in
this paragraph shall apply only to claims based on inaccuracies in, or breaches
of, representations and warranties contained in this Agreement or any document,
instrument, certificate or other item required to be furnished pursuant to this
Agreement or in connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller and the
Shareholders shall not be liable under this Article 10 for an amount which
exceeds the aggregate amount of proceeds received by the Seller in connection
with the transactions contemplated herein. For purposes of calculating the value
of the DocuNet Stock received by Seller, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price. No claim under this Article 10
shall be made unless an Indemnity Notice, an Unliquidated Indemnity Notice or a
Claim Notice (as applicable) has been given prior to the applicable survival
period.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Seller, the Shareholders and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Seller's or any of the Shareholders'
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one
hand, or by the Purchaser, on the other hand, upon any material breach by
other(s) of such other party's covenants or agreements contained in this
Agreement and the failure of such other party to cure such breach, if curable,
within ten (10) days after written notice thereof is given by the non-breaching
party to the breaching party; or
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(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller on the one hand, or by the Purchaser on
the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Seller, the Shareholders
or the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 14.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative, (iii) the
provisions with respect to exclusivity of negotiations of Section 5.9 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d) and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Further Cooperation. From and after the Closing Date, the
Seller shall, and the Shareholders shall and shall cause the Seller to, assist
and cooperate with the Purchaser in effecting the orderly transfer of the
Purchased Assets to the Purchaser. In addition, at the Purchaser's request from
time to time, the Seller shall, and the Shareholders shall and shall cause the
Seller to, execute and deliver to the Purchaser such further endorsements,
assignments and instruments of transfer and conveyance and take such other
actions as the Purchaser reasonably requests to transfer, vest or perfect the
Purchaser's rights in and to the Purchased Assets free and clear of all
Encumbrances and otherwise to accomplish the orderly transfer of the Purchased
Assets to the Purchaser and to consummate the transactions contemplated by this
Agreement. In addition, the Seller and each of the Shareholders shall (i)
provide or cause to be provided such written information with respect to
themselves, (ii) execute and deliver or cause to be executed
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and delivered such other documents, certificates or instruments, and (iii) take
or cause to be taken such actions, in each of the foregoing cases, as the
Purchaser, any Underwriter or any auditor reasonably deems necessary or
desirable to complete any audit of the Seller's financial statements (including,
but not limited to, the execution of management representation letters to any
auditor by the Seller's management or the Shareholders) or in connection with
any Purchaser Financing Transaction; provided, that none of the Shareholders
shall be required to execute any guaranty of any indebtedness obtained by the
Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3)
years after the Closing Date, the Purchaser shall maintain all Books and Records
maintained by the Seller on or prior to the Closing Date which are transferred
to the Purchaser and shall permit any or all of the Seller or the Shareholders
or their respective representatives and agents access, at the Seller's or the
Shareholders' sole cost and expense, to all such Books and Records, upon
reasonable notice by the Seller or the Shareholders, as applicable, and on terms
not disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholders, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by any or all of the Seller or the
Shareholders after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of any or
all of the Seller or the Shareholders any litigation controlled by any or all of
the Seller or the Shareholders under Section 10.3(c) of this Agreement or (iii)
complying with requests made of any or all of the Seller or the Shareholders by
any Taxing Authority or any Governmental or Regulatory Authority conducting an
audit, investigation or inquiry relating to the Seller's activities during
periods prior to the Closing Date. The Seller and the Shareholders will hold all
information provided to them pursuant to this Article 12 (and any information
derived therefrom) in confidence to the same extent as required by Section 5.5
of this Agreement with respect to Confidential Information.
12.3. By Seller and Shareholders. For a period of three (3) years
after the Closing Date, the Seller shall, and the Shareholders shall and shall
cause the Seller to, maintain all Books and Records possessed or to be possessed
by any or all of the Seller and the Shareholders that relate to the Business
prior to the Closing Date. The Seller shall, and the Shareholders shall and
shall cause the Seller to, permit the Purchaser or its representatives and
agents access, at the Purchaser's sole cost and expense, to all of such Books
and Records upon reasonable prior written notice for any reasonable business
purpose.
12.4. Use of Name. From and after the Closing Date, the Seller
shall, and the Shareholders shall cause the Seller to: (i) sign such consents
and take such other actions as the Purchaser shall reasonably request to permit
the Purchaser to use the name DocuTech, Inc. and all variants thereof (the
"Name"); (ii) cease to use the Name; and (iii) take all necessary action to
change its corporate and trade names to such name or names that are
substantially different from and not confusingly similar to the Name.
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12.5. Discharge of Obligations. From and after the Closing Date, the
Seller shall, and the Shareholders shall cause the Seller to, pay and discharge
diligently, in accordance with past practice but not less than on a timely
basis, all of the Seller's obligations and liabilities (other than the Assumed
Liabilities) including, without limitation, any obligations and liabilities to
employees, trade creditors and customers.
12.6. Receivables. If, at any time after the Closing Date, the
Seller or the Shareholders shall receive any payments on account of any of the
Receivables or other rights to payment constituting a part of the Purchased
Assets, then the Seller or the Shareholders, as applicable, shall hold such
funds in trust for, and shall promptly remit (and the Shareholders shall cause
the Seller to remit promptly) such funds to the Purchaser immediately upon
receipt thereof. The Seller hereby, effective from and after the Closing Date,
authorizes and grants to the Purchaser (acting through any one or more of the
Purchaser's authorized representatives or agents) a power of attorney to endorse
the Seller's name on any check or any other remittances received by the
Purchaser on account of the Receivables. The foregoing power of attorney is
coupled with an interest and is irrevocable.
12.7. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Shareholders or the Seller
become aware of any fact or circumstance which would change (or, if after the
Closing Date, would have changed) a representation or warranty of Seller or the
Shareholders in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Seller and the Shareholders shall promptly
give notice of such fact or circumstance to Purchaser.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller shall, and the Shareholders shall cause the Seller to
pay, and the Seller and the Shareholders shall jointly and severally indemnify
and hold harmless the Purchaser from and against all Transfer Taxes. All Taxes
on the ownership or use of the Purchased Assets (specifically excluding Taxes
measured by the net income of any party) that accrue on or prior to the Closing
Date shall be paid by the Seller, and all such Taxes that accrue after the
Closing Date shall be paid by the Purchaser; provided, that all such Taxes shall
be prorated to the Closing Date. Should Purchaser pay any Taxes that are to be
prorated in accord with the prior sentence, the Seller shall pay to the
Purchaser its prorated portion within ten (10) days of receipt of request for
payment made by the Purchaser.
ARTICLE 14
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MISCELLANEOUS
14.1. Notices. All notices required to be given to any of the
parties to this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 14.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Seller:
DocuTech, Inc.
5048 Rentworth Court
Lincoln, NE 68516
Attention: Rex Lamb
with a copy to:
Donald H. Bowman
Attorney at Law
1111 Lincoln Mall
Suite 360
Lincoln, NE 68508
(b) If to the Shareholders:
(i) Rex Lamb
Vicki Lamb
c/o DocuTech, Inc.
5048 Rentworth Court
Lincoln, NE 68516
Attention: Rex Lamb
with a copy to:
Donald H. Bowman
Attorney at Law
1111 Lincoln Mall
Suite 360
Lincoln, NE 68508
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(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attn: Barry M. Abelson
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
14.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
14.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
14.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Arthur Andersen LLP incurred in auditing the Seller's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Seller shall be responsible to pay $5,000 of such fees and expenses.
14.5. Further Assurances. Any or all of the Seller or the
Shareholders on the one hand, and the Purchaser on the other hand, shall, at
their own respective expense, from time to time upon the request of the other
party, execute and deliver, or cause to be executed and delivered, at such times
as may reasonably be requested by such other party, such other documents,
certificates and instruments and take such actions as such other party deem
reasonably necessary to consummate more fully the transactions contemplated by
this Agreement.
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14.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
14.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
14.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Seller, the Shareholders nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser may assign its rights and obligations under this Agreement prior to
the Closing to any wholly-owned Subsidiary of the Purchaser or entity owning all
of the capital stock of Purchaser, provided that such assignment shall not
relieve the Purchaser of any of its obligations hereunder.
14.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
14.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction, except that the provisions in Section 8.2 shall be governed
by Nebraska law.
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IN WITNESS WHEREOF, the Shareholders, the Purchaser and the Seller
have caused this Agreement to be duly executed as of the date first written
above.
DOCUNET INC.
By: /s/ Bruce Gillis
-----------------------------------
Bruce Gillis
DOCUTECH, INC.
By: /s/ Mr. Rex Lamb
-----------------------------------
Mr. Rex Lamb,
President
Witness: Mr. Rex Lamb
----------------------- -------------------------------
Mr. Rex Lamb, Individually
Witness: Mr. Vicki Lamb
----------------------- -------------------------------
Ms. Vicki Lamb, Individually
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EXHIBIT A
Assignment and Assumption Agreement
To be delivered at a later date.
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EXHIBIT B
Bill of Sale
To be delivered at a later date.
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Schedule 2.1(a)
Purchased Assets
1. Real Property Leases. Seller's interest, as lessee, in the real property that
is the subject matter of the leases listed in the Disclosure Schedule under
section number 3.12.
2. Personal Property Leases. Seller's interest, as lessee or otherwise, in all
personal property that is the subject matter of any leases listed in the
Disclosure Schedule under section number 3.13.
3. Equipment, Machinery and Other Tangible Personal Property. All machinery,
equipment, leasehold improvements, trucks, automobiles, supplies, office
furniture, leasehold improvements, leasehold improvements, computing and
telecommunications equipment and other items of personal property that are owned
by Seller and used in connection with the Business including, without
limitation, all Contracts with the Seller's customers or clients.
4. Contracts. All of the interest in all Contracts relating to the acquisition
or ownership by Seller of any of the Purchased Assets or the operation of the
Business including, without limitation, those listed in the Disclosure Schedule
under section number 3.14.
5. Books and Records. All of Seller's Books and Records relating to the
Business.
6. Permits. All of Seller's interest in all Permits relating to the Business
including, without limitation, those listed on in the Disclosure Schedule under
section number 3.18, to the extent assignable or transferrable.
7. Intellectual Property. All of Seller's right, title and interest in and to
the Intellectual Property including, without limitation, that listed in the
Disclosure Schedule under section number 3.16.
8. Property. Personnel and Accounting Records. All of Seller's records relating
to the Business including, without limitation, property records and personnel
records of Seller's employees who become employees of the Purchaser.
9. Business and Goodwill. All of Seller's right, title and interest in and to
the Business as a going concern and all of the goodwill incident to the
Business.
10. Inventory. All Inventory of the Business on the Closing Date.
11. Receivables. All of Seller's Receivables associated with the Business
existing at the Closing Date, other than Trade Accounts Receivables that are
greater than 100 days past the original invoice date.
<PAGE>
12. Cash. All of Seller's cash and cash equivalents on hand or in Accounts.
13. Prepaid Expenses. All Prepaid Expenses at the Closing Date including,
without limitation, those listed and fully described in Annex A to this Schedule
2.1(a)
14. Computer Software. All computer applications software, owned or licensed by
Seller, whether for general business sage (e.g., accounting, word processing,
graphics, spreadsheet analysis, etc.) or specific, unique-to-the-business usage
(e.g., order processing, manufacturing, process control, design, shipping, etc.)
and all computer operating, security or programming software, owned or licensed
by Seller.
15. Other Intangible Assets. All other assets (including causes of action,
rights of action, contract rights and warranty and product liability claims
against third parties) relating to the Purchased Assets, the Assumed Liabilities
and the Business.
16. Lease. Seller's right as tenant under the Lease.
-2-
<PAGE>
Schedule 2.1(b}
Excluded Assets
1. Insurance Policies. Any insurance policies maintained by Seller with respect
to the Business.
2. Cash Consideration. The aggregate cash consideration paid by Purchaser to
Seller pursuant to this Agreement.
3. Corporate Records. Seller's corporate minute book and stock books and
records.
4. Certain Claims. Any of Seller's claims and rights against third parties
(including, without limitation, insurance carriers), to the extent they relate
to obligations and liabilities that are not a part of the Assumed Liabilities
(except to the extent that Purchaser shall have incurred costs and expenses with
respect to such claims and rights).
5. Benefit Plan Assets. Assets constituting any pension or other funds for the
benefit of Seller's employees including, without limitation, any Employee
Benefit Plan.
6. Tax Refunds. All of Seller's claims for refunds of Taxes and other
governmental charges to the extent such refunds relate to periods ending on or
prior to the Closing Date.
7. Affiliate Loans. All of the promissory notes relating to indebtedness of the
Shareholders, the Seller's employee's or their Affiliates to the Seller.
8. Certain Trade Receivables. Trade Receivables over 100 days old.
<PAGE>
Schedule 2.6
Assumed Liabilities
Acquired Liabilities incurred in the ordinary course of business
consistent with (i) past practices, and (ii) the representations and warranties
contained herein, provided that Acquired Liabilities shall not include any
liability for the payment of taxes that accrued or relate to the period of time
prior to the Closing Date.
All obligations of the Seller accruing subsequent to the Closing
Date under the Real Property Leases comprising part of the Purchased Assets.
All obligations included in the Closing Debt Amount pursuant to
Section 2.3(b).
<PAGE>
Schedule 6.1(j)
____________ 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to __________________, a ______________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ___________,1997 (the "Purchase
Agreemen"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and _______________ ("Stockholders"). This opinion is furnished to
you pursuant to Section _______ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the [Certificate] [Articles] of Incorporation
and Bylaws of the Company. We have also made such examinations of laws,
certificates of public officials, instruments, documents, and corporate records
and have made such other investigations as we have deemed necessary m connection
with the opinions hereinafter set forth. In such examination we have assumed (i)
the genuineness of all signatures on certificates and documents other than those
signed by the Company and the Stockholders, (ii) the accuracy, completeness and
authenticity of all records and documents submitted to us as originals, (iii)
the conformity to the original of all documents submitted to us as certified,
conformed or photostatic copies, and (iv) the legal capacity of all natural
persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of____________ and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
<PAGE>
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of ________________.
Based on the foregoing and subject to the qualifications set forth
herein, it is our opinion that:
A. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of _______________ and has all
necessary corporate power and authority to enter into the Transaction Documents
and to consummate the transactions contemplated thereby.
B. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Company.
C. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
D. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the [Certificates] [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
<PAGE>
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
<PAGE>
Schedule 6.1(k)
None
<PAGE>
Schedule 6.1(l)
None, except for Rex Lamb in connection with the DocuTech Data
System, Inc. agreement.
<PAGE>
Schedule 6.2(i)
[______] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation
(the "Purchaser"), in connection with the transactions contemplated by that
certain [Purchase Agreement] dated as of ______________, 1997 (the "Purchase
Agreement"), among the Purchaser, __________, a corporation (the "Seller"), and
_____________________ ("Stockholders"). This opinion is furnished to you
pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the Articles of Incorporation and Bylaws of
the Purchaser. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Purchaser, (ii) the accuracy, completeness and authenticity of all
records and documents submitted to us as originals, (iii) the conformity to the
original of all documents submitted to us as certified, conformed or photostatic
copies, and (iv) the legal capacity of all natural persons who are parties to
the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
<PAGE>
E. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
F. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
G. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
H. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
------------------------------
A Partner
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among Rex Lamb and Vicki Lamb (collectively "Sellers," and
each, a "Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and
______ (the "Escrow Agent"). The Purchaser, the Sellers and the Escrow Agent are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this
Agreement will have the meanings set forth in the Purchase Agreement unless such
terms are defined herein or unless the context clearly indicates to the
contrary.
(a) Common Stock shall mean the common stock, $ ____ par value,
of the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of
any shares of Common Stock (valued at the Initial Public Offering Price) which
may be on deposit in the Escrow Account and (ii) the amount of cash which may be
on deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of
Common Stock, each Seller hereby pledges for the benefit of the Purchaser, and
grants the Purchaser a security interest in, such deposited Common Stock. In
addition, each Seller depositing Common Stock in the Escrow Account has also
delivered to the Escrow Agent stock powers endorsed in blank with respect to the
deposited Common Stock registered in the name of each Seller. The Escrow Agent
shall hold all such deposited Common Stock, not as an agent of each Seller, but
rather as a pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of
Common Stock, each such certificate representing Common Stock on deposit therein
shall have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be
retained by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination
of the Purchase Price pursuant to Article 2 of the Purchase Agreement, the
Sellers and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (value at the Share Value)
equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its
receipt of the Escrow Account, the Escrow Agent shall invest any cash deposited
in the Escrow Account (the "Cash Investment") as set forth on Exhibit "A"
attached hereto, or as otherwise directed in writing from time to time by the
Sellers. All income earned on the Cash Investment will be owned by the Sellers
and shall be distributed at least once every 365 days. The Escrow Agent will not
be liable or responsible for any loss resulting from any investment or
reinvestment made as provided in this Agreement at the written direction of the
Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the
Purchaser will indemnify and hold the Escrow Agent harmless from and against any
and all losses, costs, damages or expenses (including reasonable attorneys'
fees) the Escrow Agent may sustain by reason of its service as escrow agent
hereunder, except to the extent such loss, cost, damage or expense (including
reasonable attorneys' fees) was incurred solely by reason of such acts or
omissions for which the Escrow Agent is liable or responsible under Section 9
hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
<PAGE>
12. Designations. The Sellers and the Purchaser may each, by notice
to the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which
may be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
c/o DocuTech Inc.
5048 Rentworth Court
Lincoln, NE 68516
Attention: Rex Lamb
With a copy to:
Donald H. Bowman
Attorney at Law
1111 Lincoln Mall
Suite 360
-5-
<PAGE>
Lincoln, NE 68508
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue
until the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
Rex Lamb
----------------------------------------
Vicki Lamb
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
-7-
<PAGE>
PEPPER, HAMILTON & SCHEETZ DRAFT
EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
UTZ MEDICAL ENTERPRISES, INC.
DOCUNET INC.
AND
AMMCORP ACQUISITION CORP.
Dated September 9, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger.........................................................10
2.2. Effective Time of the Merger......................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation....................................................................................10
2.4. Certain Information with Respect to the Capital Stock of the Company, Purchaser
and Newco......................................................................................11
2.5. Effect of Merger..................................................................................11
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................................18
3.1. Organization; Qualification; Good Standing........................................................18
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................19
3.4. Enforceability....................................................................................20
3.5. Matters Affecting Shares; Title to Shares.........................................................20
3.6. Predecessor Status; etc...........................................................................20
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................21
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................25
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................26
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
3.24. Investment Portfolio..............................................................................35
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3.25. Affiliate Transactions............................................................................36
3.26. Accounts, Power of Attorney.......................................................................36
3.27. Receivables.......................................................................................36
3.28. Officers and Directors............................................................................36
3.29. Corporate Records.................................................................................37
3.30. Brokers or Finders................................................................................37
3.31. Customers.........................................................................................38
3.32. Investment Company................................................................................38
3.33. Absence of Changes................................................................................38
3.34. Accuracy and Completeness of Information..........................................................39
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO...............................................................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5 - COVENANTS............................................................................................41
5.1. Good Faith........................................................................................41
5.2. Approvals.........................................................................................41
5.3. Cooperation; Access to Books and Records..........................................................41
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchaser Financing Transactions.........................................43
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................44
5.8. Negative Covenants................................................................................45
5.9. Exclusive Negotiation.............................................................................47
5.10. Public Announcements..............................................................................48
5.11. Amendment of Schedules............................................................................48
5.12. Cooperation in Preparation of Registration Statement..............................................48
5.13. Examination of Final Financial Statement..........................................................49
5.13. A Audit...........................................................................................50
5.14. Lock-Up Agreements................................................................................50
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act").....................................................................50
5.16. Reorganization Status.............................................................................50
5.17. Tax Returns and Forms 5500........................................................................51
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................51
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................51
6.2. Conditions Precedent to Company's and Seller's Obligations........................................54
ARTICLE 7 - CLOSING..............................................................................................55
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................56
8.1. Confidentiality...................................................................................56
8.2. Covenant Not To Compete...........................................................................57
8.3. Specific Enforcement; Extension of Period.........................................................58
8.4. Disclosure........................................................................................58
8.5. Interpretation....................................................................................58
8.6. Seller's Acknowledgment...........................................................................59
ARTICLE 9 - SURVIVAL.............................................................................................59
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................59
9.2. Intentionally Omitted.............................................................................60
9.3. Underwriter's Benefit.............................................................................60
ARTICLE 10 - INDEMNIFICATION.....................................................................................60
10.1. Sellers' Indemnification..........................................................................60
10.2. Purchaser's Indemnification.......................................................................61
10.3. Payment; Procedure for Indemnification............................................................62
10.4. Equitable Contribution Under the Securities Act...................................................64
10.5. Exclusiveness of Indemnification..................................................................64
10.6. Limitations on Indemnification....................................................................65
10.7. Value of DocuNet Common Stock.....................................................................65
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................65
11.1. Termination.......................................................................................65
11.2. Effect of Termination.............................................................................66
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................67
12.1. Maintenance and Access to Records.................................................................67
12.2. Disclosure........................................................................................67
12.3. Accounts Receivable...............................................................................67
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................67
13.1. Transfer Restrictions.............................................................................67
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ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................68
14.1. Compliance with Law..............................................................................68
14.2. Economic Risk; Sophistication....................................................................69
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................69
15.1. Piggyback Registration Rights....................................................................69
15.2. Registration Procedures..........................................................................70
15.3. Underwriting Agreement...........................................................................70
15.4. Availability of Rule 144.........................................................................70
15.5. Survival.........................................................................................71
ARTICLE 16 - MISCELLANEOUS.......................................................................................71
16.1. Notices..........................................................................................71
16.2. No Third Party Beneficiaries.....................................................................72
16.3. Schedules........................................................................................72
16.4. Expenses.........................................................................................72
16.5. Further Assurances...............................................................................72
16.6. Entire Agreement; Amendment......................................................................73
16.7. Section and Paragraph Titles.....................................................................73
16.8. Binding Effect...................................................................................73
16.9. Counterparts.....................................................................................73
16.10. Severability.....................................................................................73
16.11. Governing Law....................................................................................73
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), AMMCORP ACQUISITION CORP., a Pennsylvania corporation
("Newco"), UTZ MEDICAL ENTERPRISES, INC., a Minnesota (the "Company") and David
C. Utz, Jr. ("Utz" or the "Seller"). Utz is the only stockholder of the Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the Commonwealth of Pennsylvania, having been incorporated solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that the Company
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and the State of
Minnesota;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with each
of the other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional document management and related
services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial Public
Offering of DocuNet Common Stock (as defined herein) constitute the
"DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential Founding
Companies (as defined herein) pursuant to the Other Agreements, the Board
of Directors of the Company has approved this Agreement as part of the
DocuNet Plan of Reorganization in order to transfer the capital stock of
the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
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IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.2A. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4. Accountants' CAWCA Report shall have the meaning set forth in Section
2.8.
1.5. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.6. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.7. Balance Sheet Date shall mean July 31, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in Section 2.8.
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1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually takes
place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.16. [Intentionally omitted.]
1.17. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.18. Common Stock shall mean the common stock, $.01 value per share, of
the Company.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the definition of
Confidential Information shall not include any information that (i) is in the
public domain at the time of disclosure to the Recipient or becomes part of the
public domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the time of disclosure to such
Recipient, (iii) is contained in the Registration Statement on Form S-1 to be
filed by Purchaser in connection with the Initial Public Offering or (iv) is
disclosed to a party
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or Potential Founding Company by any Person other than a party to this Agreement
or a Potential Founding Company; provided, that the party to whom such
disclosure has been made does not have actual knowledge that such Person is
prohibited from disclosing such information (either by reason of contractual, or
legal or fiduciary duty or obligation). For the purposes hereof, public domain
shall not include disclosure of information to a Potential Founding Company or
(except as otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8(b).
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were
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(within such six year period) made or required to be made by the Company or any
ERISA Affiliate or with respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the Seller,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.30. Escrow Amount shall have the meaning set forth in Section 2.4(c).
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. [Intentionally omitted.]
1.34. Financial Statements shall have the meaning set forth in Section
3.12(a).
1.35. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
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1.36. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial public
offering of the Purchaser's common stock registered under the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to the
Business, in each case together with any amendments, modifications and
supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
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1.46. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor organization
thereto.
1.48. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of the Seller, that knowledge that Seller should
have if the Seller made reasonable and diligent inquiry and exercised due
diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
1.54. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.56. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights
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or approvals granted or issued by any Governmental or Regulatory Authority
relating to the Business of the Company or any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.58. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.59. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.60. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning set forth in
Section 2.8.
1.63. Real Property shall mean all real property owned by or leased to the
Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
1.65. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section 8.2(a).
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1.69. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which the Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.72. Intentionally Omitted.
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
1.77. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
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1.80. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.82. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Minnesota and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended;
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(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: Bruce Gillis, Andy Bacas and David C.
Utz, Jr. The Board of Directors of the Surviving Corporation shall hold
office subject to the provisions of the laws of the Commonwealth of
Pennsylvania and of the Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and 10 million shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the
Pennsylvania Business Corporation Law and the law of the State of Minnesota.
Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of the
Company shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Company shall be merged with and into
the Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title
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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 the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the Seller pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Seller shall be fully exercisable by the Seller and the Seller shall not be
deprived nor restricted in exercising those rights.
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2.7. Delivery of Shares. The Seller shall deliver to Purchaser at the
Closing the certificates representing all of the issued and outstanding shares
of the Company Stock, duly endorsed in blank by the Seller, or accompanied by
blank stock powers, and with all necessary transfer tax and other revenue
stamps, acquired at the Seller's expense, affixed and canceled. The Seller
agrees promptly to cure any deficiencies with respect to the endorsement of the
stock certificates or other documents of conveyance with respect to such Company
Stock or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Seller, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined) and, subject to Section 2.8(e) below, the
Net Book Value of Assets and Liabilities Adjustment (as hereinafter defined), on
the terms and conditions set forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase
Price shall be Four Million Seven Hundred Fifty Thousand dollars
($4,750,000), subject to adjustments as set forth herein (the "Base
Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's Closing
Balance Sheet (the "Closing Debt Amount"). Notwithstanding the foregoing,
there shall be no reduction for up to $50,000 of such Debt that relates to
capital expenditures made subsequent to July 31, 1997 (the "Capital
Expenditure Allowance"). The Company's Debt shall mean all of the Company's
liabilities, contingent or otherwise, except Adjusted Current Liabilities,
in accordance with GAAP, plus $225,000. The Company's Adjusted Current
Liabilities shall mean all of the Company's liabilities which would be
classified as current liabilities in accordance with GAAP, except current
amounts of principal, interest or penalties due and owing: (i) under
promissory notes or lines of credit to lending institutions; (ii) to an
employee or an Affiliate of the Company, or the Seller; (iii) to a lessor
under a capital lease; or (iv) on account of Taxes or earned insurance
premiums. Promptly following the Closing and in order to verify the
accuracy of the adjustment made at Closing, the Purchaser agrees to cause
the internal accounting staff and the independent certified public
accountant of the Purchaser (the "Accountants") to verify the Closing Debt
Amount. The Accountants shall issue a report as to their determination of
the Closing Debt Amount (the "Accountants' CDA Report") promptly after
their determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller not later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by
the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the Seller's
objection(s) to the Accountants' CDA Report and the Seller's calculation of
the Closing
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Debt Amount. Within ten (10) days after receipt of the Seller's CDA
Objection, the Purchaser will notify the Seller whether it accepts or
disputes the Seller's adjustments, if any, which notification shall set
forth in reasonable detail the adjustments made by the Seller which the
Purchaser continues to dispute (the "Purchaser's CDA Response Notice"). If
the Seller does not object to the Accountants' CDA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants' CDA
Report, then the adjustment based on the then final Closing Debt Amount
(the "Final Debt Amount"), if any, shall be paid by the Seller to the
Purchaser in immediately available funds within five (5) business days of
such acceptance. If such amount is not received by Purchaser within such
time period, such amounts shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either or a
number of shares of DocuNet Common Stock having an aggregate Value (as
defined below) equal to such amount. The term "Value" in respect of a share
of DocuNet Common Stock shall mean the lower of the Initial Public Offering
Price and the average closing price of the DocuNet Common Stock during the
20 trading- day period ending immediately prior to the applicable payment
date. If the Seller objects to the Accountants' CDA Report as set forth
above and the Purchaser does not accept the Seller's proposed adjustments,
then an independent accounting firm mutually satisfactory to the Seller and
the Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amounts shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing cash in a like
amount with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value
equal to such amount. The parties hereto agree to cooperate fully with such
independent accountants at their own cost and expense, including, but not
limited to, providing such independent accountants with access to, and
copies of, all books and records that they shall reasonably request. The
Purchaser and the Seller shall each bear one-half of all of the costs and
expenses of such independent accounting firm, and if the parties hereto are
unable to agree upon an independent accounting firm, the Seller and the
Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $150,000 on
the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current assets,
less: (i) the portion of trade receivables that are more than 100 days past
the original invoice date; (ii) an aggregate amount of Inventory exceeding
$125,000; (iii) promissory notes or other amounts due from employees or
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Affiliates of the Company; and (iv) the Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing and in order to
verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing
Adjusted Working Capital Amount. The Accountants shall issue a report as to
their determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to the
Seller no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Seller's objection, if any, to the Accountants' CAWCA Report (the "Seller's
CAWCA Objection") shall set forth in reasonable detail the Seller's
objection(s) to the Accountants' CAWCA Report and the Seller's calculation
of the Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Seller's CAWCA Objection, the Purchaser will notify the
Seller whether it accepts or disputes the Seller's adjustments, if any,
which notification shall set forth in reasonable detail the adjustments
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Seller does not object to the
Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Seller's adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the "Final
Adjusted Working Capital Amount"), if any, shall be paid by Seller to the
Purchaser in immediately available funds within five (5) business days of
such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (as defined below) equal to such amount. If the Seller
objects to the Accountants' CAWCA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount, based
upon the calculations of the independent accountants, and any adjustments
of Base Purchase Price based on the amount determined as provided above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to, providing such independent accountants with access to,
and copies of, all books and records that they shall reasonably request.
The Purchaser and the Seller shall each bear one-half of all of the
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costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Seller
and Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$2,000,000 on the Closing Date (the "Closing Net Book Value Amount"). The
Net Book Value of the Company's Acquired Assets and Liabilities shall mean
the tangible assets of the Company, less Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing, and in order
to verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing Net
Book Value Amount. The Accountants shall issue a report as to their
determination of the Closing Net Book Value Amount (the "Accountants' CNBVA
Report") promptly after their determination of such amount and the
Purchaser shall deliver the Accountants' CNBVA Report to the Seller not
later than sixty (60) days following the Closing Date. The determination of
the Closing Net Book Value Amount by the Accountants shall be conclusive
and binding upon the parties hereto unless the Seller shall object to the
Accountants' CNBVA Report within fifteen (15) days following their receipt
of the Accountants' CNBVA Report. The Seller's objection, if any, to the
Accountants' CNBVA Report (the "Seller's CNBVA Objection") shall set forth
in reasonable detail the Seller's objection(s) to the Accountants' CNBVA
Report and the Seller's calculation of the Closing Net Book Value Amount.
Within ten (10) days after receipt of the Seller's CNBVA Objection, the
Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CNBVA Response Notice"). If the
Seller does not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants'
CNBVA Report, then the adjustment based on the then final Closing Net Book
Value Amount (the "Final Net Book Value Amount"), if any, shall be paid by
Seller to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. If the Seller objects to the Accountants' CNBVA Report as
set forth above and the Purchaser does not accept the Seller's proposed
adjustments, then an independent accounting firm mutually satisfactory to
the Seller and the Purchaser shall be engaged to determine the amount of
the Closing Net Book Value Amount and the Final Net Book Value Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days
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of the determination of such amount by such accounting firm. If such amount
is not received by Purchaser within such time period, such amount shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Seller shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Seller and Purchaser will request
that one be designated by the President of the Philadelphia office of the
American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and Liabilities
Adjustment, Seller shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date, the Seller who
is the holder of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. A number of shares of DocuNet Common Stock
equal to (i) $935,000 divided (the "Stock Purchase Price") by (ii) the
Initial Public Offering Price, shall be issued at Closing to Seller.
(b) Cash Purchase Price. In addition, subject to Section 2.9(c), an
aggregate amount equal to the Base Purchase Price less (i) the Stock
Purchase Price and (ii) the reductions, if any, to be made at Closing
pursuant to Sections 2.8(b), 2.8(c), 2.8(d) and 2.8(e), shall be payable at
the Closing in cash to the Seller ("Cash Purchase Price"). The specific
amount of the Cash Purchase Price shall be payable to the Seller by a wire
transfer to accounts to be designated by the Seller in writing not less
than three (3) business days prior to the Closing, in the individual amount
for the Seller and, to repay certain indebtedness set forth in Section 6.1,
as further indicated in the Disclosure Schedule.
(c) Delivery into Escrow. Notwithstanding the foregoing, an amount of
cash equal to $237,500 shall be delivered at Closing to the Escrow Agent
pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount
shall be available to fund (but shall not be the sole source of funding)
any obligations of Seller under this Agreement pursuant to the terms of the
Escrow Agreement; provided, however, if the amount of cash plus the value
of the shares of DocuNet Common Stock in the Escrow Amount falls below
$237,500 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to
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Section 2.8 hereof, the Seller shall contribute additional cash or shares
of DocuNet Common Stock (valued at the Initial Public Offering Price) to
the Escrow Amount in an amount necessary so that the amount of cash plus
the value of the shares of Common Stock (valued at the Initial Public
Offering Price) in the Escrow Amount would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth on the Disclosure Schedule delivered by the Company and
Seller to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Seller hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their respective incorporation or organization, (ii) have the power and
authority to own and operate their respective properties and assets and to
transact their respective Businesses and (iii) are duly qualified and authorized
to do business and are in good standing in all jurisdictions where the failure
to be duly qualified, authorized and in good standing would have a Material
Adverse Effect upon their respective Businesses, prospects, operations, results
of operations, assets, liabilities or condition (financial or otherwise). Listed
in the Disclosure Schedule is a true and complete list of all jurisdictions in
which the Company or any of its Subsidiaries is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or the Seller, threatened against or affecting the Company or any of
its Subsidiaries revoking, limiting or curtailing, or seeking to revoke, limit
or curtail the Company's or any of its Subsidiaries' power, authority or
qualification to own, lease or operate their respective properties or assets or
to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco, are
correct and complete in all material respects.
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3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) contravene, violate or constitute,
with or without the passage of time or the giving of notice or both, a breach or
default under, any Requirement of Law applicable to the Company or any of its
properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) The Seller. The Seller's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Seller (i) are within the powers and authority of the Seller and (ii) do not (A)
require any action by or in respect of, or filing with, any Governmental or
Regulatory Authority, (B) except as set forth in the Disclosure Schedule,
contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable any of them or any of their respective properties or any Contract to
which any of them or any of their respective properties is bound or subject or
(C), except as set forth in the Disclosure Schedule, result in the creation of
any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of 10
million shares of a single class of common stock, having no par value per share,
of which 90,000 are issued and outstanding. The Company does not have any other
authorized class or classes of securities of any kind, whether debt or equity.
Seller owns all issued and outstanding shares of capital stock of the Company.
All of the Shares are validly issued, fully paid and non-assessable and have not
been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. The Company holds 10,000 shares of its capital stock in its treasury
and no shares of the Company's capital stock are reserved by the Company for
issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid
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and nonassessable except as set forth on the Disclosure Schedule, is free of any
Adverse Claims, and has not been issued in violation of applicable securities
laws or of any preemptive rights or other rights to subscribe for, purchase or
otherwise acquire securities. No Subsidiary holds any shares of its capital
stock in its treasury or otherwise, and no shares of any Subsidiary's capital
stock are reserved by such Subsidiary for issuance. Except as set forth in the
Disclosure Schedule, neither the Company nor any Subsidiary owns or controls,
directly or indirectly, any debt, equity or other financial or ownership
interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Seller or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and the Seller and constitutes the legal, valid and binding
obligation of the Company and the Seller, enforceable against each of them in
accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Except as set forth on the
Disclosure Schedule, Seller has full legal and beneficial title to his or her
Shares and has full power, right and authority to sell and deliver such Shares
in accordance with this Agreement, free of any Adverse Claims. There are no
existing agreements, subscriptions, options, warrants, calls, commitments,
conversion rights or other rights of any character to purchase or otherwise
acquire from the Seller at any time, or upon the happening of any event, any of
the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary
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course of business. Except as disclosed in the Disclosure Schedule, the Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) The Seller. Except as set forth in the Disclosure Schedule, there is no
Legal Proceeding or Order pending against, or to the knowledge of the Seller,
threatened against or affecting, the Seller or any of his properties or
otherwise, that could adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement. Except as set
forth in the Disclosure Schedule, the Seller does not have knowledge of any
fact, event, condition or circumstance that could reasonably be expected to give
rise to the commencement of any Legal Proceeding or the entering of any Order
against the Seller that could adversely affect or restrict the ability of the
Seller to consummate fully the transactions contemplated by this Agreement or
that in any manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or the
Seller's knowledge, each threatened, Legal Proceeding that has been commenced,
brought or asserted by (i) the Company or any of its Subsidiaries, as the case
may be, against any Person or (ii) any Person against the Company or any of its
Subsidiaries, as the case may be. Neither the Company nor the Seller has
knowledge of the existence of any fact, event, condition or circumstance that
could reasonably be expected to give rise to the commencement of any Legal
Proceeding or the entering of any Order against either the Company or any of its
Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, any of their respective Affiliates (other than a Person who
is an Affiliate solely by virtue of clause (iii) of the definition thereof), or
any of such Affiliates' respective Affiliates (other than a Person
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who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Seller, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such employee's position or function, the rate of hourly, monthly
or annual compensation (as the case may be) paid or to be paid to such employee
in 1995, 1996 and, to the extent known, 1997, any accrued sick leave or pay or
vacation and any incentive or bonus arrangement with respect to any such
employee. Except as is set forth in the Disclosure Schedule, since the Balance
Sheet Date, neither the Company nor any of its Subsidiaries has increased the
compensation payable to its employees or the rate of compensation payable to its
employees. The Disclosure Schedule also identifies those employees with whom the
Company or any of its Subsidiaries has entered into an employment Contract or a
Contract obligating the Company or any such Subsidiary to pay severance or
similar payments to any employee. The Company and the Seller have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are no threatened
or contemplated attempts to organize for collective bargaining purposes any of
the employees of the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries is a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such employees
is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the employees of the Company or any of its
Subsidiaries. In addition, no dispute with or claim against the Company relating
to any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages
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and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. Except as set forth in the Disclosure
Schedule, with respect to each Employee Benefit Plan, the Company and the
Seller's have delivered or caused to be delivered to the Purchaser and Newco
true and complete copies of (i) the plan document, trust agreement and any other
document governing such Employee Benefit Plan, (ii) the summary plan
description, (iii) all Form 5500 annual reports and attachments, and (iv) the
most recent IRS determination letter, if any, for such plan.
(b) Except as set forth in the Disclosure Schedule, each of the Employee
Benefit Plans has been operated and administered in compliance with their
respective terms and all applicable Requirements of Law including, without
limitation, ERISA and the Code. The Company has not incurred any "accumulated
funding deficiency" within the meaning of ERISA or incurred any liability to the
PBGC in connection with any Employee Benefit Plan (or other class of benefits
that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
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(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or the Seller threatened, and to the
knowledge of the Company or the Seller, there are no facts, events, conditions
or circumstances that could give rise to any such Legal Proceeding or claim
(other than routine claims for benefits from eligible participants or
beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
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<PAGE>
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be delivered to
the Purchaser and Newco a copy of the Company's consolidated balance sheets as
of July 31, 1995 and 1996 and April 30, 1997 and the related statements of
operations, shareholders' equity and cash flows for the years then ended,
together with all proper exhibits, schedules and notes thereto, (collectively,
the "Financial Statements"). A true and complete copy of the Financial
Statements is attached to the Disclosure Schedule. The Financial Statements have
been prepared in accordance with GAAP consistently applied throughout the
periods involved (except for changes required or permitted by GAAP and noted
thereon) and fairly represent the financial position of the Company and its
Subsidiaries as of the date of such Financial Statements and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and the Seller has caused the Company and each of
its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $50,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Seller will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company
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or any of its Subsidiaries, and (iii) any other amounts to which any Person is
entitled to receive pursuant to any dividend or distribution right in respect of
any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company and
its Subsidiaries at April 30, 1997 including, without limitation, all notes
thereto, prepared in accordance with GAAP (the "Company Balance Sheet"), neither
the Company nor any of its Subsidiaries has any liabilities or obligations,
whether direct or indirect, matured or unmatured, contingent or otherwise,
except for liabilities or obligations that were incurred consistently with past
business practice in or as a result of the normal and ordinary course of
business since April 30, 1997.
3.15. Real Property.
(a) The Disclosure Schedule contains a complete and accurate list of all
the locations of all Real Property owned or leased by the Company or any of the
Subsidiaries and the name and address of the lessor and, if a Person different
than such lessor, the manager thereof. The Company and the Seller have delivered
or caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
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(d) The Real Property is (i) except as set forth in the Disclosure
Schedule, in good condition and repair and there has been no damage, destruction
or loss to any of the Real Property that remains unremedied to date (ordinary
wear and tear excepted) and (ii) suitable to carry out each of the Company's and
its Subsidiaries' respective Business as conducted thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
the Seller, threatened, against any of the Real Property.
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Company or any
Subsidiary has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Company would require
additional expenditures of capital in excess of $10,000.
(h) The Company and each Subsidiary has good, valid and marketable title to
all Real Property, subject to no liens, mortgages, security interests, pledges,
encumbrances, or charges of any kind except: (i) liens for taxes or assessments
or other government charges or levies not yet due and payable; (ii) liens
imposed by law, such as mechanic's, materialmen's, warehousemen's and carrier's
liens, and other similar liens, securing obligations incurred in the ordinary
course of business which are not past due for more than 30 days; (iii) liens
under workmen's compensation, unemployment insurance, social security or similar
legislation securing obligations which are not past due; and (iv) the liens
securing other indebtedness not past due of the Company or its Subsidiaries set
forth in the Disclosure Schedule (the "Permitted Real Property Liens").
(i) No eminent domain, condemnation, incorporation, annexation or
moratorium or similar proceeding has been commenced or, to the best of the
Company's knowledge, threatened by an authority having the power of eminent
domain to condemn any part of the Real Property owned by the Company and its
Subsidiaries. To the best of the Company's knowledge, there are no pending or
threatened governmental rules, regulations, plans, studies or efforts, or court
orders or decisions, which do or could adversely affect the use or value of such
properties for their present use.
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<PAGE>
(j) The improvements of all Real Property owned by the Company and its
Subsidiaries are in good condition and repair, ordinary wear and tear excepted,
and have not suffered any casualty or other material damage which has not been
repaired in all material respects. To the best of the Company's knowledge, there
is no material latent or patent structural, mechanical or other significant
defect, soil condition or deficiency in the improvements included in such
properties.
(k) The Real Property owned by the Company and its Subsidiaries has been
fully assessed and is not subject to abatement. To the best of the Company's
knowledge, there are no proposed reassessments of any of such properties by any
taxing authority and there are no threatened or pending special assessments or
other actions or proceedings (other than county-wide reassessments and/or the
usual increases in millage rates that may be under consideration by the taxing
authorities in the jurisdictions where such properties are located) that could
give rise to a material increase in real property taxes or assessments against
any of such properties.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Seller have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case
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may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and, except as set forth on the
Disclosure Schedule, is not in default or breach thereof. In addition, no party
to any such Contract (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or not renew any such Contract, (ii) to
the knowledge of the Company and the Seller, has threatened to terminate or not
renew any such Contract or (iii) except as set forth on the Disclosure Schedule
is, to the knowledge of the Company and the Seller, in breach or default under
any provision thereof, and, to the knowledge of the Company and the Seller, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
except as set forth on the Disclosure Schedule, result in the creation or
imposition of any Adverse Claim upon the Company or any of its Subsidiaries or
any of their respective assets under the terms of any such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
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(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person
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any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. To the knowledge of the Company, or
any of its Subsidiaries are in default under any such policy in any respect. To
the knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Seller.
(b) There is neither pending, nor to the Company's or the Seller's
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the
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Intellectual Property, and neither the Company nor any such Subsidiary has
received any notice of infringement upon or conflict with any asserted right of
others nor, to the Company's and the Seller's knowledge, is there a basis for
such a notice. To the Company's and the Seller's knowledge, no Person, is
infringing the Company's or any of its Subsidiaries rights to the Intellectual
Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
granted any license or other right to use, in any manner, any of the
Intellectual Property, whether or not requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Seller, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Seller, there are no polychlorinated biphenyls (PCBs) present, in use or
stored on any of the Real Property. To the knowledge of the Company and the
Seller, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
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3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or the Sellers' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. Except as set forth in the Disclosure Schedule,
the Company and each of its Subsidiaries has filed all registrations, filings,
reports, or submissions that are required by any Requirement of Law. All such
filings were made in compliance with applicable Requirements of Law when filed
and no deficiencies have been asserted by any Governmental or Regulatory
Authority with respect to such filings and submissions that have not been
finally resolved.
3.23. Taxes and Tax Returns.
(a) Except as set forth in the Disclosure Schedule, the Company and each of
its Subsidiaries has duly and timely filed all Tax Returns. Each such Tax Return
is true, accurate and complete. The Company and each of its Subsidiaries has
paid in full all Taxes for the period covered by such Tax Return. All Taxes not
yet due and payable have been withheld or reserved for or, to the extent that
they relate to periods on or prior to the date of the Company Balance Sheet, are
reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid
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over, in a timely manner, to the proper Taxing Authorities all amounts required
to be so withheld and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Seller, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Company's or any of its
Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Seller, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Except as set forth in the Disclosure Schedule, neither the Company nor
any of its Subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to make, nor
is any of them required to make, any adjustment under Section 481(a) of the Code
for any period ending after the Closing Date by reason of a change in accounting
method or otherwise and neither the Company nor any of its Subsidiaries has any
knowledge that the IRS has proposed such adjustment or change in accounting
method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
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(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the
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highest short-term rating given by Moody's Investor's Services, Inc. and
Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or money manager, brokerage house and similar institution in
which the Company or any of its Subsidiaries maintains any account (whether
checking, savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto. The Disclosure Schedule also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Except as set forth in
the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
sold, factored, securitized, or consummated any similar transaction with respect
to any of its Receivables. Subject to proper reserves taken into account in
accordance with GAAP as reflected on the Disclosure Schedule, each Receivable is
fully collectable in the normal and ordinary course of business (i.e. without
resort to litigation or assignment to a collection agency), and are not subject
to any dispute, counterclaim, defense, set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
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(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Seller or any of the current directors, current executive
officers or current significant employees (as such term is defined in Section
3.28(a)) of either the Company or any of its Subsidiaries has, within the past
five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Brokers or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor the Seller has engaged the
services of any broker or finder with respect to the transactions contemplated
by this Agreement, and no Person has or will have, as a result of the
consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser, Newco or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Seller. Without degradation to any of
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the foregoing, the Company, its Subsidiaries and the Seller are solely
responsible for the payment of the commissions, fees and other compensation
payable to the Person having any such right, interest or claim on account of any
action on the part of the Company, its Subsidiaries or the Sellers, including,
without limitation, the Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1995, 1996 and 1997 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
on the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
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(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Seller and their
affiliates, other than distributions, sales or transfers in the ordinary
course of business to persons other than the Seller and their affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of the Seller or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Seller, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or the Seller with
respect to the Seller, the Company or any of its Subsidiaries for the purposes
of or in connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Seller and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Newco and Purchaser and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of their properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the
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Seller or any of the other Founding Companies, such representation and warranty
shall be deemed made based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Seller for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and the Seller will and will cause the Company and
each of its Subsidiaries to, cooperate with the Newco and the Purchaser in
connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and the Seller will and will cause the Company and each of its
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Subsidiaries to, afford to the Purchaser, Newco and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in its discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and the
Seller will cause the Company and each of its Subsidiaries to, cause each of
their respective directors, officers, employees and representatives, including,
without limitation, their respective counsel and accountants, to cooperate fully
with the Purchaser and Newco, in connection with such investigation, access and
examination. The results of such investigation and examination is for the
Purchaser and Newco's sole benefit, and shall not (i) impair or reduce any
representation or warranty made by the Company or the Seller in this Agreement,
(ii) relieve the Company or the Seller from his obligations with respect to such
representations and warranties (including, without limitation, the Seller's
obligations under Article 10), or (iii) mitigate the Company's and the Seller's
obligations to otherwise disclose all material facts to the Purchaser and Newco
with respect to the Company, each of its Subsidiaries and their respective
Businesses.
(b) The Purchaser will cooperate with the Company and the Seller in
connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, the Seller and their agents, legal
advisors and accountants reasonable access to all of the properties and books
and records of the Purchaser (including those in the possession or control or
their accountants, attorneys and any other third party), as the case may be, for
the purpose of permitting the Company and the Seller to make such investigation
and examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and the Seller, in its discretion, shall deem
necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Company and the Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and Seller's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Purchaser in this
Agreement, (ii) relieve the Purchaser from its obligations with respect to such
representations and warranties (including, without limitation, the Purchaser's
obligations under Article 10), or (iii) mitigate the Purchaser's obligations to
otherwise disclose all material facts to the Company and the Seller with respect
to the Purchaser.
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5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Seller shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser or
Newco may exercise its termination right, it must afford the Company and the
Seller the opportunity to cure the matter giving rise to the termination right
(but for no longer than five days following the date Purchaser notifies the
Company or the Seller of its intent to terminate) unless, in the judgement of
the managing underwriter of the Initial Public Offering, any such cure period
might adversely affect the Initial Public Offering.
(b) Promptly upon the Company's or the Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Seller to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Seller shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchaser Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and the Seller shall and shall cause
the Company and its respective Subsidiaries to, furnish the Purchaser and Newco
with the following information:
(a) the Company's audited consolidated balance sheet as of April 30,
1997 and the related statements of operations, shareholders' equity and
cash flows for the year then ended, together with all proper exhibits,
schedules and notes thereto, audited by Arthur Andersen LLP, all of which
shall be prepared in accordance with GAAP consistently applied with prior
periods and shall present fairly the financial position of the Company and
its Subsidiaries for the year then ended and the results of operations and
changes in shareholders' equity and cash flows for the period covered
thereby;
(b) any unaudited interim financial statements requested by the
Purchaser, Newco or any Underwriter to be included in any registration
statement, prospectus, document or other item, or any amendment or
supplement thereof, relating to any Purchaser Financing Transaction, all of
which shall (i) be in accordance with the books and records of the Company
maintained in accordance with good business practice and in the normal and
ordinary
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course of business, (ii) be prepared in accordance with GAAP applied on a
consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of
the Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the
periods covered thereby, and (iv) include comparable interim financial
statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary,
desirable or appropriate in connection with any Purchaser Financing
Transaction or the preparation of any registration statement, prospectus,
document or other item relating thereto.
5.6. Performance of Conditions. The Company, the Seller, Newco and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Seller, Newco and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and Seller shall cause
the Company and each of its Subsidiaries to, operate their respective Businesses
in the normal and ordinary course in a manner consistent with past practice
including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact
the Company's and each such Subsidiary's business relationships with its
agents, customers, employees, creditors and others with whom the Company or
each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets,
properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to
the profitable conduct of their respective Businesses;
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(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns
when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by
GAAP have been established;
(g) to maintain in full force and effect all policies of insurance
adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies
of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which
the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments over Ten Thousand Dollars
($10,000) except in connection with the Capital Expenditure Allowance,
without the knowledge and consent of the Purchaser, which consent shall not
be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. Except as set forth in the Disclosure Schedule,
during the period from and after the date of this Agreement until the Closing
Date, the Company shall not, and the Seller shall not cause the Company or any
of its Subsidiaries to do, and shall not permit the Company or any such
Subsidiary to do, directly or indirectly, any of the following without the
express prior written consent of the Purchaser, which consent shall not be
unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or any
such Subsidiary's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) except as set forth on the Disclosure Schedule, grant any salary
increase or permit any advance to any director, officer or employee or enter
into any new, or amend or otherwise alter, any Employee Benefit Plan, or any
employment or consulting Contract, or any Contract providing for the payment of
severance;
(d) other than in the ordinary course of business, make any borrowings or
otherwise create, incur, assume or guaranty any indebtedness (except for the
endorsement of
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negotiable instruments for deposit or collection or similar transactions in the
normal and ordinary course of the Business), issue any commercial paper or
refinance any existing borrowings or indebtedness; provided that no borrowings
may be made without Purchaser's consent which include prepayment penalties or
restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business or in connection with Capital Expenditure Allowance; provided that any
Contract permitted to be entered into pursuant to this Section 5.8(f) shall not
(i) involve a pledge of or encumbrance on any of the Company's or any of its
Subsidiaries' assets or the incurrence by the Company or any of its Subsidiaries
of liabilities (other than in the performance of services for customers in the
ordinary course of business) in any one transaction or series of related
transactions in excess of Ten Thousand Dollars ($10,000) and cause the aggregate
commitment under all such new Contracts to exceed One Hundred Thousand Dollars
($100,000), or (ii) involve a term of more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide, combine,
change or purchase any of the Company's or any of its Subsidiary's shares, notes
or other securities, whether debt or equity, or make any Contract or commitments
to do so;
(i) enter into any transaction with any Affiliate of the Seller, the
Company or any of its Subsidiaries including, without limitation the purchase,
sale or exchange of property with, the rendering of any service to, or the
making of any loans to, any such Affiliate;
(j) (i) declare or pay any dividend, distribution or payment in respect of,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any of the Company's or obligations of the Company or any of its
Subsidiaries, or (ii) pay any royalty or management fee, except management fees
to Utz Medical Development Inc. of up to $10,000 on the 1st and 15th day of each
calender month;
(k) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities, whether
debt or equity, and whether by conversion or otherwise, or make any commitment
to do so;
(l) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or
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otherwise dispose of, any of the Company's or any of such Subsidiaries assets
having an aggregate fair market value in excess of $10,000 or more, except for
the disposition of obsolete or worn-out assets in the normal and ordinary course
of business;
(n) (i) materially change any of its methods of accounting in effect as at
the Balance Sheet Date, or (ii) make or rescind any express or deemed election
relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended July 31, 1997, except, in either
case, as may be required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000 except in connection with the Capital Expenditure Allowance;
(p) cause or permit the Company or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business;
(r) enter into any Contract or make any commitment to do any of the
foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller shall: (i)
provide any information about the Company or any of its Subsidiaries or any of
their respective Businesses to any Person (other than the Purchaser, Newco, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell,
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exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to, advise the Purchaser or Newco promptly of their or its receipt of any
written offer or written proposal concerning the Shares, the Company, any of its
Subsidiaries, any part of their respective Businesses or any material interest
therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Seller shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Seller (other than in the
Registration Statement) Purchaser will endeavor to consult with Seller to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or the Seller from contacting a third party in order to obtain a Consent
to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule, provided that no amendment or supplement
to the Disclosure Schedule prepared by the Company that constitutes or reflects
an event or occurrence that would have a Material Adverse Effect shall be
effective unless the Purchaser consents to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6 and 7 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 5.11. Except as otherwise provided
herein, no amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement in
connection with the Initial Public Offering (the "Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and the Seller shall furnish or cause to be furnished to
the Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Seller
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Seller agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction
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is required to be delivered under the Securities Act, any information contained
in the prospectus concerning the Company or the Seller becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy. The Purchaser agrees to use its commercially reasonable
best efforts to prepare and file the Registration Statement as promptly as
practicable, to furnish the Company with a copy thereof and each amendment
thereto in substantially the form in which it is to be filed as promptly as
reasonably practicable prior to such filing (it being understood that neither
the Company nor the Sellers has any obligation to review the same other than
with respect to information regarding the Company or the Seller) and diligently
seek to cause the Registration Statement to be declared effective and the
Initial Public Offering to be completed. The Purchaser agrees that neither the
Seller nor the Company shall have any responsibility for pro forma adjustments
that may be made to the Financial Statements.
(b) The Company and the Seller acknowledge and agree (i) that, prior to the
execution and delivery of a definitive underwriting agreement, the Underwriters
have made no firm commitment, binding agreement, or promise or other assurance
of any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the Initial Public Offering pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all, (ii) that none of the prospective Underwriters of the
Purchaser's common stock, in the Initial Public Offering nor any officers,
directors, agents or representatives of such Underwriters shall have any
liability to the Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Seller to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller with respect to any
disclosure contained in the Registration Statement and the Seller may not assert
any claim against the Underwriters relating to the Registration Statement on
account thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
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5.13.A Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its going concern opinion thereon prior to
consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act; (ii) such compliance by the Seller and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Hart-Scott
Act to be made. If filings under the Hart-Scott Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
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5.17. Tax Returns and Forms 5500. Within ten (10) days after the date of
this Agreement, the Company shall file all Tax Returns and Forms 5500 that are
then due.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Seller contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Company and the
Seller shall deliver to the Purchaser and Newco a certificate dated the
Closing Date, certifying that all of the Company's and the Seller's
representations and warranties contained in this Agreement are true and
correct on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and the
Seller's shall have performed and complied in all material respects with
each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Company and the Seller, as the case may
be, at or prior to the Closing Date. The Company and the Seller shall
deliver to the Purchaser and Newco a certificate, dated the Closing Date,
certifying that the Company and the Seller have fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and the Seller shall have
delivered to the Purchaser and Newco all documents, certificates,
instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him, her or it at or
prior to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all
Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange
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Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been
made under Section 2.8(b) and (ii) Debt which constitutes an Adjusted
Current Liability.
(g) Closing Balance Sheet. The Company shall have delivered to the
Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the
Books and Records and with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments) and
presents fairly the financial position of the Company as of the Closing
Date.
(h) No Material Adverse Change. From and after the date of this
Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or
any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any shares or of any securities of the
Company or any of the Company's subsidiaries; (ii) imposing or seeking to
impose limitations on the ability of the Purchaser to combine and operate
the business, operations and assets of the Company or any of the Company's
Subsidiaries with the Purchaser and Newco's business, operations and
assets; (iii) imposing or seeking to impose other sanctions, damages or
liabilities arising out of the transactions contemplated by this Agreement
on the Purchaser, Newco or any of the Purchaser or Newco's directors,
officers or employees; (iv) requiring or seeking to require divestiture by
the Newco or Purchaser of all or any material portion of the business,
assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or
prohibit the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Company's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed
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to such certificate, (D) the resolutions by the Company's board of
directors authorizing the actions taken in connection with the Merger,
including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and
effect (a copy of such resolutions to be annexed to such certificate); (ii)
setting forth the Company's incumbent officers and including specimen
signatures on such certificate or certificates as their genuine signatures;
and (iii) the Company is in good standing in all jurisdictions where the
ownership or lease of property or the conduct of its business requires it
to qualify to do business, except for those jurisdictions where the failure
to be duly qualified, authorized and in good standing would not have a
material adverse effect upon the business, prospects, operations, results
of operations, assets, liabilities or condition (financial or otherwise) on
the Company. The certification referred to above in (iii) shall attach
certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more
than five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Rothberg & Logan, counsel for the
Company and the Seller, shall have delivered to the Purchaser and Newco
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.1(k). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers
of Seller as to matters of fact, and as to any matter which involves other
than federal or Minnesota law, such counsel may rely upon the opinion of
local counsel reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and the Seller, Affiliates of the Company or the
Seller, other than those, if any, set forth on Schedule 6.1(l), shall have
been canceled.
(m) Employment Agreements. Each of the persons listed on Schedule
6.1(m) shall have entered into an employment agreement (collectively, the
"Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Seller
shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Seller or employees of the Company to the Company
(including the Subsidiaries), such repayment to be effected by the
retention of $225,000 of the Cash Purchase Price by Purchaser as full
satisfaction of all such debt of Seller and his Affiliates.
(o) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he or she is not a foreign
person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing
Date.
(q) Escrow Agreement. The Seller and the Company shall have executed
the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
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6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Seller of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be
true and correct in all material respects on and as of the date of the
Closing Date, with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Purchaser and Newco
shall each deliver to the Seller a certificate, executed by a duly
authorized officer of the Purchaser and Newco, respectively, dated as of
the Closing Date, certifying that all of its representations and warranties
contained in this Agreement are true and correct on and as of the Closing
Date as though such representations and warranties had been made on and as
of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco
shall each have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by them at or prior to the Closing Date. The
Purchaser and Newco shall each deliver to the Seller a certificate, dated
the Closing Date, certifying that each of them has fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have
delivered to the Seller all documents, certificates, instruments and items
required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the
Company or any of its Subsidiaries or any of their respective directors,
officers or employees or on any of the Seller; or (iii) restraining,
enjoining or prohibiting or seeking to restrain, enjoin or prohibit the
consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
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(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Seller a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's, as the case may be, articles
or certificate of incorporation attached to the certificate is true,
correct and complete, (B) no amendment to such articles or certificate of
incorporation has occurred since the date of the last amendment annexed
(such date to be specified), (C) a true and correct copy of the such
entity's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the entity's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the entity and including specimen
signatures on such certificate or certificates of such officers executing
this Agreement on behalf of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Company and the Seller
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers
of Purchaser as to matters of fact, and such opinion may be limited to
federal laws and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Minnesota in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, Hamilton &
Scheetz
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LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA
19103. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Seller shall be entitled to receive pursuant to the
Merger referred to in Section 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Section 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such
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party deems such Confidential Information necessary or desirable to enforce his
or its rights under this Agreement.
(c) [Initially Omitted]
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to acquire or
merge with, any Purchaser Targets until the later of 300 days after the date of
this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, the Seller shall not, during the Restricted
Period, do any of the following, directly or indirectly, without the prior
written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in
any business conducted by Purchaser or a Subsidiary (the "Restricted
Business") within any geographic area located within the United States of
America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in
this Section 8.2(b) shall prohibit the Seller from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of
any class of any publicly-traded securities of any publicly held Company
listed on a well-recognized national securities exchange or on an
interdealer quotation system of the National Association of Securities
Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt
to do any of the foregoing, in each case within the Restricted Area, with
respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser, the
Surviving Corporation, the Company, or any of their respective Related
Companies, (B) suppliers or vendors or
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prospective suppliers or vendors (wherever located) to supply materials,
resources or services to be used in connection with goods or services that
are competitive with those of the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies, (C) distributors,
consultants, agents, or independent contractors to terminate or modify any
contract, arrangement or relationship with the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies or
(D) employees (other than family members) to leave the employ of the
Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened breach by him or
her of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Surviving Corporation, the Company and
their respective Related Companies for which monetary damages would not be an
adequate remedy. Accordingly, the Purchaser, the Surviving Corporation, the
Company and any of their respective Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, the Seller shall, in any action or proceeding to so enforce any
provision of this Article 8, assert the claim or defense that an adequate remedy
at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, Newco, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Seller that the provisions of this Article 8 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if any provision of this Article 8 shall be determined to be invalid,
unenforceable or illegal for any reason, then the validity and enforceability of
all of the remaining provisions of this Article 8 shall not be affected thereby.
If any particular provision of this Article 8 shall be adjudicated to be invalid
or unenforceable, then
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such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such amendment to apply only to the
operation of such provision in the particular jurisdiction in which such
adjudication is made; provided that, if any provision contained in this Article
8 shall be adjudicated to be invalid or unenforceable because such provision is
held to be excessively broad as to duration, geographic scope, activity or
subject, then such provision shall be deemed amended by limiting and reducing it
so as to be valid and enforceable to the maximum extent compatible with the
applicable laws and public policy of such jurisdiction, such amendment only to
apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he or she has
carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, Newco, the Company or any of their respective Related Companies, but
he nevertheless believes that he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Surviving Corporation's, the Company's and their
respective Related Companies' interests, and the Seller does not believe that
such restrictions will prevent him from earning a living in businesses that are
not competitive with those of the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Seller, the Company, Newco and the Purchaser contained in
this Agreement shall survive until the second anniversary of the Closing Date,
except that the representations and warranties set forth in each of Section
3.11, Section 3.20 and Section 3.23 shall survive until the expiration of the
statute of limitations applicable to the subject matter addressed thereunder.
The covenants and agreements of the Seller, the Company, Newco and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
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representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Seller's and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, the Seller
shall, jointly and severally, indemnify and hold harmless the Purchaser, Newco,
the Surviving Corporation and the Company and any of their respective
Subsidiaries, and each Person who controls (within the meaning of the Securities
Act) the Purchaser, Newco, the Surviving Corporation or, after the Closing Date,
the Company or any of its Subsidiaries, and each of their respective directors,
officers, employees, agents, successors and assigns and legal representatives,
from and against all Indemnifiable Losses that may be imposed upon, incurred by
or asserted against any of them resulting from, related to, or arising out of
(i) any misrepresentation, breach of any warranty or non-fulfillment of any
covenant to be performed by the Company or the Seller under this Agreement or
any document, instrument, certificate or other item required to be furnished to
the Purchaser or Newco pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Company or the Seller
pursuant to this Agreement or upon any untrue statement or omission contained in
any information furnished or caused to be furnished
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by the Seller to the Purchaser or Newco (provided that the Seller hereby
acknowledges that the information concerning the Seller and the Company in the
Registration Statement shall be deemed to be provided to the Purchaser and Newco
for the purposes hereof); (iii) any liability or obligation of the Seller, the
Company or any of its Subsidiaries other than Debt for which an adjustment to
the Base Purchase Price has been made under Section 2.8(b) and Debt which does
not constitute an Adjusted Current Liability; (iv) without regard to any
knowledge acquired by Purchaser, any liability for payment of Taxes that accrued
or relate to the period of time prior to the Closing Date or any liability in
connection with the statutory dissolution and reinstatement of UTZ Medical
Enterprises, Inc. (regardless of disclosure in this Agreement, including in the
Disclosure Schedule); (v) any non-compliance with applicable Requirements of Law
relating to bulk sales, bulk transfers and the like or to fraudulent
conveyances, fraudulent transfers, preferential transfers and the like; (vi) any
action, claim or demand by any holder of the Company's securities, whether debt
or equity, in such holder's capacity as such, whether now existing or hereafter
arising or incurred; (vii) any non-compliance with the Worker Adjustment and
Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and
regulations promulgated thereunder and any similar Requirement of Law; and
(viii) any Legal Proceeding or Order arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
10.1.A. No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser, Surviving Corporation or any successor
to achieve after the Closing Date any projected financial information,
including, without limitation, sales of software and costs of software
development, in and of itself shall not result in an Indemnifiable Loss to
Purchaser, Newco or the Surviving Corporation.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco and the Surviving Corporation shall indemnify and hold harmless
the Seller and each of its respective legal representatives, successors and
assigns from and against all Indemnifiable Losses imposed upon, incurred by or
asserted against, the Seller resulting from, related to, or arising out of: (i)
any misrepresentation, breach of any warranty or non-fulfillment of any covenant
to be performed by the Purchaser or Newco under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
pursuant hereto or thereto or in connection with the transactions contemplated
by this Agreement; (ii) any Debt for which an adjustment to the Base Purchase
Price has been made under Section 2.8(b) and any Adjusted Current Liabilities;
(iii) any untrue statement of any material fact contained in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, prepared, filed, distributed or executed in connection with any
Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser or Newco pursuant to this Agreement or upon
any untrue statement or omission contained in any information furnished or
caused to be furnished by the Purchaser or Newco; and (iv) any Legal Proceeding
or Order arising out of any of the foregoing
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even though such Legal Proceeding or Order may not be filed, become final, or
come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, within sixty (60) days after obtaining sufficient information to
articulate such grounds, give written notice to the applicable Indemnifying
Party thereof, together with such information as is reasonably sufficient to
describe the potential or contingent claim to the extent then feasible (an
"Unliquidated Indemnity Notice"). The failure of an Indemnified Party to give
the Indemnifying Party the Unliquidated Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Unliquidated Indemnity Notice.
Within sixty (60) days after the amount of such claim shall be finalized,
resolved, or liquidated, the Indemnified Party shall give the Indemnifying Party
an Indemnity Notice, and the Indemnifying Party's obligations under this Article
10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10)
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days after receiving notice of the filing of a lawsuit or sixty (60) days after
receiving notice of the existence of a claim or demand giving rise to the claim
for indemnification (which shall include a notice from any Governmental
Authority of an intent to audit with respect to Taxes), shall send written
notice of such claim to the Indemnifying Party (the "Claim Notice"). The failure
of the Indemnified Party to give the Indemnifying Party the Claim Notice shall
not release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense of such claim, demand or Legal
Proceeding, with the reasonable fees, expenses and disbursements of such counsel
to be reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Purchaser shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
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contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Article 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary, no Indemnifiable
Losses with respect to Taxes shall be settled without the prior written consent
of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and the Seller will contribute
to the aggregate Indemnifiable Losses to which the Purchaser, Newco, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and the Seller in connection with the statements or omissions
which resulted in such Indemnifiable Losses, as well as the relative benefit
received by the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and the Seller as a result of the issuance of the securities
to which such Indemnifiable Losses relate, it being understood that the parties
acknowledge that the overriding equitable consideration to be given effect in
connection with this provision is the ability of one party or the other to
correct the statement or omission which resulted in such Indemnifiable Losses,
and that it would not be just and equitable if contribution pursuant hereto were
to be determined by pro rata allocation or by any other method of allocation
which does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
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10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Seller until such time as, the aggregate of all claims (exclusive of fees
and expenses) which such persons may have against the Seller shall exceed
$47,500 (the "Indemnification Threshold"), whereupon such claims shall be
indemnified in full. The Seller shall not assert any claim for indemnification
hereunder against Purchaser, the Company, Newco or the Surviving Corporation
until such time as, the aggregate of all claims which the Seller may have
against Purchaser, the Company, Newco or the Surviving Corporation shall exceed
$47,500, whereupon such claims shall be indemnified in full. The limitation or
assertion of claims for indemnifications contained in this paragraph shall apply
only to claims based upon inaccuracies in, or breaches of, representations and
warranties contained in this Agreement or any document, instrument, certificate
or other item required to be furnished pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller shall not be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by the Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period, if applicable.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement
among the Company, the Seller, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.4(a), or if any of the Company's or the Seller's representations
or warranties contained in this Agreement were materially incorrect when
made or become materially incorrect;
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(c) at any time before the Closing, by the Seller holding a majority
of the Shares if any of the Purchaser's or Newco's representations or
warranties contained in this Agreement were materially incorrect when made
or become materially incorrect;
(d) at any time before the Closing, by the Seller holding a majority
of the Shares, on the one hand, or by the Purchaser, on the other hand,
upon any material breach by such other party's covenants or agreements
contained in this Agreement and the failure of such other party to cure
such breach, if curable, within ten (10) days after written notice thereof
is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days after the date of
this Agreement, by the Seller holding a majority of the Shares, on the one
hand, or by the Purchaser on the other hand, upon notification to the
non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, the Seller, Newco or the
Purchaser and all rights and obligations of each party to this Agreement shall
cease; provided, that (i) the provisions with respect to expenses in Section
16.4 shall indefinitely survive any such termination, (ii) the provisions with
respect to confidentiality of Section 8.1 shall survive any such termination
until it, by its own terms, is no longer operative; (iii) the provisions with
respect to exclusivity of negotiations of Section 5.9 shall survive for 180 days
after such termination, but only if the termination is made by Purchaser
pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
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ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Company or any such Subsidiary on or prior to the Closing Date
and shall permit the Seller or their respective representatives and agents
access to all such books and records, and to the Surviving Corporation's and its
Subsidiaries' employees and auditors for the purpose of obtaining information
relating to periods on or prior to the Closing Date, upon reasonable notice by
the Seller and on terms not disruptive to the business, operation or employees
of the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Seller 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 the Seller in this Agreement
or would affect any document delivered pursuant hereto in any material respect,
the Company and the Seller shall promptly give notice of such fact or
circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the Seller
makes a payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Seller or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Section 15 hereof, The Seller shall (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of (a) any shares of
DocuNet Common Stock received by the Seller pursuant to this Agreement, or (b)
any interest (including,
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without limitation, an option to buy or sell) in any such shares of DocuNet
Common Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose; or (ii) engage in any transaction, whether
or not with respect to any shares of DocuNet Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of DocuNet Common Stock acquired pursuant to this Agreement (including,
by way of example and not limitation, engaging in put, call, short-sale,
straddle or similar market transactions). The certificates evidencing the
DocuNet Common Stock delivered to the Seller pursuant to Section 2 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO FIRST ANNIVERSARY OF CLOSING
DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to be
delivered to the Seller pursuant to this Agreement have not been and will not be
registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and represents
that none of the shares of DocuNet Common Stock issued to the Seller will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES OR
BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE 1933
ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL
SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS
NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller party hereto or their respective purchaser
representatives have had an adequate opportunity to ask questions and receive
answers from the officers of the Purchaser concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
the Purchaser, the plans for the operations of the business of the Purchaser,
the business, operations and financial condition of the Founding Companies, and
any plans for additional acquisitions and the like. The Company and the Seller
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 15.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Seller and the Company acknowledge that such
draft is subject to completion and subject to change, and Seller and the Company
acknowledge that it or their respective purchaser representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and 15.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of the DocuNet Common
Stock; (ii) registrations of shares to be used as consideration for acquisitions
of additional businesses by the Purchaser; and (iii) registrations relating to
employee benefit plans, the Purchaser shall give the Seller prompt written
notice of its intent to do so. Upon the written request of the Seller given
within 30 days after receipt of such notice, Purchaser shall cause to be
included in such registration all of the DocuNet Common
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Stock which any the Seller requests. However, if the Purchaser is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by such persons) to a number deemed satisfactory by such managing
underwriter or such managing underwriter can eliminate the participation of all
such persons in the offering, provided that, for each such offering made by the
Purchaser after the Initial Public Offering, a reduction shall be made first by
reducing the number of shares to be sold by persons other than the Purchaser,
the Seller, the Founding Companies, the stockholders of the Founding Companies
and other stockholders (the "Other Stockholders") of the Company immediately
prior to the Initial Public Offering, and thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Sellers, the
Founding Companies, the stockholders of the Founding Companies and the Other
Stockholders, pro rata based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Seller.) shall be borne by the Purchaser. In connection with registrations under
Section 15.1, the Purchaser shall (i) prepare and file with the Securities and
Exchange Commission as soon as reasonably practicable, a registration statement
with respect to the DocuNet Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 90
days (or such shorter period during which holders shall have sold all DocuNet
Common Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the DocuNet Common Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the DocuNet Common Stock; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by the Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to the Seller.
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15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
UTZ Medical Enterprises, Inc.
1040 Wabash Avenue
Chesterton, IN 46304
with a copy to:
David Smelko
Rothbert & Logan
P.O. Box 11647
Fort Wayne, IN 46859-1647
(b) If to the Seller:
David C. Utz, Jr.
c/o UTZ Medical Enterprises, Inc.
1040 Wabash Avenue
Chesterton, IN 46304
with a copy to:
David Smelko
Rothberg & Logan
P.O. Box 11647
Fort Wayne, IN 46859-1647
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(c) If to the Purchaser or Newco:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Arthur Andersen LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be the
responsibility of Purchaser, provided that, notwithstanding the foregoing, the
Seller shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Seller, the Surviving Corporation and the
Purchaser shall, at his or its own expense, from time to time upon the request
of the other, execute and deliver, or cause to be executed and delivered, at
such times as may reasonably be requested by the Purchaser, the Surviving
Corporation or the Seller, such other documents, certificates and instruments
and take such actions as the Purchaser, the Surviving Corporation or the Seller
deem reasonably necessary to consummate more fully the transactions contemplated
by this Agreement. In addition, the Seller shall (i) provide or cause to be
provided such written information with respect to themselves or the Company,
(ii) execute and deliver or cause to be
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executed and delivered such other documents, certificates or instruments, and
(iii) take or cause to be taken such actions, in each of the foregoing cases, as
the Purchaser, the Surviving Corporation, any Underwriter or any auditor
reasonably deems necessary or desirable to complete any audit of either
Company's financial statements or in connection with any Purchaser Financing
Transaction; provided, that the Seller shall not be required to execute any
guaranty of any indebtedness obtained by the Purchaser or any of its
Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, the Seller nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
or Newco may assign its rights and obligations under this Agreement prior to the
Closing to any wholly-owned Subsidiary of the Purchaser or Newco; provided that
the DocuNet Common Stock to be issued in payment of a portion of the purchase
price shall be registered under Section 12 of the Securities Exchange Act of
1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the Seller, the Purchaser, Newco and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
AMMCORP ACQUISITION CORP.
By: /s/ S. David Model
_______________________________
Name:
Title:
UTZ MEDICAL ENTERPRISES, INC.
By: /s/ David C. Utz, Jr.
_______________________________
David C. Utz, Jr.
President
Witness: /s/ David C. Utz, Jr.
_______________________ _______________________________
David C. Utz, Jr. Individually
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Schedule 2.3
Officers of Surviving Corporation
---------------------------------
AMMCORP Acquisition Corp.
S. David Model President
Andrew R. Bacas Secretary
James Brown Treasurer
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Schedule 2.4
Capitalization
--------------
800 shares of Common Stock, no per value per share, owned by David C. Utz, Jr.
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Schedule 2.9
Distribution of Merger Consideration
------------------------------------
The Purchase Price shall consist of the number of shares of DocuNet Common
Stock equal to $_____________ divided by the Initial Public Offering Price. Of
such amount, __________ shares will be issued to David C. Utz, Jr. at Closing
and the remaining shares shall be paid to the Escrow Agent on Account of the
Escrow Amount. At Closing, Mr. Utz shall also receive an amount of cash equal to
$___________, less any adjustments included in Section 3.8 of this Agreement,
including the Debt Adjustment.
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Schedule 6.1(k)
___________ __, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to __________________, a ________________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ____________ , 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ______________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examine the [Certificate] [Articles] of Incorporation and Bylaws of
the Company. We have also made such examinations of laws, certificates of public
officials, instruments, documents, and corporate records and have made such
other investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Company and the Stockholders, (ii) the accuracy, completeness and authenticity
of all records and documents submitted to us as originals, (iii) the conformity
to the original of all documents submitted to us as certified, conformed or
photostatic copies, and (iv) the legal capacity of all natural persons who are
parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is lifted to the laws of the State of ______________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
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<PAGE>
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __ law, without regard
for principles of choice of law, and that such documents are being executed and
delivered and will be performed in, and that the applicable property is and will
be held in, the State of ______________ .
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
1. The Company is a corporation duly organized validly existing and in good
standing under the laws of the State of _________ and has all necessary
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby. The Seller owns the Shares of
the Company free and clear of any claims, liens and encumbrances and the Shares
of the Company are validly issued, fully paid and nonassessable, and were issued
in compliance with the laws of the State of Minnesota
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Company.
3. The Transaction Documents have been duly and validly executed by the
Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the
[Certificates] [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) to
effect of general] principles of equity, equitable defenses and the discretion
of the Court regarding the enforcement Of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
-80-
<PAGE>
Schedule 6.1(1)
Related Party Agreements
------------------------
None.
-82-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among David C. Utz, Jr. ("Seller"), DocuNet Inc., a
Pennsylvania corporation ("Purchaser") and ______ (the "Escrow Agent"). The
Purchaser, the Seller and the Escrow Agent are sometimes collectively referred
to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders and shall be entitled to all dividends paid
thereon.
-2-
<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in Article
2 of the Purchase Agreement, the Parties have specified a mechanism for the
final determination of the Purchase Price of the Company (the "Purchase Price
Provision"). The amounts that may be payable by the Seller to the Purchaser
under the Purchase Price Provision are herein called the "Covered Amounts." One
purpose of the Escrow Account is, to the extent herein provided, to provide a
source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure the
indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
<PAGE>
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
David C. Utz
With a copy to:
Rothberg & Logan
P.O. Box 11647
Fort Wayne, IN 46859-1647
Attention: David Snelko, Esquire
C. If to the Escrow Agent:
-5-
<PAGE>
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
one hundred eighty (180) days following the Closing whereupon all amounts and
shares of Common Stock then on deposit in the Escrow Account shall be paid and
delivered to the Seller; provided, however, that in the event there is an
asserted but unresolved claim ("Claim") pursuant to Article 2 or Article 10 of
the Purchase Agreement on such 180th day, then any combination of cash and
Common Stock (valued at the Share Value) equal, in combination, to the amount of
any and all such Claims shall remain in the Escrow Account. Such cash and/or
Common Stock so remaining in the Escrow Account shall remain subject to this
Agreement until the final resolution of the applicable Claim(s) that required
the retention of such cash and/or Common Stock; provided, however, that in all
events all Common Stock held in the Escrow Account shall be distributed to the
Seller within five (5) years from the Closing and, to the extent such Common
Stock is distributed, Seller shall replenish the Escrow Account with cash in a
like amount, valued at the Share Value.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
David C. Utz, Jr.
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
-7-
<PAGE>
EXECUTION
AGREEMENT PLAN OF REORGINIZATION
BY AND AMONG
OREGON MICRO-IMAGING, INC.
DOCUNET INC.
AND
OMI ACQUISITION CORP.
Dated September 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................11
2.1. Delivery and Filing of Articles of Merger.........................................................11
2.2. Effective Time of the Merger......................................................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation.............................................................................11
2.4. Certain Information with Respect to the Capital Stock of the
Company, Purchaser and Newco......................................................................11
2.5. Effect of Merger..................................................................................12
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.9. Delivery of Merger Consideration..................................................................18
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS...............................................................18
3.1. Organization; Qualification; Good Standing........................................................19
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................20
3.4. Enforceability....................................................................................21
3.5. Matters Affecting Shares; Title to Shares.........................................................21
3.6. Predecessor Status; etc...........................................................................21
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................21
3.9. Compliance with Laws..............................................................................22
3.10. Labor Matters.....................................................................................22
3.11. Employee Benefit Plans............................................................................23
3.12. Financial Statements..............................................................................25
3.13. Distributions.....................................................................................26
3.14. Absence of Undisclosed Liabilities................................................................26
3.15. Real Property.....................................................................................27
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
3.22. Regulatory Filings................................................................................33
3.23. Taxes and Tax Returns.............................................................................33
</TABLE>
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3.24. Investment Portfolio.............................................................................35
3.25. Affiliate Transactions...........................................................................36
3.26. Accounts, Power of Attorney......................................................................36
3.27. Receivables......................................................................................36
3.28. Officers and Directors...........................................................................36
3.29. Corporate Records................................................................................37
3.30. Brokers or Finders...............................................................................37
3.31. Customers........................................................................................38
3.32. Investment Company...............................................................................38
3.33. Absence of Changes...............................................................................38
3.34. Accuracy and Completeness of Information.........................................................39
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO...................................................40
4.1. Organization......................................................................................40
4.2. Authorization for Agreement.......................................................................40
4.3. Enforceability....................................................................................40
4.4. Litigation........................................................................................40
4.5. Registration Statement............................................................................40
4.6. Brokers or Finders................................................................................41
ARTICLE 5
COVENANTS...............................................................................................42
5.1. Good Faith........................................................................................42
5.2. Approvals.........................................................................................42
5.3. Cooperation; Access to Books and Records..........................................................42
5.4. Duty to Supplement................................................................................43
5.5. Information Required For Purchase Financing Transactions..........................................44
5.6. Performance of Conditions.........................................................................44
5.7. Conduct of Business...............................................................................45
5.8. Negative Covenants................................................................................46
5.9. Exclusive Negotiation.............................................................................48
5.10. Public Announcements..............................................................................49
5.11. Amendment of Schedules............................................................................49
5.12. Cooperation in Preparation of Registration Statement..............................................49
5.13. Examination of Final Financial Statement..........................................................50
5.13A.Audit Opinion.....................................................................................50
5.14. Lock-Up Agreements................................................................................50
</TABLE>
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5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"Hart-Scott Act")..............................................................................51
5.16. Transfer of Vehicles...........................................................................51
5.17. ...............................................................................................51
5.18. ...............................................................................................51
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING.........................................................................53
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................53
6.2. Conditions Precedent to Company's and Sellers' Obligations........................................55
ARTICLE 7
CLOSING.................................................................................................58
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE.............................................................59
8.1. Confidentiality...................................................................................59
8.2. Covenant Not To Compete...........................................................................60
8.3. Specific Enforcement; Extension of Period.........................................................61
8.4. Disclosure........................................................................................61
8.5. Interpretation....................................................................................61
8.6. Sellers' Acknowledgment...........................................................................62
ARTICLE 9
SURVIVAL................................................................................................62
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................62
9.2. Intentionally Omitted.............................................................................63
9.3. Underwriter's Benefit.............................................................................63
ARTICLE 10
INDEMNIFICATION.........................................................................................63
10.1. Sellers' Indemnification.........................................................................63
10.1A No Indemnification of Projected Information......................................................64
10.3. Payment; Procedure for Indemnification...........................................................64
10.4. Equitable Contribution Under the Securities Act..................................................67
10.5. Exclusiveness of Indemnification.................................................................67
10.6. Limitations on Indemnification...................................................................67
10.7. Value of DocuNet Common Stock....................................................................68
</TABLE>
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ARTICLE 11
TERMINATION AND REMEDIES................................................................................68
11.1. Termination......................................................................................68
11.2. Effect of Termination............................................................................69
ARTICLE 12
POST-CLOSING COVENANTS..................................................................................70
12.1. Maintenance and Access to Records................................................................70
12.2. Disclosure.......................................................................................70
12.3. Accounts Receivable..............................................................................70
12.4. Release of Liability.............................................................................70
ARTICLE 13
TRANSFER RESTRICTIONS...................................................................................71
13.1. Transfer Restrictions............................................................................71
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS.........................................................................71
14.1. Compliance with Law..............................................................................72
14.2. Economic Risk; Sophistication....................................................................72
ARTICLE 15
REGISTRATION RIGHTS.....................................................................................73
15.1. Piggyback Registration Rights....................................................................73
15.2. Registration Procedures..........................................................................73
15.3. Underwriting Agreement...........................................................................73
15.4. Availability of Rule 144.........................................................................74
15.5. Survival.........................................................................................74
ARTICLE 16
MISCELLANEOUS...........................................................................................74
16.1. Notices..........................................................................................74
16.2. No Third Party Beneficiaries.....................................................................76
16.3. Schedules........................................................................................76
16.4. Expenses.........................................................................................76
16.5. Further Assurances...............................................................................76
16.6. Entire Agreement; Amendment......................................................................76
16.7. Section and Paragraph Titles.....................................................................77
16.8. Binding Effect...................................................................................77
</TABLE>
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16.9. Counterparts....................................................................................77
16.10. Severability....................................................................................77
16.11. Governing Law...................................................................................77
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), OMI ACQUISITION CORP., a Pennsylvania corporation
("Newco"), OREGON MICRO-IMAGING, INC., an Oregon corporation (the "Company"),
Jane Semasko and John Semasko (individually, a "Seller", and together, the
"Sellers,").
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the Commonwealth of Pennsylvania, having been incorporated
solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Purchaser, a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to
this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Oregon;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with
each of the other Founding Companies (as defined herein) and their
respective stockholders in order to acquire additional document
management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein) constitute
the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
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IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4B. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.4. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.5. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.6. Balance Sheet Date shall mean July 31, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
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1.7. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.8. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.9. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.10. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.11. Closing shall have the meaning set forth in Article 7.
1.12. [Intentionally omitted.]
1.13. Closing Date shall mean the date on which the Closing actually takes
place.
1.14. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.15. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.16. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17. Common Stock shall mean the common stock, no par value per share, of
the Company.
1.18. Company Balance Sheet shall have the meaning set forth in Section
3.14.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the definition of
Confidential Information shall not include any information that (i) is in the
public domain at the time of disclosure to the Recipient or becomes part of the
public domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the
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time of disclosure to such Recipient, (iii) is contained in the Registration
Statement on Form S-1 to be filed by Purchaser in connection with the Initial
Public Offering or (iv) is disclosed to a party or Potential Founding Company by
any Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8.
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate
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(including, without limitation, health insurance, life insurance and other
benefit plans maintained for retirees) within the previous six plan years or
with respect to which contributions are or were (within such six year period)
made or required to be made by the Company or any ERISA Affiliate or with
respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Amount shall have the meaning set forth in Section 2.9(c).
1.29. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.30. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. Final Adjusted Working Capital Amount shall have the meaning set
forth in Section 2.8.
1.34. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
1.35. Financial Statements shall have the meaning set forth in Section
3.12(a).
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1.36. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.37. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.38. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.39. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.40. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.42. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.43. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.44. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.45. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-
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how relating to the Business, in each case together with any amendments,
modifications and supplements thereto.
1.46. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.47. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.48. IRS means the Internal Revenue Service or any successor organization
thereto.
1.49. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.48A. Leases shall mean the leases of Real Property with the material
terms and conditions set forth on Exhibit D attached hereto.
1.50. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.51. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.52. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.53. [Intentionally omitted.]
1.54. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
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1.55. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.56. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.57. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.58. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.59. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.60. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.61. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.62. Purchase Price shall have the meaning set forth in Section 2.8.
1.63. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.64. [Intentionally omitted.]
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.65. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
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1.66. Receivables shall have the meaning set forth in Section 3.27.
1.67. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.68. Related Companies shall have the meaning set forth in Section 8.2(a).
1.69. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.70. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.71. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.72. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.73. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.74. [Intentionally omitted.]
1.75. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.76. Shares shall mean shares of Common Stock of the Company.
1.77. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.78. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
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1.79. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.80. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.81. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.82. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.83. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.84. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.85. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.86. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.87. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
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ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Oregon and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By- laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such Bylaws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: John Semasko, Andy Bacas, Jane Semasko,
Bruce Gillis and S. David Model. The Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
Commonwealth of Pennsylvania and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
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(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and 10 million shares of preferred
stock, no par value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Oregon. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the Company shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into the Newco, and Newco, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of the Company shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
Company and Newco shall be taken and deemed to be transferred to, and vested in,
the Surviving Corporation without further act or deed; and all property, rights
and privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the Company and Newco, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the Company and Newco and any claim existing, or action or
proceeding pending, by or against the Company or Newco may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in their place. Neither the rights of creditors nor any liens upon the property
of the Company or Newco shall be impaired by the Merger, and all debts,
liabilities and duties of the Company and Newco shall attach to the Surviving
Corporation, and may be enforced against the Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
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As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined) and the Net Book Value of Assets and
Liabilities Adjustment (as hereinafter defined), on the terms and conditions set
forth below (the "Purchase Price"):
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(a) Base Purchase Price. The Base Purchase Price shall be Three
Million dollars ($3,000,000) (the "Base Purchase Price"), subject to
adjustments as set forth herein .
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 that the Company's Debt (as hereinafter
defined) reflected on the Company's Closing Balance Sheet exceeds $100,000
(the "Closing Debt Amount"). The Company's Debt shall mean all of the
Company's liabilities, contingent or otherwise, except Adjusted Current
Liabilities and Deferred Income Taxes appearing as a liability, in
accordance with GAAP. Notwithstanding the foregoing, there shall be no
reduction for up to $15,000 of such Debt that relates to a capitalized
lease for a van. The Company's Adjusted Current Liabilities shall mean all
of the Company's liabilities which would be classified as current
liabilities in accordance with GAAP, except current amounts of principal,
interest or penalties due and owing: (i) under promissory notes or lines of
credit to lending institutions; (ii) to an employee or an Affiliate of the
Company, or the Sellers; (iii) to a lessor under a capital lease; or (iv)
on account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Sellers' objection, if
any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Sellers' calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Sellers' CDA Objection,
the Purchaser will notify the Sellers whether it accepts or disputes the
Sellers' adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Sellers which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Sellers do not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Sellers' adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the "Final
Debt Amount"), if any, shall be paid by the Sellers to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value (as defined below) equal to such amount. The term "Value" in respect
of a share of DocuNet Common Stock shall mean the lower of the Initial
Public Offering Price and the average closing price of the DocuNet Common
Stock during the 20 trading-
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day period ending immediately prior to the applicable payment date. If the
Sellers object to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Sellers' proposed adjustments, then an
independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and the Sellers
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and the
Sellers shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Sellers and the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $400,000 on
the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current assets,
less: (i) the portion of trade receivables that are more than 100 days past
the original invoice date; (ii) an aggregate amount of Inventory exceeding
$450,000; (iii) promissory notes or other amounts due from employees or
Affiliates of the Company; and (iv) the Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing and in order to
verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing
Adjusted Working Capital Amount. The Accountants shall issue a report as to
their determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to the
Sellers no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Sellers shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Sellers' objection, if any, to the Accountants' CAWCA Report (the "Sellers'
CAWCA Objection") shall set forth in reasonable detail the Sellers'
objection(s) to the Accountants' CAWCA Report and the Sellers' calculation
of the Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Sellers' CAWCA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, if
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any, which notification shall set forth in reasonable detail the
adjustments made by the Sellers which the Purchaser continues to dispute
(the "Purchaser's CAWCA Response Notice"). If the Sellers do not object to
the Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Sellers' adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the "Final
Adjusted Working Capital Amount"), if any, shall be paid by the Sellers to
the Purchaser in immediately available funds within five (5) business days
of such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and the Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value (as defined below) equal to such amount. If the Sellers
object to the Accountants' CAWCA Report as set forth above and the
Purchaser does not accept the Sellers' proposed adjustments, then an
independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount, based
upon the calculations of the independent accountants, and any adjustments
of Base Purchase Price based on the amount determined as provided above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and the Sellers shall be obligated to replenish the Escrow Amount
by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to, providing such independent accountants with access to,
and copies of, all books and records that they shall reasonably request.
The Purchaser and the Sellers shall each bear one-half of all of the costs
and expenses of such independent accounting firm, and if the parties hereto
are unable to agree upon an independent accounting firm, the Sellers and
Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$775,000 on the Closing Date (the "Closing Net Book Value Amount"). The Net
Book Value of the Company's Acquired Assets and Liabilities shall mean the
tangible assets of the Company, less Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing, and in order
to verify the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing Net
Book Value Amount. The Accountants shall issue a report as to their
determination of the Closing Net Book Value Amount (the "Accountants' CNBVA
Report") promptly after their determination of such amount and
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the Purchaser shall deliver the Accountants' CNBVA Report to the Sellers
not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants shall
be conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CNBVA Report within fifteen (15) days following
their receipt of the Accountants' CNBVA Report. The Sellers' objection, if
any, to the Accountants' CNBVA Report (the "Sellers' CNBVA Objection")
shall set forth in reasonable detail the Sellers' objection(s) to the
Accountants' CNBVA Report and the Sellers' calculation of the Closing Net
Book Value Amount. Within ten (10) days after receipt of the Sellers' CNBVA
Objection, the Purchaser will notify the Sellers whether it accepts or
disputes the Sellers' adjustments, if any, which notification shall set
forth in reasonable detail the adjustments made by the Sellers which the
Purchaser continues to dispute (the "Purchaser's CNBVA Response Notice").
If the Sellers do not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Sellers' adjustments to the Accountants'
CNBVA Report, then the adjustment based on the then final Closing Net Book
Value Amount (the "Final Net Book Value Amount"), if any, shall be paid by
the Sellers to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and the Sellers shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. If the Sellers object to the Accountants' CNBVA Report as
set forth above and the Purchaser does not accept the Sellers' proposed
adjustments, then an independent accounting firm mutually satisfactory to
the Sellers and the Purchaser shall be engaged to determine the amount of
the Closing Net Book Value Amount and the Final Net Book Value Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount pursuant
to the Escrow Agreement and the Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either
cash in a like amount or a number of shares of DocuNet Common Stock having
an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Sellers shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from the Sellers to Purchaser on account of
the Working Capital
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Adjustment and the Net Book Value of Assets and Liabilities Adjustment, the
Sellers shall only be obligated to pay the greater of the two adjustment
amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.3(c), a number of
shares of DocuNet Common Stock, equal to (i) $1,530,000 (the "Stock
Purchase Price") divided by (ii) the Initial Public Offering Price, shall
be issued at Closing to Sellers in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto.
(b) Cash Purchase Price. An aggregate amount equal to The Base
Purchase Price less (i) the Stock Purchase Price and (ii) the reductions,
if any, to be made at Closing pursuant to Section 2.8(b), 2.8(c), 2.8(d)
and 2.8(e), shall be payable at the Closing in cash to the Sellers ("Cash
Purchase Price"). The specific amount of the Cash Purchase Price shall be
payable to each of the Sellers by a wire transfer to accounts to be
designated by the Sellers in writing not less than three (3) business days
prior to the Closing, such method of payment to be determined in the sole
discretion of Purchaser, in the individual amount for each Seller set forth
on Schedule 2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock having a Value equal to (i) $150,000 divided
by (ii) the Initial Public Offering Price, shall be delivered at Closing to
the Escrow Agent pursuant to the Escrow Agreement (the "Escrow Amount"), in
the individual amount for each Seller as indicated on Schedule 2.4 attached
hereto. The Escrow Amount shall be available to fund (but shall not be the
sole source of funding) any obligations of the Sellers under this Agreement
pursuant to the terms of the Escrow Agreement; provided, however, if the
amount of cash plus the value of the shares of DocuNet Common Stock (valued
at the Initial Public Offering Price) in the Escrow Amount falls below
$150,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional
cash or shares of DocuNet Common Stock to the Escrow Amount in an amount
necessary so that the amount of cash plus the value of the shares of Common
Stock (valued at the Initial Public Offering Price) in the Escrow Account
would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
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3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated and validly existing under the laws of the state of their
respective incorporation or organization, (ii) have the power and authority to
own and operate their respective properties and assets and to transact their
respective Businesses and (iii) except as set forth on the Disclosure Schedule,
are duly qualified and authorized to do business and are in good standing in all
jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon their respective Businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise). Listed in the Disclosure Schedule is a true and
complete list of all jurisdictions in which the Company or any of its
Subsidiaries is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or any of the Sellers, threatened against or affecting the Company
or any of its Subsidiaries revoking, limiting or curtailing, or seeking to
revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) except as set forth on the Disclosure
Schedule, contravene, violate or constitute, with or without the passage of time
or the giving of notice or both, a breach or default under, any Requirement of
Law applicable to the Company or any of its properties or any Contract to which
the Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
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Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
500 shares of a single class of common stock, having no par value per share, of
which 405 shares are issued and outstanding. All of the Shares are collectively
owned by the Sellers as set forth in the Capitalization Table. The Company does
not have any other authorized class or classes of securities of any kind,
whether debt or equity. All of the Shares are validly issued, fully paid and
non-assessable and have not been issued in violation of applicable securities
laws or of any preemptive rights or other rights to subscribe for, purchase or
otherwise acquire securities. The Company does not hold any shares of its
capital stock in its treasury or otherwise, and no shares of the Company's
capital stock are reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary owns or controls, directly or
indirectly, any debt, equity or other financial or ownership interest in any
other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
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(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
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(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Company or any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the Company or
any of its Subsidiaries, as the case may be. Neither the Company nor any of the
Sellers have knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such
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employee's position or function, the rate of hourly, monthly or annual
compensation (as the case may be) paid or to be paid to such employee in 1995,
1996 and, to the extent known, 1997, any accrued sick leave or pay or vacation
and any incentive or bonus arrangement with respect to any such employee. Except
as is set forth in the Disclosure Schedule, since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its employees or the rate of compensation payable to its employees.
The Disclosure Schedule also identifies those employees with whom the Company or
any of its Subsidiaries has entered into an employment Contract or a Contract
obligating the Company or any such Subsidiary to pay severance or similar
payments to any employee. The Company and the Sellers have delivered or caused
to be delivered to the Purchaser and Newco true and complete copies of such
Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) Except as set forth in the Disclosure Schedule, there is no, and since
January 1, 1992 there has been no, work stoppage, strike, slowdown, picketing or
other labor disturbance or controversy by or with respect to any of the
employees of the Company or any of its Subsidiaries. Except as set forth in the
Disclosure Schedule, in addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Sellers'
knowledge, is threatened. Except as set forth in the Disclosure Schedule, there
is no claim or petition pending before, and at no time since January 1, 1992 has
there been, any claim or petition made to, any Governmental or Regulatory
Authority including, without limitation, the National Labor Relations Board or
the Equal Employment Opportunity Commission against the Company or any of its
Subsidiaries with respect to any labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan (except that such disclosure shall
only include those items in subparagraph (ii) of the definition of Employee
Benefit Plan for the last three years). With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
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including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Company or any of their respective Subsidiaries to
any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
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(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the Company's consolidated balance sheets as
of October 31, 1995 and 1996 and July 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the years or periods then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the financial position of the
Company and its Subsidiaries as of the date of such Financial Statements and the
results of operations and changes in shareholders' equity and cash flows for the
periods covered thereby.
(b) [Intentionally Omitted.]
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its
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Subsidiaries to operate, their respective Businesses in the normal and ordinary
course in a manner consistent with past practices, (ii) there has been no
development, event, condition, or circumstance that has had, or could reasonably
be expected to have, a Material Adverse Effect upon the Company or any of its
Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither the
Company nor any of its Subsidiaries has made or committed to make any capital
expenditure or capital addition or betterments in excess of an aggregate of
$10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company and
its Subsidiaries at July 31, 1997 including, without limitation, all notes
thereto, prepared in accordance with GAAP (the "Company Balance Sheet"), neither
the Company nor any of its Subsidiaries has any liabilities or obligations,
whether direct or indirect, matured or unmatured, contingent or otherwise,
except for liabilities or obligations that were incurred consistently with past
business practice in or as a result of the normal and ordinary course of
business since July 31, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts relating to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment
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Contracts, subordination Contracts or similar Contracts, and all other Contracts
affecting or relating to the use and quiet and peaceful enjoyment of the Real
Property) to which the Company or any of its Subsidiaries is a party or is
otherwise bound or subject, and, in each case, all amendments thereof, which
relate to or affect any of the Real Property. Except for the leases pertaining
to the Real Property identified in and attached to the Disclosure Schedule, none
of the Sellers, the Company or any of its Subsidiaries is a party to any
Contract that commits or purports to commit the Company or any of its
Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
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(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Company or any
Subsidiary has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Company would require
additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Tangible Personal Property, (iii) is free of all Adverse Claims and
(iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
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has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
nine-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
nine-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
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(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Sellers,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of
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the following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and neither the Company nor any of
its Subsidiaries has received any notice of any increase in premiums or of any
cancellation, non-renewal or termination in respect of any such policy. None of
the Company or any of its Subsidiaries are in default under any such policy in
any respect. To the knowledge of the Company or any of the Sellers, no such
insurer is the subject of insolvency proceedings. Neither the Company nor the
Person to whom any such insurance policy has been issued has received notice
that any insurer under any policy referred to in the Disclosure Schedule is
denying liability with respect to a claim thereunder or defending under a
reservation of rights clause. Each of the Company and its Subsidiaries has
notified its insurance carriers of all litigation and claims and facts which
could reasonably be expected to give rise to a claim, all of which are disclosed
in the Disclosure Schedule (including worker's compensation claims). The
liability insurance maintained by the Company is and has at all times prior to
the date of this Agreement been on an "occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's or any of the Sellers'
knowledge, is there a basis for such a notice. To the Company's and all of the
Sellers' knowledge, no Person is infringing the Company's or any of its
Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule,
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neither the Company nor any of its Subsidiaries has granted any license or other
right to use, in any manner, any of the Intellectual Property, whether or not
requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth
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the nature of the proceeding, the type of Tax Return, the deficiencies proposed
or assessed and the amount thereof, and the taxable year in question), no Legal
Proceeding or audit or similar foreign proceedings is pending with regard to any
of the Company's or any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to
make, nor is any of them required to make, any adjustment under Section 481(a)
of the Code for any period ending after the Closing Date by reason of a change
in accounting method or otherwise and neither the Company nor any of its
Subsidiaries has any knowledge that the IRS has proposed such adjustment or
change in accounting method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
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(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of any
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or
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money manager, brokerage house and similar institution in which the Company or
any of its Subsidiaries maintains any account (whether checking, savings,
investment, trust or otherwise), lock box or safe deposit box (collectively, the
"Accounts"), and the account numbers and name of the Persons having authority to
affect transactions with respect thereto or other access thereto. The Disclosure
Schedule also sets forth the name of each person, corporation, firm or other
entity holding a general or special power of attorney from the Company or any
Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
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(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Brokers or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or Newco for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Company, its Subsidiaries or the Sellers.
Without degradation to any of the foregoing, the Company, its Subsidiaries and
the Sellers are solely responsible for the payment of the commissions, fees and
other compensation payable to the Person having any such right, interest or
claim on account of any action on the part of the Company, its Subsidiaries or
the Sellers, including, without limitation, the Persons identified on the
Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1995, 1996 and 1997 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
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3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
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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 transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and Newco and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of its properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the Sellers or any of the other Founding Companies, such
representation and warranty shall be deemed based on the knowledge of the
Purchaser.
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4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
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ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with Newco and the Purchaser
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and each
of its Subsidiaries to, afford to the Purchaser, Newco and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in their discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and each
of the Sellers will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser and Newco in connection with such
investigation, access and examination. The results of such
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investigation and examination is for the Purchaser and Newco's sole benefit, and
shall not (i) impair or reduce any representation or warranty made by the
Company or the Sellers in this Agreement, (ii) relieve the Company or any Seller
from its or his or her obligations with respect to such representations and
warranties (including, without limitation, the Sellers' obligations under
Article 10), or (iii) mitigate the Company's and the Sellers' obligations to
otherwise disclose all material facts to the Purchaser and Newco with respect to
the Company, each of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Company and Sellers to make such investigation and examination of the
business and properties of the Purchaser and any of its Subsidiaries as the
Company and Sellers, in their discretion, shall deem necessary, appropriate, or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. Purchaser will cause each
of its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for the Company's and Sellers'
sole benefit, and shall not (i) impair or reduce any representation or warranty
made by the Purchaser in this Agreement, (ii) relieve the Purchaser from its
obligations with respect to such representations and warranties (including,
without limitation, the Purchaser's obligations under Article 10), or (iii)
mitigate the Purchaser's obligations to otherwise disclose all material facts to
the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
or Newco may exercise its termination right, it must afford the Company and
Sellers the opportunity to cure the matter giving rise to the termination right
(but for no longer than five
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days following the date Purchaser or Newco notifies the Company or Seller of its
intent to terminate) unless, in the judgement of the managing underwriter of the
Initial Public Offering, any such cure period might adversely affect the Initial
Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser and Newco with the following information:
(a) the Company's audited consolidated balance sheet as of July 31, 1997
and the related statements of operations, shareholders' equity and cash flows
for the nine months then ended, together with all proper exhibits, schedules and
notes thereto, audited by Arthur Andersen LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Company and its Subsidiaries for the year
then ended and the results of operations and changes in shareholders' equity and
cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser,
Newco or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that
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are necessary or advisable for the Sellers, Newco and the Purchaser to
consummate the transactions contemplated by this Agreement including, without
limitation, all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact
the Company's and each such Subsidiary's business relationships with its
agents, customers, employees, creditors and others with whom the Company or
each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets,
properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to
the profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns
when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by
GAAP have been established;
(g) to maintain in full force and effect all policies of insurance
adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies
of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which
the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
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(i) to maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which
consent shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or
any such Subsidiary's certificate or articles of incorporation, by-laws or
any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or
lease any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any
Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings
or otherwise create, incur, assume or guaranty any indebtedness (except for
the endorsement of negotiable instruments for deposit or collection or
similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or
indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course
of business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant
to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on
any of the Company's or any of its Subsidiaries' assets or the incurrence
by the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of Ten
Thousand Dollars ($10,000) and cause the aggregate commitment under all
such new Contracts to exceed One Hundred Thousand Dollars ($100,000), or
(ii) involve a term of more than one (1) year;
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(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide,
combine, change or purchase any of the Company's or any of its Subsidiary's
shares, notes or other securities, whether debt or equity, or make any
Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of any Seller, the
Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate;
(j) declare or pay any dividend, distribution or payment in respect
of, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement
or other acquisition of, any of the Company's or obligations of the Company
or any of its Subsidiaries, or pay any royalty or management fee;
(k) pay any royalty or management fee;
(l) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(m) merge or consolidate, or agree to merge or consolidate, with or
into any other Person or acquire or agree to acquire or be acquired by any
Person;
(n) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any
of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out
assets in the normal and ordinary course of business;
(o) (i) change any of its methods of accounting in effect as at the
Balance Sheet Date, or (ii) make or rescind any express or deemed election
relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation
of income Tax Returns for the taxable year ended October 31, 1996, except,
in either case, as may be required by any applicable Requirement of Law,
the IRS or GAAP;
(p) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate
of $10,000;
(q) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited
transaction" involving any Employee Benefit Plan, (iii) fail to pay to any
Employee Benefit Plan any contribution which it is
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obligated to pay under the terms of such Employee Benefit Plan, whether or
not such failure to pay would result in an "accumulated funding deficiency"
or (iv) allow or suffer to exist any occurrence of a "reportable event" or
any other event or condition, which presents a material risk of termination
by the PBGC of any Employee Benefit Plan. As used in this Agreement, the
terms "accumulated funding deficiency" and "reportable event" shall have
the respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA;
(r) enter into any transaction or conduct any operations not in the
normal and ordinary course of business;
(s) enter into any Contract or make any commitment to do any of the
foregoing; or
(t) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser,
Newco, a Potential Founding Company or their representatives) with a view to
sell, exchange or dispose or solicit an offer for the acquisition of any of the
Shares or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
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5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided that no amendment or supplement to the
Disclosure Schedule prepared by the Company that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect shall be effective
unless the Purchaser consents to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 6 and 7 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 5.11. Except as otherwise provided herein, no amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement in connection with the
Initial Public Offering (the "Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser and the Underwriters in the preparation of, any
registration statement (or similar document) relating to the Purchaser Financing
Transaction and the prospectus (or similar document) included therein (including
audited financial statements, prepared in accordance with generally accepted
accounting principles). The Company and the Sellers agree promptly to advise the
Purchaser if at any time during the period in which a prospectus relating to the
Purchaser Financing Transaction is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Sellers becomes incorrect or incomplete in any material respect, and to provide
the information needed to correct such inaccuracy. The Purchaser agrees to use
its commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Seller with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as practicable prior to such filing (it being understood that
neither the Seller nor the Shareholder has any obligation to review the same
other than with respect to information regarding the Company or the Sellers) and
to diligently seek to cause the Registration Statement to be declared effective
and the Initial Public Offering to be completed. The Purchaser agrees that
neither the Seller nor the Shareholder shall have any responsibility for pro
forma adjustments that may be made to the Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
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particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters.
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Neither the Company nor the Sellers, without the prior written consent of the
Underwriters, shall exercise any demand, mandatory, piggyback, optional or any
other registration rights, if any such rights exist, for a period of 180 days
from the Effective Date. The Company and each Seller agree that the foregoing
shall be binding upon their transferees, successors, assigns, heirs and personal
representatives and shall benefit and be enforceable by the underwriters in the
Initial Public Offering. In furtherance of the foregoing, the Purchaser and its
transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.15.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Hart-Scott
Act to be made. If filings under the Hart-Scott Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
5.16. Transfer of Vehicles. The Sellers and the Company hereby acknowledge
and agree that the Company will transfer the vehicles listed on the Disclosure
Schedule to the Sellers prior to the Pricing Date and that Sellers will, at the
time of such transfer, assume all outstanding liabilities of the Company in
connection with such vehicles.
5.17. Leases. Sellers and the Purchaser shall enter into the Leases prior
to Closing.
5.18. Foreign Qualification. The Company shall become qualified to do
business as a foreign corporation in the State of Washington.
5.19. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
as a reorginization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Company and each of
the Sellers shall deliver to the Purchaser and Newco a certificate dated
the Closing Date, certifying that all of the Company's and the Sellers'
representations and warranties contained in this Agreement are true and
correct on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of
the Sellers shall have performed and complied in all material respects with
each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Company and each of the Sellers, as the
case may be, at or prior to the Closing Date. The Company and each of the
Sellers shall deliver to the Purchaser and Newco a certificate, dated the
Closing Date, certifying that the Company and the Sellers have fully
performed and complied in all material respects with all the duties,
obligations and conditions required by this Agreement to be performed and
complied with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and each of the Sellers shall
have delivered to the Purchaser and Newco all documents, certificates,
instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him or it at or prior
to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all
Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been
made under Section 2.2(b) and (ii) Debt which constitutes an Adjusted
Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to the
Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the
Books and Records and with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments) and
presents fairly the financial position of the Company as of the Closing
Date.
(h) No Material Adverse Change. From and after the date of this
Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or
any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser or Newco to consummate
the Merger; (ii) imposing or seeking to impose limitations on the ability
of the Purchaser or Newco's to combine and operate the business, operations
and assets of the Company or any of the Company's Subsidiaries with the
Purchaser or Newco's business, operations and assets; (iii) imposing or
seeking to impose other sanctions, damages or liabilities arising out of
the transactions contemplated by this Agreement on the Purchaser, Newco or
any of the Purchaser's or Newco's directors, officers or employees; (iv)
requiring or seeking to require divestiture by the Purchaser or Newco of
all or any material portion of the business, assets or property of the
Company or any of its Subsidiaries; or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Company's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed to
such certificate, (D) the resolutions by the Company's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate); (ii) setting forth
the
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Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or
lease of property or the conduct of its business requires it to qualify to
do business, except for those jurisdictions where the failure to be duly
qualified, authorized and in good standing would not have a Material
Adverse Effect upon the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) on
the Company. The certification referred to above in (iii) shall attach
certificates of existence certified by the Secretaries of State or other
appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Sellers. Hershner Hunter Andrews Neill &
Smith, LLP, counsel for the Company and the Sellers, shall have delivered
to the Purchaser and Newco their favorable opinion, dated the Closing Date,
as to the matters covered in Schedule 6.1(k). In rendering such opinion,
counsel may rely to the extent recited therein on certificates of public
officials and of officers of the Sellers as to matters of fact, and as to
any matter which involves other than federal or Oregon law, such counsel
may rely upon the opinion of local counsel reasonably satisfactory to the
Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and the Sellers, Affiliates of the Company or Sellers,
other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on Schedule
6.1(m) shall have entered into an employment agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers
shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Sellers or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. Each Seller shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing
Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed
the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
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(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be
true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties that by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Purchaser and Newco
shall each deliver to the Sellers a certificate executed by a duly
authorized officer of the Purchaser and Newco, respectively, and dated as
of the Closing Date, certifying that all of its representations and
warranties contained in this Agreement are true and correct on and as of
the Closing Date as though such representations and warranties had been
made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco
shall each have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by them at or prior to the Closing Date. The
Purchaser and Newco shall each deliver to the Sellers a certificate, dated
the Closing Date, certifying that each of them has fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have
delivered to the Sellers all documents, certificates, instruments and items
required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Sellers to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the
Company or any of its Subsidiaries or any of their respective directors,
officers or employees or on any of the Sellers; or (iii) restraining,
enjoining or prohibiting or seeking to restrain, enjoin or prohibit the
consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m)
substantially in the form of Exhibit C attached hereto.
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's, as the case may be, articles
or certificate of incorporation attached to the certificate is true,
correct and
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complete, (B) no amendment to such articles or certificate of incorporation
has occurred since the date of the last amendment annexed (such date to be
specified), (C) a true and correct copy of the Such entity's bylaws as in
effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the entity's board of directors authorizing the actions
taken in connection with the Merger, including as applicable, without
limitation, the execution, delivery and performance of this Agreement were
duly adopted and continue in force and effect (a copy of such resolutions
to be annexed to such certificate) and (ii) setting forth the incumbent
officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on
behalf of the Such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers
of Purchaser as to matters of fact, and such opinion may be limited to
federal laws and the laws of the Commonwealth of Pennsylvania.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Oregon in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, Hamilton &
Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA
19103. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Sellers shall be entitled to receive pursuant to the
Merger referred to in Section 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Section 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated June 19, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
and Newco's consummation of the Merger, each of the Sellers shall not, during
the Restricted Period, do any of the following, directly or indirectly, without
the prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in
any business conducted by Purchaser or a Subsidiary (the "Restricted
Business") within any geographic area located within the United States of
America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in
this Section 8.2(b) shall prohibit any Seller from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of
any class of any publicly-traded securities of any publicly held Company
listed on a well-recognized national securities exchange or on an
interdealer quotation system of the National Association of Securities
Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt
to do any of the foregoing, in each case within the Restricted Area, with
respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser, the
Company, or any of their respective Related Companies, (B) suppliers or
vendors or prospective suppliers or vendors (wherever located) to supply
materials, resources or services to be used in connection with goods or
services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate
or modify any contract, arrangement or relationship with the Purchaser, the
Surviving Corporation, the Company or any of their respective Related
Companies or (D) employees (other than family members) to leave the employ
of the Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies.
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8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledge that any breach or threatened breach by
him or her of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Surviving Corporation, the Company and
their respective Related Companies for which monetary damages would not be an
adequate remedy. Accordingly, the Purchaser, the Surviving Corporation, the
Company and any of their respective Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Sellers shall, in any action or proceeding to so enforce
any provision of this Article 8, assert the claim or defense that an adequate
remedy at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Company or any of their respective Related Companies may be
entitled, whether existing under this Agreement, at law or in equity, all of
which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Sellers may, directly or indirectly, breach or
threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such
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jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or any of their respective Related
Companies, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits to justify such restrictions. Each
of the Sellers also acknowledges and understands that these restrictions are
reasonably necessary to protect the Purchaser's, the Surviving Corporation's,
the Company's and their respective Related Companies' interests, and each Seller
does not believe that such restrictions will prevent him from earning a living
in businesses that are not competitive with those of the Purchaser, the Company
or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company and the Purchaser contained in this
Agreement shall survive until the second anniversary of the Closing Date, except
that the representations and warranties set forth in each of Section 3.11,
Section 3.20, Section 3.23 and Section 3.28 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Sellers, the Company, and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Sellers or the Company in this Agreement
or any written information furnished or caused to be furnished by any of the
Sellers or the Company to the Purchaser that is incorporated in, or is the basis
for omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
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9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder, shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation, and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or any of the
Sellers under this Agreement or any document, instrument, certificate or other
item required or to be furnished to the Purchaser pursuant hereto or thereto or
in connection with the transactions contemplated by this Agreement; (ii) any
untrue statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by the Company or any of the Sellers pursuant to this Agreement or upon any
untrue statement or omission contained in any written information furnished or
caused to be furnished by any of the Sellers to the Purchaser or Newco (provided
that the Sellers and the Company hereby acknowledge that the information
concerning the Sellers and the Company provided by them for use in the
Registration Statement shall be deemed to be provided to the Purchaser and Newco
for the purposes hereof); (iii) any liability or obligation of any of the
Sellers, the Company or any of its Subsidiaries other than Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and
Debt which does not constitute an Adjusted Current Liability; (iv) any liability
for payment of Taxes that accrued or relate to the period of time prior to the
Closing Date; (v) any non-compliance with applicable
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Requirements of Law relating to bulk sales, bulk transfers and the like or to
fraudulent conveyances, fraudulent transfers, preferential transfers and the
like; (vi) any action, claim or demand by any holder of the Company's
securities, whether debt or equity, in such holder's capacity as such, whether
now existing or hereafter arising or incurred; (vii) any non-compliance with the
Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended,
and the rules and regulations promulgated thereunder and any similar Requirement
of Law; and (viii) any Legal Proceeding or Order arising out of any of the
foregoing even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco, and the Surviving Corporation shall indemnify and hold
harmless the Sellers and each of their respective legal representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably
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sufficient information to enable the Indemnifying Party to determine the
accuracy and nature of the claimed Indemnifiable Loss (the "Indemnity Notice").
The failure of any Indemnified Party to give the Indemnifying Party the
Indemnity Notice shall not release the Indemnifying Party of liability under
this Article 10; provided, however that the Indemnifying Party shall not be
liable for Indemnifiable Losses incurred by the Indemnified Party that would not
have been incurred but for the delay in the delivery of, or the failure to
deliver, the Indemnity Notice. Within thirty (30) days after the receipt by the
Indemnifying Party of the Indemnity Notice, the Indemnifying Party shall either
(i) pay to the Indemnified Party an amount equal to the Indemnifiable Loss or
(ii) object to such claim, in which case the Indemnifying Party shall give
written notice to the Indemnified Party of such objection together with the
reasons therefor, it being understood that the failure of the Indemnifying Party
to so object shall preclude the Indemnifying Party from asserting any claim,
defense or counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not relieve the
Indemnifying Party from its obligations under this Article 10. In the event, in
and of itself, that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, within fourteen (14) days after obtaining sufficient information to
articulate such grounds, give written notice to the applicable Indemnifying
Party thereof, together with such information as is reasonably sufficient to
describe the potential or contingent claim to the extent then feasible (an
"Unliquidated Indemnity Notice"). The failure of an Indemnified Party to give
the Indemnifying Party the Unliquidated Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Unliquidated Indemnity Notice.
Within sixty (60) days after the amount of such claim shall be finalized,
resolved, or liquidated, the Indemnified Party shall give the Indemnifying Party
an Indemnity Notice, and the Indemnifying Party's obligations under this Article
10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or sixty (60) days after receiving notice of the existence of a claim
or demand giving rise to the claim for indemnification (which shall include a
notice from any Governmental Authority of an intent to audit with respect to
Taxes), shall send written notice of such claim to the Indemnifying Party (the
"Claim Notice"). The failure of the Indemnified Party to give the Indemnifying
Party the Claim Notice shall not release the Indemnifying Party of liability
under this Article 10; provided, however, that the Indemnifying Party shall not
be liable for Indemnifiable Losses incurred by the Indemnified Party that would
not have been incurred but for the delay in the delivery of, or the failure to
deliver, the Claim Notice. Subject to the provision contained in the third
sentence immediately following this sentence, and
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except for claims resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Indemnifying Party
shall be entitled to defend such claim in the name of the Indemnified Party at
its own expense and through counsel of its own choosing; provided, that if the
applicable claim or demand is against, or if the defendants in any such Legal
Proceeding shall include, both the Indemnified Party and the Indemnifying Party
and the Indemnified Party reasonably concludes that there are defenses available
to it that are different or additional to those available to the Indemnifying
Party or if the interests of the Indemnified Party may be reasonably deemed to
conflict with those of the Indemnifying Party, then the Indemnified Party shall
have the right to select separate counsel and to assume the Indemnified Party's
defense of such claim, demand or Legal Proceeding, with the reasonable fees,
expenses and disbursements of such counsel to be reimbursed by the Indemnifying
Party as incurred. The Indemnifying Party shall give the Indemnified Party
notice in writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled to
defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in
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this Section 10.3(c), and the Indemnifying Party shall continue to be liable to
the full extent of such litigation or claim and provided further, that
notwithstanding any provision to the contrary, no Indemnifiable Losses with
respect to Taxes shall be settled without the prior written consent of the
Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, and the Company,
or any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, Newco, the Surviving
Corporation, the Company, and the other Persons or entities indemnified pursuant
to Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed (the "Indemnification Threshold"),
whereupon such claims shall be indemnified in full. Sellers shall not assert any
claim for indemnification hereunder against Purchaser, Newco, the Surviving
Corporation or the Company until such time as the aggregate of all claims which
Sellers may have against Purchaser or the Company shall exceed $30,000,
whereupon such claims shall be indemnified in full. The limitation or assertion
of claims for indemnification contained in this
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paragraph shall apply only to claims based upon inaccuracies in, or breaches of,
representations and warranties contained in this Agreement or any document,
instrument, certificate or other item required to be furnished pursuant to this
Agreement or in connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement
among the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.4(a), or if any of the Company's or any of the Sellers'
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority
of the Shares if any of the Purchaser's or Newco's representations or
warranties contained in this Agreement were materially incorrect when made
or become materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority
of the Shares, on the one hand, or by the Purchaser, on the other hand,
upon any material breach by such other party's covenants or agreements
contained in this Agreement and the failure of such
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other party to cure such breach, if curable, within ten (10) days after
written notice thereof is given by the non-breaching party to the breaching
party; or
(e) at any time after the date which is 270 days after the date of
this Agreement, by the Sellers holding a majority of the Shares, on the one
hand, or by the Purchaser on the other hand, upon notification to the
non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Surviving Corporation or any such Subsidiary on or prior to
the Closing Date and shall permit the Sellers or their respective
representatives and agents access to all such books and records, and to the
Surviving Corporation's and its Subsidiaries' employees and auditors for the
purpose of obtaining information relating to periods on or prior to the Closing
Date, upon reasonable notice by the Sellers and on terms not disruptive to the
business, operation or employees of the Purchaser, the
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Surviving Corporation or any of their respective Subsidiaries, to assist the
Sellers in (i) completing any tax or regulatory filings or financial statements
required or appropriate to be made by the Sellers after the Closing Date or in
completing any other reasonable and customary business objective, (ii)
prosecuting or defending on behalf of the Sellers, the Company or any of its
Subsidiaries any litigation controlled by the Sellers or (iii) complying with
requests made of any of the Sellers by any Taxing Authority or any Governmental
or Regulatory Authority conducting an audit, investigation or inquiry relating
to the Company's or any of its Subsidiaries' activities during periods prior to
the Closing Date. Each of the Sellers will hold all information provided to them
pursuant to this Section 12.1 (and any information derived therefrom) in
confidence to the same extent as required by Section 8.1 of this Agreement with
respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the Sellers
makes a payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
12.4. Release of Liability. The Purchaser shall use its best commercial
efforts to release Sellers from all liability under the Key Bank debt; to the
extent not released Purchaser shall repay all outstanding amounts under such
debt.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Section 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers
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pursuant to Section 2 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as the Purchaser may
deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by such Sellers pursuant to this Agreement
is being acquired solely for their own respective accounts, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") OR ANY STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
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NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS, IN
THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that they
or their respective purchaser representatives have had an adequate opportunity
to ask questions and receive answers from the officers of the Purchaser
pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and 15.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of the DocuNet Common
Stock; (ii) registrations of shares to be used solely as consideration for
acquisitions of additional businesses by the Purchaser and (iii) registrations
relating to employee benefit plans, the Purchaser shall give each of the Sellers
prompt written notice of its intent to do so. Upon the written request of any of
the Sellers given within 30 days after receipt of such notice, Purchaser shall
cause to be included in such registration all of the DocuNet Common Stock which
any such Seller requests. However, if the Purchaser is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons
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(based upon the number of shares held by such persons) to a number deemed
satisfactory by such managing underwriter or such managing underwriter can
eliminate the participation of all such persons in the offering, provided that,
for each such offering made by the Purchaser after the Initial Public Offering,
a reduction shall be made first by reducing the number of shares to be sold by
persons other than the Purchaser, the Sellers, the Founding Companies, the
stockholders of the Founding Companies and other stockholders (the "Other
Stockholders") of the Company immediately prior to the Initial Public Offering,
and thereafter, if a further reduction is required, by reducing the number of
shares to be sold by the Sellers, the Founding Companies, the stockholders of
the Founding Companies and the Other Stockholders, pro rata based upon the
number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
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ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
Oregon Micro-Imaging, Inc.
1790 West 11th Avenue
Eugene, OR 97402
Attn: John Semasko
with a copy to:
William Potter
Hershner, Hunter, Andrews,
Neill & Smith, LLP
180 East 11th Avenue
P.O. Box 1475
Eugene, Oregon 97440
(b) If to any of the following Sellers:
(i) If to John Semasko:
John Semasko
c/o Oregon Micro-Imaging, Inc.
1790 West 11th Avenue
Eugene, OR 97402
(ii) If to Jane Semasko:
Jane Semasko
c/o Oregon Micro-Imaging, Inc.
1790 West 11th Avenue
Eugene, OR 97402
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with a copy to:
William Potter
Hershner, Hunter, Andrews,
Neill & Smith, LLP
180 East 11th Avenue
P.O. Box 1475
Eugene, Oregon 97440
(c) If to Newco or the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Attn: Bruce Gillis
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Arthur Andersen LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be
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the responsibility of Purchaser, provided that, notwithstanding the foregoing,
Sellers shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his, her or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Sellers, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Sellers deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Sellers shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
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<PAGE>
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, each of the Sellers, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
____________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
OMI ACQUISITION CORP.
By: /s/ S. David Model
____________________________
S. David Model
President
OREGON MICRO-IMAGING, INC.
By: /s/ John Semasko
_____________________________
John Semasko
President
Witness: /s/ John Semasko
_______________________ _______________________________
John Semasko, Individually
Witness: /s/ Jane Semasko
_______________________ _______________________________
Jane Semasko, Individually
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Schedule 6.1(k)
_______________ _, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to Oregon Micro-Imaging, Inc., an Oregon
corporation (the "Company"), in connection with the transactions contemplated by
that certain Stock Purchase Agreement dated as of _________________ , 1997 (the
"Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and Jane Sernasko and John Seluasko
("Stockholders"). This opinion is finished to you pursuant to Section 6.1 (k) of
the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Company.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Company and the Stockholders, (ii) the accuracy, completeness and authenticity
of all records and documents submitted to us as originals, (iii) the conformity
to the original of all documents submitted to us as certified, conformed or
photostatic copies, and (iv) the legal capacity of all natural persons who are
parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
<PAGE>
Our opinion is limited to the laws of the State of Oregon and the federal
laws of the United States and we do not purport to express any opinion herein
with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law For purposes of this opinion, we have assumed,
with your permission. that such clauses selected Oregon law, without regard for
principles of choice of law, and that such documents are being executed and
delivered and will be performed in, and that the applicable property is and Will
be held in, the State of Oregon.
This Opinion also assumes:
1. that Purchaser has satisfied all necessary legal requirements applicable
to it and has all necessary corporate authority to enter unto the Transaction
Documents and to consummate the transactions contemplated therein;
2. that the Purchaser has negotiated the Transaction Documents and will
exercise its rights and remedies thereunder and under applicable law in good
faith with fair dealing and in a commercially reasonably manner;
3. that the Purchaser does not have knowledge of any defense against the
enforcement of the Transaction Documents;
4. that there has not been any mutual mistake of fact or misunderstanding,
fraud, duress, or undue influence; and
5. that there are no agreements or understandings among the parties,
written or oral, and there is no usage of trade or course of prior dealing among
the parries that would in either case define, supplement, or qualify any terms
of the Transaction Documents.
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Oregon and has all necessary corporate power and
authority to enter into the Transaction Documents and to consummate the
transactions contemplated thereby to the extent that it is a party thereto.
2 The execution, delivery and performance of the Transaction Documents have
been duly authorized by all requisite corporate action on the part of the
Company.
3. The Transaction Documents have been duly and validly executed by the
Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, to the extent
that it is a party thereto, and are enforceable against them in accordance with
their respective terns, to the extent that they are parties thereto.
<PAGE>
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Company.
This opinion is provided to you as a legal opinion only, and not as a
guaranty or warranty of the matters discussed herein. and no other opinion is to
be implied or inferred.
Nothing contained in this opinion shall be deemed to constitute a waiver of
the attorney-client privilege between this firm and the Company or the
Shareholders, except as to the matters specifically set forth herein.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion Is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees in connection with the transaction described herein. and unless we
give our prior written consent, neither our opinion nor this opinion letter may
be quoted in whole or in part or be relied upon by any other person.
<PAGE>
Schedule 6.l(l)
Related Party Agreements
------------------------
None.
<PAGE>
Schedule 6.1(m)
Jane Semasko
John Semasko
<PAGE>
Schedule 6.2(i)
[__________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _________________ , 1997 (the "Purchase
Agreement"), among the Purchaser, _____________, a _____________ corporation
(the "Seller"), and _______ ("Stockholders"). This opinion is furnished to you
pursuant to Section ________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
we have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth, In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the Foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
<PAGE>
1. The Purchaser is a corporation duly organized, validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
3. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, Fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
<PAGE>
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns. and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
--------------------------------
A Partner
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among John Semasko and Jane Semasko (collectively
"Sellers," and each, a "Seller"), DocuNet Inc., a Pennsylvania corporation
("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the Sellers and
the Escrow Agent are sometimes collectively referred to herein as the "Parties"
and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this
Agreement will have the meanings set forth in the Purchase Agreement unless such
terms are defined herein or unless the context clearly indicates to the
contrary.
(a) Common Stock shall mean the common stock, $ ____ par value,
of the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
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<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $150,000,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of
any shares of Common Stock (valued at the Initial Public Offering Price) which
may be on deposit in the Escrow Account and (ii) the amount of cash which may be
on deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of
Common Stock, each Seller hereby pledges for the benefit of the Purchaser, and
grants the Purchaser a security interest in, such deposited Common Stock. In
addition, each Seller depositing Common Stock in the Escrow Account has also
delivered to the Escrow Agent stock powers endorsed in blank with respect to the
deposited Common Stock registered in the name of each Seller. The Escrow Agent
shall hold all such deposited Common Stock, not as an agent of each Seller, but
rather as a pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of
Common Stock, each such certificate representing Common Stock on deposit therein
shall have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be
retained by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination
of the Purchase Price pursuant to Article 2 of the Purchase Agreement, the
Sellers and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its
receipt of the Escrow Account, the Escrow Agent shall invest any cash deposited
in the Escrow Account (the "Cash Investment") as set forth on Exhibit "A"
attached hereto, or as otherwise directed in writing from time to time by the
Sellers. All income earned on the Cash Investment will be owned by the Sellers
and shall be distributed at least once every 365 days. The Escrow Agent will not
be liable or responsible for any loss resulting from any investment or
reinvestment made as provided in this Agreement at the written direction of the
Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgements, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the
Purchaser will indemnify and hold the Escrow Agent harmless from and against any
and all losses, costs, damages or expenses (including reasonable attorneys'
fees) the Escrow Agent may sustain by reason of its service as escrow agent
hereunder, except to the extent such loss, cost, damage or expense (including
reasonable attorneys' fees) was incurred solely by reason of such acts or
omissions for which the Escrow Agent is liable or responsible under Section 9
hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Sellers and the Purchaser may each, by notice
to the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which
may be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
c/o Oregon Micro-Imaging, Inc.
1790 West 11th Avenue
Eugene, OR 97402
With a copy to:
Hershner, Hunter, Andrews, Neill & Smith, LLP
180 East 11th Avenue
Eugene, OR 97401
Attention: William Potter, Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue
until the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
John Semasko
----------------------------------------
Jane Semasko
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
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EXECUTION
DOCUNET INC.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
SPAULDING COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PRELIMINARY STATEMENTS............................................................................................1
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES....................................................................10
2.1. Agreement to Sell and Purchase Assets.............................................................10
2.2. [Intentionally omitted]...........................................................................11
2.3. Consideration and Payment.........................................................................11
2.4. Payment of Purchase Price.........................................................................14
2.5. Allocation of Purchase Price......................................................................14
2.6. Assumption of Liabilities.........................................................................14
2.7. Retention of Purchase Price.......................................................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER..............................................................................15
3.1. Organization; Qualification; Good Standing........................................................15
3.2. Authorization for Agreement.......................................................................16
3.3. Ownership; Subsidiaries and Affiliates............................................................16
3.4. Enforceability....................................................................................17
3.5. Legal Proceedings and Orders......................................................................17
3.6. Title to the Purchased Assets and Related Matters.................................................17
3.7. Compliance with Laws..............................................................................18
3.8. Labor Matters.....................................................................................18
3.9. Employee Benefit Plans............................................................................19
3.10. Financial Statements.............................................................................21
3.11. Absence of Undisclosed Liabilities...............................................................22
3.12. Real Property....................................................................................22
3.13. Tangible Personal Property.......................................................................23
3.14. Contracts........................................................................................24
3.15. Insurance........................................................................................26
3.16. Proprietary Rights...............................................................................27
3.17. Environmental Matters............................................................................27
3.18. Permits..........................................................................................28
3.19. Regulatory Filings...............................................................................28
3.20. Taxes and Tax Returns............................................................................29
</TABLE>
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3.21. Affiliate Transactions...........................................................................30
3.22. [Intentionally omitted.].........................................................................30
3.23. Receivables......................................................................................30
3.24. Solvency.........................................................................................30
3.25. Officers and Directors...........................................................................31
3.26. Broker's or Finders..............................................................................31
3.27. No Other Agreements to Sell Assets...............................................................32
3.28. Customers........................................................................................32
3.29. Investment Company...............................................................................32
3.30. Absence of Changes...............................................................................32
3.31. Accuracy and Completeness of Information.........................................................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................34
4.1. Organization......................................................................................34
4.2. Authorization for Agreement.......................................................................34
4.3. Enforceability....................................................................................34
4.4. Litigation........................................................................................34
4.5. Broker's or Finders...............................................................................34
ARTICLE 5 - COVENANTS............................................................................................35
5.1. Good Faith........................................................................................35
5.2. Approvals.........................................................................................35
5.3. Cooperation; Access to Books and Records..........................................................35
5.4. Duty to Supplement................................................................................36
5.5. Information Required for Purchaser Financing Transactions.........................................37
5.6. Performance of Conditions.........................................................................37
5.7. Conduct of Business...............................................................................37
5.8. Negative Covenants................................................................................38
5.9. Exclusive Negotiation.............................................................................41
5.10. Public Announcements.............................................................................41
5.11. Amendment of Schedules...........................................................................41
5.12. Cooperation in Preparation of Registration Statement.............................................41
5.13. Examination of Final Financial Statement.........................................................43
5.14. Audit Opinion....................................................................................43
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").............................................................43
</TABLE>
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5.16. Lease............................................................................................43
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................43
6.1. Conditions Precedent to Purchaser's Obligations...................................................43
6.2. Conditions Precedent to Seller's Obligations......................................................46
ARTICLE 7 - CLOSING..............................................................................................47
ARTICLE 8 - COVENANT NOT TO COMPETE..............................................................................48
8.1. Confidentiality...................................................................................48
8.2. Covenant Not To Compete...........................................................................49
8.3. Specific Enforcement; Extension of Period.........................................................50
8.4. Disclosure........................................................................................51
8.5. Interpretation....................................................................................51
8.6. Acknowledgment....................................................................................51
ARTICLE 9 - SURVIVAL.............................................................................................52
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................52
9.2. [Intentionally omitted.]..........................................................................52
9.3. Underwriter's Benefit.............................................................................52
ARTICLE 10 - INDEMNIFICATION.....................................................................................53
10.1. Seller and Shareholder's Indemnification.........................................................53
10.2. Purchaser's Indemnification......................................................................54
10.3. Payment; Procedure for Indemnification...........................................................54
10.4. Equitable Contribution Under the Securities Act..................................................56
10.5. Exclusiveness of Indemnification.................................................................57
10.6. Limitations on Indemnification...................................................................57
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................58
11.1. Termination......................................................................................58
11.2. Effect of Termination............................................................................58
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ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................59
12.1. Further Cooperation..............................................................................59
12.2. Maintenance of Books and Records.................................................................59
12.3. By Seller and Shareholder........................................................................60
12.4. Use of Name......................................................................................60
12.5. [Intentionally omitted.].........................................................................60
12.6. Receivables......................................................................................60
12.7. Disclosure.......................................................................................60
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS..................................................................61
ARTICLE 14 - MISCELLANEOUS.......................................................................................61
14.1. Notices..........................................................................................61
14.2. No Third Party Beneficiaries.....................................................................62
14.3. Schedules........................................................................................62
14.4. Expenses.........................................................................................62
14.5. Further Assurances...............................................................................63
14.6. Entire Agreement; Amendment......................................................................63
14.7. Section and Paragraph Titles.....................................................................63
14.8. Binding Effect...................................................................................63
14.9. Counterparts.....................................................................................63
14.10. Severability....................................................................................63
14.11. Governing Law...................................................................................63
SCHEDULES
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made this 9th day of September, 1997 by and
among Spaulding Company, Inc. (the "Seller"), a Massachusetts corporation (the
"Company"), Semco Industries, Inc., a Massachusetts corporation and the
shareholder of the Seller ("Shareholder"), and DocuNet Inc., a Pennsylvania
corporation (the "Purchaser").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document management
services. Semco owns one hundred percent (100%) of the issued and outstanding
capital stock of the Seller. The Seller desires to sell to the Purchaser and the
Purchaser desires to purchase from the Seller substantially all of the Seller's
assets that are used in or related to the operation of the Seller's document
management, document software and related businesses (the "Business"), together
with the goodwill related to the Business, in accordance with the provisions set
forth in this Agreement. Except for those specific obligations and liabilities
of the Seller expressly identified in this Agreement as Assumed Liabilities, the
Purchaser is assuming none of the Seller's obligations or liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. [Intentionally omitted.]
1.2. [Intentionally omitted.]
1.3. Accrued Expenses shall mean, as of any date of determination, accrued
expenses as would appear on a balance sheet of the Business as of such date
prepared in accordance with GAAP, but specifically excluding any amounts payable
to any of the Seller's or the Shareholder's Affiliates or to any of the Seller's
or Shareholder's directors, officers or employees that is contingent upon or
payable as a result of the transactions contemplated by this Agreement
(including but not limited to any amounts payable on account of the matters set
forth on Schedule 3.8).
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1.4. Acquired Liabilities shall mean, as of the applicable date, Seller's
Payables, Accrued Expenses (less those accrued expenses to be retained by Seller
as set forth on Schedule 1.4) and deferred revenues under service and
maintenance agreements, as would appear on a balance sheet of the Company as of
such date prepared in accordance with GAAP and incurred in the ordinary course
of business consistent with past practices.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable date, the
Seller's fixed assets as categorized on the Seller Balance Sheet reported in
accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable date,
the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current Assets,
minus Seller's Acquired Liabilities, reported on the Seller Balance Sheet in
accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable date,
the Seller's Current Assets minus its Acquired Liabilities, as reported on the
Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in Section
3.21.
1.10. Aggregate Final Adjustment Amounts shall have the meaning set forth
in Section 2.3.
1.11. Allocation Schedule shall have the meaning set forth in Section 2.5.
1.12. Assignment and Assumption Agreement shall mean the Assignment and
Assumption Agreement to be executed and delivered by and between the Purchaser
and the Seller in the form attached to this Agreement as Exhibit A.
1.13. Assumed Liabilities shall have the meaning set forth in Section 2.6.
1.14. Balance Sheet Date shall mean June 30, 1997.
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1.15. Bill of Sale shall mean the Bill of Sale to be executed and delivered
by the Seller to the Purchaser in the form attached to this Agreement as Exhibit
B.
1.16. Books and Records shall mean all records, documents, lists and files,
relating to either or both of the Purchased Assets or the Business including,
without limitation, price lists, lists of accounts, customers, suppliers and
personnel, all product, business and marketing plans, historical sales data and
all books, ledgers, files and business records (including, without limitation,
all financial records and books of account) of or relating to either or both of
the Purchased Assets or the Business; in any of the foregoing cases, whether in
electronic form or otherwise.
1.17. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.18. Cash Purchase Price shall have the meaning set forth in Section 2.4.
1.19. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.20. Closing shall have the meaning set forth in Article 7.
1.21. Closing Balance Sheet shall mean the unaudited balance sheet as of
the date immediately prior to the Closing Date and to be delivered by the Seller
to the Purchaser in accordance with Section 2.3.
1.22. Closing Date shall mean the date on which the Closing actually takes
place.
1.23. [Intentionally omitted.]
1.24. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.25. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the
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definition of Confidential Information shall not include any information that
(i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering, or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
1.26. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.27. Current Assets shall mean, as of the applicable date, the Seller's
Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.28. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person or such
Person's properties are bound.
1.29. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et seq., together with the rules and regulations promulgated thereunder,
(iii) the Telephone Consumer Protection Act of 1991, together with the rules and
regulations promulgated thereunder, and (iv) any Requirement of Law of any
jurisdiction relating to the subject matter covered by any of the foregoing, all
as amended and supplemented from time to time, or any successors thereto.
1.30. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
1.31. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
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for retirees) within the previous six plan years or with respect to which
contributions are or were (within such six year period) made or required to be
made by the Seller or any ERISA Affiliate or with respect to which the Seller
has any liability.
1.32. Encumbrances shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, mortgages, conditional or installment
sales Contracts, title retention Contracts, transferability restrictions and
other claims or burdens of any nature whatsoever attached to or adversely
affecting such asset other than liens arising in the ordinary course of business
which are not incurred in connection with the borrowing of money and which, in
the aggregate, are not material.
1.33. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. ("CERCLA"),
the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., and the
rules and regulations promulgated thereunder, all as amended and supplemented
from time to time, and together with any successors thereto. As used in this
Agreement, the term "hazardous substances" shall have the meaning assigned to
that term in CERCLA, and the rules and regulations promulgated thereunder, as
amended and supplemented from time to time, or any successors thereto.
1.34. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.35. ERISA Affiliate shall mean any Person that is included with the
Seller in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.36. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.37. Escrow Agreement shall mean the Escrow Agreement between the Seller,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.4, substantially in the
form attached hereto as Exhibit C.
1.38. Escrow Amount shall have the meaning set forth in Section 2.4(b).
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1.39. Excluded Assets shall mean those assets listed on Schedule 2.1(b)
attached to this Agreement.
1.40. Financial Statements shall have the meaning set forth in Section
3.10(a).
1.41. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition agreements with the Purchaser in anticipation
of a simultaneous acquisition by Purchaser and Initial Public Offering.
1.42. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.43. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.44. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.48. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under of the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
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1.50. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth in
Section 3.10(b).
1.52. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor organization
thereto.
1.54. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or, in the case of an entity,
the actual knowledge of any executive officer or director of such entity, and,
in the case of any such officer or director, that knowledge that a reasonably
prudent executive officer or director in a like position should have if such
person made reasonable and diligent inquiry and exercised due diligence with
respect thereto.
1.54A. Lease shall mean a lease of Real Property in accordance with the
terms set forth on Schedule 1.54A.
1.55. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.56. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.56A. Most Recent Balance Sheet shall mean the unaudited balance sheet to
be delivered by the Seller to the Purchaser pursuant to Section 3.10(d).
1.57. Obligations and liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
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1.58. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.59. Payables shall mean, as of any date of determination, the Seller's
accounts payable associated with the Business as of such date in accordance with
GAAP consistently applied, other than amounts that are payable to any Affiliate
of the Seller or any of the Shareholder (including but not limited to any
amounts payable on account of the matters set forth on Schedule 3.8).
1.60. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.61. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.64. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholder, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.64A. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.65. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section 2.1.
1.67. Purchase Price shall have the meaning set forth in Section 2.3.
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1.68. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.69. [Intentionally omitted.]
1.70. Purchaser's AA Response Notice shall have the meaning set forth in
Section 2.3.
1.71. Real Property shall mean all real property of the Seller.
1.72. Receivables shall mean, as of any date of determination, the Seller's
accounts receivable, notes receivable and other miscellaneous receivables owing
to the Seller or associated with the Business at such date.
1.73. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.74. Related Companies shall have the meaning set forth in Section 8.2(a).
1.75. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.76. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.77. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.78. Restricted Period shall mean, with respect to the Seller and
Shareholder, the period commencing on the Closing Date and ending on the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b).
1.79. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.80. [Intentionally omitted.]
1.81. Seller Balance Sheet shall have the meaning set forth in Section
3.11.
1.82. [Intentionally omitted.]
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1.83. [Intentionally omitted.]
1.84. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.85. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.86. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.87. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed, with or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.88. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Trade Accounts Receivable shall mean, as of the applicable date, the
Seller's trade accounts receivable associated with the Business.
1.90. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.91. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the
terms and conditions set forth in this Agreement, and in reliance upon the joint
and several representations and
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warranties made by the Seller and the Shareholder to the Purchaser in this
Agreement, the Seller shall sell to the Purchaser and the Purchaser shall
purchase and receive from the Seller, free and clear of all Encumbrances and all
obligations and liabilities (other than the Assumed Liabilities), all of the
tangible and intangible assets of the Seller, whether real, personal or mixed,
that are incremental or relating to, or used in connection with, the Business,
wherever located, including, without limitation (i) the assets included on the
Seller Balance Sheet, (ii) the assets listed on Schedule 2.1(a) attached to this
Agreement, and (iii) all assets acquired by the Seller after June 30, 1997 and
on or prior to the Closing Date, but excluding the Excluded Assets and any
assets disposed of in the ordinary course of business consistent with past
practice (collectively, the "Purchased Assets").
2.2. [Intentionally omitted].
2.3. Consideration and Payment. As full consideration for the Purchased
Assets being purchased pursuant to this Agreement (in addition to the assumption
of the Assumed Liabilities), the Purchaser shall pay, deliver or cause to be
delivered to the Seller, in the manner set forth in Section 2.4 of this
Agreement, the Base Purchase Price (as hereinafter defined), less the Closing
Adjustment Amounts (as hereinafter defined), on the terms and conditions set
forth below (the "Purchase Price"):
(a) Base Purchase Price. The Purchaser shall pay to the Seller at
the Closing Four Million Five Hundred Thousand dollars ($4,500,000)
(the "Base Purchase Price").
(b) Working Capital Adjustment. The Base Purchase Price shall be
reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than
$876,741, as reflected on the Most Recent Balance Sheet (but
ultimately and as provided in Section 2.3(e), as reflected on the
Closing Balance Sheet) (the "Closing Adjusted Working Capital
Amount"). The Company's Adjusted Working Capital shall mean the
Company's total current assets, less the Company's total current
liabilities, calculated pursuant to GAAP; provided that no credit will
be given to any inventory of Seller in excess of $958,329. Promptly
following the receipt by Purchaser of the Closing Balance Sheet, and
in order to verify the accuracy of the adjustment made at the Closing,
the Purchaser agrees to cause the internal accounting staff and the
independent certified public accountant of the Purchaser (the
"Accountants") to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of
such amount and the Purchaser shall deliver the Accountants' CAWCA
Report to the Seller no later than sixty (60) days following the
receipt by Purchaser of the Closing Balance Sheet. The determination
of the Closing Adjusted Working Capital Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the
Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following its receipt of the Accountants' CAWCA Report. The
Seller's objection, if any, to the Accountants'
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CAWCA Report (the "Seller's CAWCA Objection") shall set forth in
reasonable detail the Seller's objection(s) to the Accountants' CAWCA
Report and the Seller's calculation of the Closing Adjusted Working
Capital Amount. Within ten (10) days after receipt of the Seller's
CAWCA Objection, the Purchaser will notify the Seller whether it
accepts or disputes the Seller's adjustments, if any, which
notification shall set forth in reasonable detail the adjustments made
by the Seller which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Seller does not object to
the Accountants' CAWCA Report, or if the Purchaser agrees to accept
the Seller's adjustments to the Accountants' CAWCA Report, then the
adjustment based on the then final Closing Adjusted Working Capital
Amount (the "Final Adjusted Working Capital Amount"), if any, shall be
paid by Seller to the Purchaser in immediately available funds within
five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amount shall be
paid from the Escrow Amount pursuant to the Escrow Agreement. If the
Seller objects to the Accountants' CAWCA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then
an independent accounting firm mutually satisfactory to the Seller and
the Purchaser shall be engaged to determine the amount of the Closing
Adjusted Working Capital Amount and the Final Adjusted Working Capital
Amount, based upon the calculations of the independent accountants,
and any adjustments of Base Purchase Price based on the amount
discussed determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount
is not received by Purchaser within such time period, such amount
shall be paid from the Escrow Amount pursuant to the Escrow Agreement.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited
to, providing such independent accountants with access to, and copies
of, all books and records that they shall reasonably request. The
Purchaser and the Seller shall each bear one-half of all of the costs
and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the
Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(c) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Most Recent Balance Sheet, is less
than $1,320,169 (but ultimately and as provided in Section 2.3(e), as
reflected on the Closing Balance Sheet) (the "Closing Net Book Value
Amount"). The Net Book Value of the Company's Acquired Assets and
Liabilities shall mean the Purchased Assets less the Assumed
Liabilities and the promissory notes from the Shareholders to the
Company, if any, (exclusive of any (x) line of credit, (y) overdraft
or current portions of long-term debt, bank notes, or amounts due to
others or (z) capital lease obligations), calculated pursuant to GAAP.
Promptly following the receipt by the Purchaser of the Closing Balance
Sheet pursuant to Section 5.13, and in order to verify
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the accuracy of the adjustment made at the Closing, the Purchaser
agrees to cause the Accountants to verify the amount of the Closing
Net Book Value Amount. The Accountants shall issue a report as to
their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of
such amount and the Purchaser shall deliver the Accountants' CNBVA
Report to the Seller not later than sixty (60) days following the
receipt by the Purchaser of the Closing Balance Sheet. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the
Seller shall object to the Accountants' CNBVA Report within fifteen
(15) days following their receipt of the Accountants' CNBVA Report.
The Seller's objection, if any, to the Accountants' CNBVA Report (the
"Seller's CNBVA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CNBVA Report and the
Seller's calculation of the Closing Net Book Value Amount. Within ten
(10) days after receipt of the Seller's CNBVA Objection, the Purchaser
will notify the Seller whether it accepts or disputes the Seller's
adjustments, if any, which notification shall set forth in reasonable
detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CNBVA Response Notice"). If the
Seller does not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the
Accountants' CNBVA Report, then the adjustment based on the then final
Closing Net Book Value Amount (the "Final Net Book Value Amount"), if
any, shall be paid by Seller to the Purchaser in immediately available
funds within five (5) business days of such acceptance. If such amount
is not received by Purchaser within such time period, such amount
shall be paid from the Escrow Amount pursuant to the Escrow Agreement.
If the Seller objects to the Accountants' CNBVA Report as set forth
above and the Purchaser does not accept the Seller's proposed
adjustments, then an independent accounting firm mutually satisfactory
to the Seller and the Purchaser shall be engaged to determine the
amount of the Closing Net Book Value Amount and the Final Net Book
Value Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the
amount determined as provided above shall be paid to the Purchaser in
immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount
is not received by Purchaser within such time period, such amount
shall be paid from the Escrow Amount pursuant to the Escrow Agreement.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited
to, providing such independent accountants with access to, and copies
of, all books and records that they shall reasonably request. The
Purchaser and the Seller shall each bear one-half of all of the costs
and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the
Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(d) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of
the Working Capital Adjustment
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and the Net Book Value of Assets and Liabilities Adjustment, Seller
shall only be obligated to pay the greater of the two adjustment
amounts to Purchaser.
(e) Basis for Adjustments. The reductions, if any, to be made to
the Base Purchase Price at the Closing shall be made based on the Most
Recent Balance Sheet. Within thirty (30) days following the Closing
Date, the Seller will deliver to the Purchaser the Closing Balance
Sheet, and the verification procedures set forth in Sections 2.3(b)
and (c) will be made in respect of the Closing Balance Sheet and the
adjustments provided for in Sections 2.3(b) and (c) will be made based
on the Closing Balance Sheet rather than the Most Recent Balance
Sheet.
(f) Shareholder Obligation. Subject to the provisions of Section
2.7, the Shareholder hereby agrees that the Shareholder will be liable
for all obligations of Seller under the Purchase Price adjustments set
forth in this Section 2.3.
2.4. Payment of Purchase Price.
(a) Cash Purchase Price. An amount equal to $4.5 million shall be payable
at the Closing in cash to the Seller ("Cash Purchase Price") as reduced by the
Escrow Amount (as described below). The specific amount of the Cash Purchase
Price shall be payable to the Seller by a bank check payable to the order of
Seller in immediately available funds, or a wire transfer to an account to be
designated by Seller in writing not less than three (3) business days prior to
the Closing, such method of payment to be at the sole discretion of Purchaser.
(b) Delivery into Escrow. Notwithstanding the foregoing, $100,000 of the
Cash Purchase Price shall be paid directly to the Escrow Agent pursuant to the
Escrow Agreement (the "Escrow Amount"). The Escrow Amount shall fund (but shall
not be the sole source of funding) any obligations of Seller and Shareholder
under Article 2 of this Agreement.
2.5. Allocation of Purchase Price. Purchaser shall on or before thirty (30)
days after the Closing Date initially determine and send to Seller a schedule
containing the allocation of the Purchase Price and the Assumed Liabilities
among the Purchased Assets as is required by Section 1060 of the Code (the
"Allocation Schedule"). The Allocation Schedule will be deemed to be accepted by
Seller unless Seller provides a written notice of disagreement to Purchaser
within five (5) business days after receipt of the Allocation Schedule. If
Seller provides such written notice, Purchaser and Seller shall proceed to
negotiate in good faith to create a mutually acceptable Allocation Schedule. If
no mutually acceptable Allocation Schedule is created within ten (10) business
days of Purchaser's receipt of the written notice of disagreement, then an
independent accountant mutually satisfactory to the Seller and Purchaser (the
"Independent Accountant') shall be engaged to determine the Allocation Schedule.
The fees for such determination shall be borne by Seller, unless the Independent
Accountant disagrees materially with the Allocation Schedule originally
submitted by Purchaser, in which case such fees shall be borne by Purchaser.
Such determination by the Independent Accountant, or the original
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Allocation Schedule if not objected to by the Seller, shall be binding and
conclusive to all parties to the Agreement and all parties shall file all
relevant tax returns consistent with such final determination, unless otherwise
required by applicable law. Should the Purchase Price or Assumed Liabilities be
modified subsequent to the Closing, the Allocation Schedule will be modified in
accordance with the requirements of Section 1060 of the Code. Such allocation
shall be binding on the parties for all purposes including, without limitation,
federal income Tax purposes, and the parties shall not take any contrary
position in respect of such allocation in any Tax Return or Legal Proceeding or
audit relating to Taxes, or any documents, instruments or certificates filed by
such party with any Governmental or Regulatory Authority or Taxing Authority,
except as required by applicable law; provided, however, that if the Purchase
Price or Assumed Liabilities are adjusted in accordance with Section 2.3 of this
Agreement, the Allocation Schedule otherwise determined shall be adjusted
accordingly as required by Section 1060 of the Code.
2.6. Assumption of Liabilities. At the Closing, the Purchaser will assume
only the Seller's obligations and liabilities expressly listed on Schedule 2.6
attached to this Agreement (collectively, the "Assumed Liabilities"). Except for
the Assumed Liabilities, the Purchaser shall not, by virtue of its purchase of
the Purchased Assets or otherwise, acquire, assume or become responsible for any
obligations or liabilities of the Seller or the Shareholder.
2.7. Retention of Purchase Price. The Seller agrees that it will retain at
least $1,000,000 of the Cash Purchase Price until March 31, 1998 (if the Initial
Public Offering is consummated on or before December 31, 1997) and until the
ninetieth (90th) day after the Closing Date (if the Initial Public Offering is
consummated after December 31, 1997) (as applicable, the "Release Date") in
order to provide a source of funding for any of its obligations arising under
this Agreement. If on the Release Date the Seller has no unpaid payment
obligations to the Purchaser hereunder and the Purchaser has not submitted to
the Seller an Indemnity Notice, an Unliquidated Indemnity Notice or a Notice
Claim (collectively, a "Claim"), then the Seller shall be permitted to
distribute the amounts retained by it as its board of directors deems
appropriate. If on the Release Date the Seller has an unpaid obligation to the
Purchaser hereunder or the Purchaser has submitted a Claim, then the Seller
shall only be permitted to distribute amounts retained in excess of the amount
reasonably expected to be required to satisfy the amount of the unpaid
obligation or the amount of the Claim, assuming the matter at issue is resolved
favorably to the Purchaser. Notwithstanding any other provision of this
Agreement to the contrary, (i) the sole recourse of the Purchaser (as well as
the recourse of anyone who may be deemed to be a third party beneficiary of the
Purchaser's rights hereunder) for claims arising hereunder against the Seller
and the Shareholder shall be limited to the amount required to be withheld by
the Seller pursuant to this Section 2.7 and (ii) the Purchaser (as well as
anyone who may be deemed to be a third party beneficiary of the Purchaser's
rights hereunder) shall have no claim against the Seller, the directors and
officers of the Seller, the Shareholder, and the directors, officers and the
shareholders of the Shareholder for any distribution that may be made by the
Seller or the Shareholder to each of their respective shareholders so long as
the Seller has complied with its obligations under this Section 2.7.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
Except as set forth on the disclosure schedule delivered by the Seller to
the Purchaser on the date hereof (the "Disclosure Schedule"), the numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, the Seller and the Shareholder hereby, jointly and severally,
represent and warrant to the Purchaser as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation or
organization, (ii) has the power and authority to own and operate its properties
and assets and to transact the Business and (iii) is duly qualified and
authorized to do business and is in good standing in all jurisdictions where the
failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon the Seller's Business, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
either of the Seller or the Shareholder, threatened against or affecting the
Seller revoking, limiting or curtailing, or seeking to revoke, limit or curtail
the Seller's power, authority or qualification to own, lease or operate its
properties or assets or to transact the Business.
(c) True and complete copies of the Seller's articles of organization,
bylaws and other constitutive documents are attached as part of the Disclosure
Schedule. Except as set forth in Schedule 3.1(c), the minute books of the
Seller, as heretofore made available to the Purchaser, are correct and complete
in all material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and performance of this
Agreement and the Lease and the consummation of the transactions contemplated
hereby and thereby by the Seller: (i) are within the Seller's corporate powers
and, subject to the requisite approval of the shareholders of the Shareholder,
will be duly authorized by all necessary corporate and shareholder action on the
part of the Seller and (ii) do not (A) require any action by or in respect of,
or filing with, any Governmental or Regulatory Authority, (B) contravene,
violate or constitute, whether with or without the passage of time or the giving
of notice or both, a breach or default under, any Requirement of Law applicable
to the Seller or any of its properties or any Contract to which the Seller or
any of its properties is bound or subject or (C) result in the creation of any
Encumbrance or any obligation and liability on any of the Purchased Assets.
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(b) The Shareholder. The Shareholder's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Shareholder (i) are within the powers and authority, corporate or
otherwise, of the Shareholder and, upon receipt of the requisite shareholder
approval, will be duly authorized by all necessary corporate and Shareholder
action on the part of a corporate Shareholder and (ii) do not (A) require any
action by or in respect of, or filing with, any Governmental or Regulatory
Authority, or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable to the Shareholder, any of its properties or any
Contract to which the Shareholder or any of its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than Semco owns record, beneficial or
equitable ownership of any of the Seller's equity.
(b) No Interest in Other Entities. Seller does not own, directly or
indirectly, any debt, equity or other ownership or financial interest in any
other Person. No shares or other ownership or other interests, either of record,
beneficially or equitably, in any Person are included in the Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete and accurate
list of all Persons (other than the Shareholder or any of the Persons described
in the first sentence of Section 1.8, subpart (iii)) that are Affiliates of the
Seller, detailing the nature of the relationship between the Seller and each
such Person that causes such Person to be an Affiliate of the Seller.
(d) No Acquisitions. Since the Balance Sheet Date, the Seller has not
acquired, or agreed to acquire, whether by merger or consolidation, by purchase
of equity interests or assets, or otherwise, any business or any other Person,
or otherwise acquired, or agreed to acquire, any assets other than in the
ordinary course of business that are material, either individually or in the
aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Seller and the Shareholder and constitutes the legal, valid and binding
obligation of the Seller and the Shareholder, enforceable against each of them
in accordance with its terms. Upon its execution and delivery, the Lease will
constitute the legal, valid and binding obligation of the Seller, enforceable
against it in accordance with its terms.
3.5. Legal Proceedings and Orders. There is no Legal Proceeding or Order
pending against, or to either of the Seller's or the Shareholder's knowledge,
threatened against or affecting, the Seller, the Business, the Purchased Assets
or the Assumed Liabilities that could reasonably be expected to have a Material
Adverse Effect or to adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that
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in any manner could draw into question the validity of this Agreement. Neither
the Seller nor the Shareholder has knowledge of any fact, event, condition or
circumstance that may give rise to the commencement of any Legal Proceeding or
the entering of any Order against the Seller or any of the Seller's properties
that could adversely affect or restrict the ability of any Seller to consummate
fully the transactions contemplated by this Agreement or that in any manner
could draw into question the validity of this Agreement.
3.6. Title to the Purchased Assets and Related Matters. Except for the
items of Tangible Personal Property leased by the Seller and disclosed in the
Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance in all
material respects with all Requirements of Law applicable to it or any of its
properties or to which the Seller or its properties is bound or subject
including, without limitation, the Credit Acts. Since January 1, 1992, none of
the Seller or the Shareholder has received any notice from any Person concerning
alleged violations of, or the occurrence of any events or conditions resulting
in alleged noncompliance with, any Requirement of Law applicable to the Seller
or any of its properties or to which the Seller or any of its properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Seller, the Shareholder, any of their respective Affiliates (other than a
Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof) or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Seller is a party or may
otherwise be bound or subject, and the compensation to which each consultant is
entitled under its respective Contract. The Seller has delivered or caused to be
delivered to the Purchaser true and complete copies of all such Contracts, each
of which is attached to the Disclosure Schedule. Since the Balance Sheet Date,
the Seller has not increased the compensation payable to its consultants or the
rate of compensation payable to its consultants. No individuals retained by the
Seller as an independent contractor or consultant would be reclassified by the
IRS, the U.S. Department of Labor or any
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other Governmental or Regulatory Authority as an employee of the Seller for any
purpose whatsoever.
(b) Attached to the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Seller, together with such employee's position
or function, the rate of hourly, monthly or annual compensation (as the case may
be) paid or to be paid to such employee in 1995, 1996 and, to the extent known,
1997, any accrued sick leave or pay or vacation and any incentive or bonus
arrangement with respect to any such employee. Except as is set forth on the
Disclosure Statement, since the Balance Sheet Date, the Seller has not increased
the compensation payable to its employees or the rate of compensation payable to
its employees. The Disclosure Schedule also identifies those employees with whom
the Seller has entered into an employment Contract or a Contract obligating the
Seller to pay severance or similar payments to any employee. The Seller has
delivered or caused to be delivered to the Purchaser true and complete copies of
such Contracts, all of which are attached or listed on the Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such employees
is currently being negotiated. To the knowledge of either of the Seller or the
Shareholder, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Seller.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the Seller's employees or former employees. In
addition, no dispute with or claim against the Seller relating to any labor or
employment matter including, without limitation employment practices,
discrimination, terms and conditions of employment, or wages and hours is
outstanding or, to either of the Seller's or the Shareholder's knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment Opportunity Commission against the
Seller with respect to any labor or employment matter.
3.9. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Seller and the Shareholder have delivered or caused to be delivered to
the Purchaser true and complete copies of (i) the plan document, trust agreement
and any other document governing such Employee Benefit Plan, (ii) the summary
plan description, (iii) Form 5500 annual reports and attachments for the three
most recent years, and (iv) the most recent IRS determination letter, if any,
for such plan.
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(b) Each of the Employee Benefit Plans has been operated and administered
in all material respects in compliance with their respective terms and all
applicable Requirements of Law including, without limitation, ERISA and the
Code. The Seller has not incurred any "accumulated funding deficiency" within
the meaning of ERISA or incurred any liability to the PBGC in connection with
any Employee Benefit Plan (or other class of benefits that the PBGC has elected
to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on Schedule 3.9(c) attached to this Agreement.
Each such Employee Benefit Plan has received, or the Seller has applied for or
will in a timely manner apply for, a favorable determination letter from the IRS
stating that such Employee Benefit Plan meets the requirements of the Code and
that any trust or trusts associated therewith are tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan" covering
employees of the Seller within the meaning of Section 3(35) of ERISA subject to
Title IV of ERISA or any "Multiemployer Plan" within the meaning of Section
401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Seller with respect thereto.
(f) The Seller has complied in all material respects with the reporting and
disclosure requirements of ERISA applicable to the Employee Benefit Plans and
the continuation coverage requirements of the Code and ERISA applicable to any
of the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser or, the Seller to any Tax, penalty or other liability
under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of either of the Seller or the Shareholder
threatened, and to the knowledge of the Seller or the Shareholder, there are no
facts, events, conditions or circumstances that could reasonably be expected to
give rise to any such Legal Proceeding or claim (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course).
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(i) Neither the Seller or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Seller who are on leave
of absence under either of the Uniformed Services Employment or Reemployment
Rights Act or the Family Medical Leave Act.
(l) None of the Seller or, to the knowledge of the Seller or the
Shareholder, any of its officers, directors, or significant employees (as such
term is defined in Regulation S-K of the Securities Act), or any other Person
has made any statement or communication or provided any materials to any
employee or former employee of the Seller that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Seller.
3.10. Financial Statements.
(a) The Seller has delivered or caused to be delivered to the Purchaser a
copy of the Seller's balance sheets as of June 30, 1995, 1996 and 1997 and the
related statements of operations, shareholder's equity and cash flows for the
years then ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the financial position of the
Seller as of the date of such Financial Statements and the results of operations
and changes in Shareholder' equity and cash flows for the periods covered
thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
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(c) Since the Balance Sheet Date: (i) the Seller has operated the Business
in the normal and ordinary course in a manner consistent with past practices;
(ii) there has been no development, event, condition, or circumstance that has
had, or could reasonably be expected to have, a Material Adverse Effect upon the
Seller; (iii) there has not been any change in the accounting methods or
practices followed by the Seller, except as required by GAAP and disclosed on
the Disclosure Schedule; (iv) the Seller has not sustained any material damage,
destruction, theft, loss or interference with the Purchased Assets or the
Business, whether or not covered by insurance; (v) the Seller has not (x) paid
or declared any dividends or made any distributions or payment in respect of, or
made any payment on account of, or set apart assets for a sinking or another
analogous fund for, the purchase redemption, defeasance, retirement or other
acquisition of, the Seller's securities, whether debt or equity, and whether in
cash or in property or in obligations of the Seller or (y) paid any management
or similar fee to any Person; (vi) no development, event, condition or
circumstance that constitutes, whether with or without the passage of time or
the giving of notice or both, a default under any of the Seller's outstanding
debt obligations has occurred; (vii) the Seller has not created, incurred,
assumed or guaranteed any indebtedness (except for the endorsement of negotiable
instruments for deposit or collection or similar transactions in the normal and
ordinary course of the Business) other than (x) for trade indebtedness incurred
in the normal and ordinary course of the Business and (y) as described in the
Disclosure Schedule; and (iv) the Seller has not made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $25,000.
(d) On the Closing Date, the Seller and the Shareholder will deliver or
caused to be delivered to the Purchaser a true and complete copy of the Most
Recent Balance Sheet. The Most Recent Balance Sheet will be prepared in
accordance with the books and records of the Seller and its Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, and will be prepared in accordance with
GAAP applied on a consistent basis (except for the absence of notes and subject
to normal year-end audit adjustments). The Most Recent Balance Sheet will be as
of a date within forty-five (45) days prior to the Closing Date.
3.11. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Seller at
June 30, 1997, including without limitation, all notes thereto, prepared in
accordance with GAAP (the "Seller Balance Sheet"), the Seller has no liabilities
or obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise as of such date required to be disclosed in the Seller Balance Sheet
inaccordance with GAAP, and has incurred no such liabilities or obligations
since such date, except for liabilities or obligations that were incurred
consistently with past business practice in or as a result of the normal and
ordinary course of business since June 30, 1997.
3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The Seller has
delivered to the Purchaser true and complete copies of all Contracts relating to
Real Property
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that will be subject to the Lease (including, without limitation, all leases and
all management, service, supply, security, maintenance and similar Contracts,
and all attornment Contracts, subordination Contracts or similar Contracts, and
all other Contracts affecting or relating to the use and quiet and peaceful
enjoyment of the Real Property) to which the Seller is a party or is otherwise
bound or subject, and all certificates of occupancy required to be obtained and
maintained with respect to any of such Real Property, and, in each case, all
amendments thereof, which relate to or affect any of such Real Property.
(b) The Seller has performed in all material respects the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property that will be subject to the Lease and is not in
default or breach thereof in any material respect. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
and Shareholder, has threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Seller and Shareholder, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholder, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(c) The Real Property that will be subject to the Lease is in good
condition and repair (ordinary wear and tear excepted) and there has been no
damage, destruction or loss to such Real Property that remains unremedied to
date, and such Real Property is suitable to carry out the Business as conducted
thereon.
(d) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property that will be subject to the Lease pending, or to
the knowledge of either the Seller or the Shareholder, threatened, against such
Real Property.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property that will be subject to the Lease,
(ii) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed rent or payments under any such
Contract or (iii) result in the creation or imposition of any obligation and
liability upon the Seller or any Encumbrance upon any of the Purchased Assets
under the terms of any such Contract.
(f) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Seller has made any
expenditure in the two-years prior to the date of this Agreement in excess of
$25,000, or which if pursued by the Seller would require additional expenditures
of capital in excess of $25,000.
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3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are presently used
in the conduct of the Business and the Seller's operations. Except as disclosed
in the Disclosure Schedule, the Seller has delivered or caused to be delivered
to the Purchaser true and complete copies of all Contracts (including, without
limitation, leases and service, supply, maintenance and similar Contracts) to
which the Seller is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Seller (the "Tangible Personal Property"). A complete
and accurate list of all such Contracts set forth in, and true and complete
copies of such Contracts are attached to, the Disclosure Schedule. Except (i)
for those assets disposed of in the normal and ordinary course of business since
the Balance Sheet Date, (ii) with respect to Tangible Personal Property that is
leased or rented by the Seller, and (iii) as otherwise set forth on the
Disclosure Schedule, the Seller, as the case may be, has good and valid title to
all of its Tangible Personal Property, including all items of Tangible Personal
Property reflected on the Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not incurred or suffered
any material physical damage, destruction, theft or loss of their respective
tangible items of material personal property, whether owned or leased. All
material Tangible Personal Property including, without limitation, all computer
hardware and software (including all operating and application systems), is in
good working order, condition and repair (ordinary wear and tear excepted) and
suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Tangible Personal Property, (iii) is
free of all Encumbrances and (iv) constitutes a valid and binding obligation of,
and is enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Seller has performed in all material respects the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Seller of its intent to terminate or not renew any such Contract, (ii) to
the knowledge of the Seller and Shareholder, threatened to terminate or not
renew any such Contract or (iii) is, to the knowledge of the Seller and
Shareholder, in breach or default under any provision thereof, and, to the
knowledge of the Seller and Shareholder, no event or condition has occurred,
whether with or without the passage of time or the giving of notice, or both,
that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person
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any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any Contract relating to or affecting the
Tangible Personal Property, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed rent
or payments under any such Contract or (iii) result in the creation or
imposition of any obligation and liability upon the Seller or any Encumbrances
upon any of the Purchased Assets under the terms of any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which the Seller or any of its properties is
party or is otherwise bound or subject:
(i) each Contract with the Seller's customers (but only if such
customers are among the Seller's ten highest, in terms of dollar value
of purchases, for the twelve-month period ending on the Balance Sheet
Date), dealers, brokers, value added resellers or vendors (but only if
such vendors are among the Seller's ten highest, in terms of dollar
value of sales, for the twelve-month period ending on the Balance
Sheet Date);
(ii) any Contract that creates a partnership or a joint venture
or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either Seller's right to engage in, or compete with any Person in, any
business;
(iv) any Contract involving a pledge or encumbering of Seller's
assets or the incurrence by the Seller of liabilities (other than
liabilities to render services to customers in the ordinary course of
business) in any one transaction or series of related transactions in
excess of $25,000, or that extend beyond one year from the date of
this Agreement;
(v) any material Contract pursuant to which either Seller has
created, incurred, assumed or guaranteed any indebtedness other than
for trade indebtedness incurred in the normal and ordinary course of
the Business;
(vi) any Contract not made in the normal and ordinary course of
the applicable Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of the
Purchased Assets; and
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(viii) any Contract that (A) either (x) does not fit within one
of the foregoing categories described in (i) through (vii) above or
(y) is not otherwise identified in the Disclosure Schedule and (B)
would be required by Item 601(b)(10) of Regulation S-K promulgated
under the Securities Act to be attached as an exhibit to any
registration statement on Form S-1 filed by the Seller under the Act
if the Seller were to file such a registration statement under the Act
on the date on which this representation and warranty is made.
(b) Each material Contract to which the Seller or any of its properties is
a party or is otherwise bound or subject (i) is valid and binding on each of the
parties thereto in accordance with its terms, (ii) was made in the normal and
ordinary course of the Business and (iii) contains no provision or covenant
prohibiting or limiting the ability of the Seller or any Subsidiary to operate
their respective Businesses.
(c) No party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) has provided any
notice to the Seller of its intent to terminate or withdraw its participation in
any such Contract, (ii) has, to the knowledge of the Seller and Shareholder,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Seller and Shareholder, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholder, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) Except as expressly set forth in the Disclosure Schedule, no Consent of
any party to any material Contract to which the Seller or any of its properties
is a party or is otherwise bound or subject is required in connection with the
transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its properties is a party or is otherwise
bound or subject, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Contract or (iii) result in the creation or imposition of any
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes a complete and accurate
list of all insurance policies held by the Seller identifying all of the
following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and the Seller has not received any
notice of any cancellation, non-renewal or termination in respect of any such
policy. The Seller is not in default in any material respect under
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any such policy. To the knowledge of the Seller and the Shareholder, no such
insurer is the subject of insolvency proceedings. Neither the Seller nor the
Person to whom any such insurance policy has been issued has received notice
that any insurer under any policy referred to in the Disclosure Schedule is
denying liability with respect to a claim thereunder or defending under a
reservation of rights clause. The Seller has notified its insurance carriers of
all litigation, claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Seller
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and accurate list and
full description of each item of the Seller's Intellectual Property (excluding
general intellectual property, industrial or proprietary rights or trade
secrets, technology and know-how) together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Seller or possessed and used by the Seller under any Contract. The Intellectual
Property constitutes valid and enforceable rights and does not infringe or
conflict with the rights of any other Person; provided that to the extent the
foregoing relates to Intellectual Property used but not owned by the Seller,
such representation and warranty is given solely to the knowledge of the Seller
and Shareholder.
(b) There is neither pending, nor to either the Seller's or the
Shareholder's knowledge, threatened, any Legal Proceeding against the Seller
contesting the validity or right of the Seller to use any of the Intellectual
Property, and the Seller has not received any notice of infringement upon or
conflict with any asserted right of others nor, to either the Seller's or the
Shareholder's knowledge, is there a basis for such a notice. To either the
Seller's or the Shareholder's knowledge, no Person is infringing the Seller's
rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, the Seller
does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided in the
Disclosure Schedule, the Seller has not granted any license or other right to
use, in any manner, any of the Intellectual Property, whether or not requiring
the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any
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obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business is and has been in
compliance with all applicable Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Seller or Shareholder (or to the knowledge of the Seller or
Shareholder, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Seller, based upon or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substance or wastes.
(c) To the knowledge of the Seller and Shareholder, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Seller
and Shareholder, no polychlorinated byphenyls (PCBs) are present, in use or
stored on any of the Real Property. To the knowledge of the Seller and
Shareholder, no radon gas or the presence of radioactive decay products of radon
are present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
3.18. Permits.
(a) Each of the Seller and its employees, independent contractors and
agents has obtained and holds in full force, and the Disclosure Schedule sets
forth a complete and accurate list of, all Permits that are necessary for the
operation of their respective Businesses. Neither the Seller nor any such
employee, independent contractor or agent is in noncompliance in any material
respect with the terms of any such Permit. Any Permits that cannot be
transferred to the Purchaser are identified as such on the Disclosure Schedule.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
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(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholder' knowledge, threatened, any Legal Proceeding,
which could adversely affect any Permit required to be obtained and maintained
by the Seller.
3.19. Regulatory Filings. The Seller has filed all registrations, filings,
reports, or submissions that are required by any Requirement of Law. All such
filings were made in compliance with applicable Requirements of Law when filed
and no deficiencies have been asserted by any Governmental or Regulatory
Authority with respect to such filings and submissions that have not been
finally resolved.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Each such Tax
Return is true, accurate and complete in all material respects. The Seller has
paid in full all Taxes for the period covered by such Tax Return. All Taxes not
yet due and payable have been withheld or reserved for or, to the extent that
they relate to periods on or prior to the date of the Seller Balance Sheet, are
reflected as a liability thereon.
(b) The Seller has complied with all applicable Requirements of Law
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Section 1441 and 1442 of the Code, or similar
provisions under any foreign Requirements of Law) and have, within the time and
in the manner prescribed by applicable Requirements of Law, withheld from
employee wages and paid over, in a timely manner, to the proper Taxing
Authorities all amounts required to be so withheld and paid over under
applicable Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Seller that has not been resolved and paid in full or fully reserved for and
identified on the Seller Balance Sheet and, to the knowledge of the Seller and
Shareholder, no deficiency for any Taxes has been proposed that has not been
fully reserved for and identified on the Seller Balance Sheet. The Seller has
not received any outstanding and unresolved notices from the IRS or any other
Taxing Authority of any proposed examination or of any proposed change in
reported information relating to the Seller. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns is outstanding, nor, to the knowledge of the Seller and the Shareholder,
is any request for any such waiver or consent pending.
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(e) None of the Purchased Assets is required to be treated as owned by any
other person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(f) To the knowledge of the Seller and Shareholder, no state of facts
exists or has existed that would constitute grounds for the assessment of Tax
liability with respect to period that have not been audited by the IRS or any
other Taxing Authority.
3.21. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.8, 3.9 and 3.25), pursuant to which
the Seller is, or, at any time during the previous five (5) years has been, a
party or otherwise bound with any Affiliate of any or all of the Seller and the
Shareholder (an "Affiliate Transaction"). Each Affiliate Transaction has been
entered into the normal and ordinary course of the Business.
3.22. [Intentionally omitted.]
3.23. Receivables. Since the Balance Sheet Date, the Seller has not
written-off, nor under GAAP is it appropriate to write off, any Receivables. All
Receivables currently owing to the Seller are completely and accurately listed
and aged in the Disclosure Schedule. The Receivables arose from bona fide
transactions in the normal and ordinary course of business and reflect credit
terms consistent with past practice. The Seller has good and valid title to its
Receivables, free and clear of all Encumbrances. The Seller has not sold,
factored, securitized, or consummated any similar transaction with respect to
any of its Receivables. Subject to proper reserves taken into account in
accordance with GAAP as reflected in the Disclosure Schedule, each Receivable
represents a valid and enforceable obligation due to the Seller for goods sold
and services rendered in the ordinary course of business (i.e., without resort
to litigation or assignment to a collection agency), and is not subject to any
dispute, counterclaim, defense, set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after giving
effect to the Closing and any other transactions contemplated by this Agreement,
(i) the sum of the Seller's obligations and liabilities is not greater than all
of the assets of the Seller at a fair valuation, (ii) the present fair salable
value of the Seller's assets is not less than that will be required to pay the
probable liability of the Seller on its obligations and liabilities (excluding
those to be assumed by the Purchaser) as they become absolutely mature, (iii)
the Seller has not incurred, will not incur, does not intent to incur and does
not believe that it will incur, obligations and liabilities beyond the Seller's
ability to pay such obligations and liabilities as they mature, (iv) the Seller
is not engaged in, and is not about to engage in, a business or transaction for
which the Seller's assets constitutes or would constitute unreasonably small
capital, and (v) the Seller is not insolvent as defined in, or otherwise in a
condition which could in any circumstances then or subsequently render any
transfer or conveyance made by it voidable or fraudulent pursuant to, any
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Requirements of Law pertaining to bankruptcy, insolvency or creditors' rights
generally including, without limitation the Bankruptcy Code of 1978, 11 U.S.C.
ss.101, et seq., as amended, or any other applicable Requirements of Law
relating to fraudulent conveyances, fraudulent transfers or preferences. The
Seller is receiving reasonably equivalent value and consideration from the
Purchaser for the Purchased Assets and is not selling the Purchased Assets to
the Purchaser with intent to hinder, delay or defraud any of its creditors.
3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Seller's directors, executive officers, and significant employees (as such
term is defined in Regulation S-K), and the compensation payable to each of them
to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of the Shareholder
or any of the current directors, current executive officers or current
significant employees of the Seller or the Shareholder has, within the past five
(5) years:
(i) (x) filed or had filed against it, him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar
law, or (y) had a receiver, conservator, fiscal agent or similar
officer appointed by a court for the business, property or assets of
such individual or corporation, or any partnership in which it, he or
she was a general partner or any other Person of which he or she was a
director or an executive officer or had a position having similar
powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to, any
crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding
(other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an
alleged violation of, or otherwise found by any Governmental or
Regulatory Authority to have violated: (x) any Requirement of Law
relating to securities or commodities, (y) any Requirement of Law
respecting financial institutions, insurance companies, or fiduciary
duties owed to any Person, (z) any Requirement of Law prohibiting
fraud (including, without limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting it, him or her from engaging in any type of business
activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act), (y) a contract
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market designated pursuant to Section 5 of the Commodity Exchange Act, as
amended, or (z) any substantially equivalent foreign authority or organization.
3.26. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Seller nor the Shareholder has engaged the services of any broker or
finder with respect to the transactions contemplated by this Agreement, and no
Person has or will have, as a result of the consummation of the transaction
contemplated by this Agreement, any right, interest or valid claim against or
upon the Purchaser for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Seller or
Shareholder. Without degradation to any of the foregoing, the Seller and the
Shareholder are solely responsible for the payment of the commissions, fees and
other compensation payable to the Person having any such right, interest or
claim on account of any action on the part of the Seller or Shareholder.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor the
Shareholder have granted, and there is not outstanding any option, right,
agreement, Contract or other obligation or commitment pursuant to which any
other Person could reasonably claim a right to acquire in any way the Purchased
Assets or any ownership or other material interest in either the Seller or the
Business.
3.28. Customers. The Disclosure Schedule accurately and completely lists
the names of the ten largest customers (in terms of dollar volume of purchases)
of the Seller and details the Seller's total revenue attributable to each such
customer for the fiscal years ended 1995, 1996 and 1997 and the current fiscal
year to date. Except as set forth in the Disclosure Schedule, there has been no
adverse change in the Seller's business relationship with any such customer
that, in the aggregate, would have a Material Adverse Effect upon the Seller or
the Business.
3.29. Investment Company. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder, as amended from time to time, or any successors thereto.
3.30. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule, there has not been with respect to the Seller:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or 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
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other acquisition of any of its capital stock, except any declaration
of dividends payable by the Seller.
(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
business to any person, including, without limitation, the Shareholder
and their Affiliates, other than distributions, sales or transfers in
the ordinary course of business to persons other than the Shareholder
and their Affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including
without limitation any indebtedness or obligation of the Shareholder
or any Affiliate thereof, other than the negotiation and adjustment of
bills in the course of good faith disputes with customers in a manner
consistent with past practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by the Seller outside the ordinary course of
its respective businesses; or
(xii) any cancellation or unscheduled termination of a material
Contract.
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3.31. Accuracy and Completeness of Information. To the knowledge of the
Seller and Shareholder, all information furnished, to be furnished or caused to
be furnished to the Purchaser by either the Seller or the Shareholder with
respect to the Purchased Assets, the Assumed Liabilities, the Business, the
Seller or the Shareholder for the purposes of or in connection with this
Agreement, or any transaction contemplated by this Agreement is or, if furnished
after the date of this Agreement, will be true and complete in all material
respects and does not, and, if furnished after the date of this Agreement, will
not, contain any untrue statement of material fact or fail to state any material
fact necessary to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser (i) are within the Purchaser's corporate powers and duly
authorized by all necessary corporate action on the part of the Purchaser and
(ii) do not (A) require any action by or in respect of, or filing with, any
governmental body, agency or official, except as set forth in this Agreement or
(B) contravene, violate or constitute, whether with or without the passage of
time or the giving of notice or both, a breach or default under, any Requirement
of Law applicable to Purchaser or any of its properties or any Contract to which
the Purchaser or any of its properties is bound, except filings and approvals in
connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser, threatened against or affecting, the
Purchaser or any of its properties or otherwise that could adversely affect or
restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
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4.5. Broker's or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Seller or Shareholder for any commission, fee or other
compensation as a finder or broker thereof on account of any action on the part
of the Purchaser. Without degradation to any of the foregoing, the Purchaser is
solely responsible for the payment of the commissions, fees and other
compensation payable to any Person having any such right, interest or claim on
account of any action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholder and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Seller, the Shareholder and the Purchaser shall
use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract, Permit or Requirement
of Law, that are necessary or advisable in connection with the consummation of
the transactions contemplated by this Agreement. Nothing contained herein shall
require either of the Seller or the Purchaser to amend the provisions of this
Agreement, to pay or cause any of its Affiliates to pay any money, or to provide
or cause any of its Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholder will and will cause the Seller to,
cooperate with the Purchaser in connection with the transactions contemplated by
this Agreement and any Purchaser Financing Transaction, including, without
limitation, cooperating in the determination of which Regulatory Approvals and
Consents are required or advisable to be obtained prior to the Closing Date.
Until the Closing Date, the Seller will, and the Shareholder will and will cause
the Seller to, afford to the Purchaser, its agents, legal advisors, accountants,
auditors, commercial and investment banking advisors and other authorized
representatives, agents and advisors reasonable access to all of the properties
and books and records of the Seller (including those in the possession or
control or their accountants, attorneys and any other third party), as the case
may be, for the purpose of permitting the Purchaser to make such investigation
and examination of the business and properties of the Seller as the Purchaser,
in its discretion, shall deem necessary, appropriate or desirable. Any such
investigation, access and examination shall be conducted upon reasonable prior
notice under the circumstances. The Seller will, and the
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Shareholder will cause the Seller to, cause each of their respective directors,
officers, employees and representatives, including, without limitation, their
respective counsel and accountants, to cooperate fully with the Purchaser in
connection with such investigation, access and examination. The results of such
investigation and examination is for the Purchaser's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by any or all of the
Seller or the Shareholder in this Agreement, (ii) relieve the Seller or the
Shareholder from its or their obligations with respect to such representations
and warranties (including, without limitation, the indemnification obligations
under Article 10), or (iii) mitigate the Seller's or the Shareholder'
obligations to disclose all material facts to the Purchaser with respect to the
Seller and the Business.
(b) The Purchaser will cooperate with the Seller in connection with the
transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Seller and its agents, legal advisors and accountants reasonable access to
all of the properties and books and records of the Purchaser (including those in
the possession or control or their accountants, attorneys and any other third
party), as the case may be, for the purpose of permitting the Seller to make
such investigation and examination of the business and properties of the
Purchaser and any of its Subsidiaries as the Seller, in its discretion, shall
deem necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Seller, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Seller's sole benefit, and shall not (i) impair or reduce any representation
or warranty made by the Purchaser in this Agreement, (ii) relieve the Purchaser
from its obligations with respect to such representations and warranties
(including, without limitation, the Purchaser's obligations under Article 10),
or (iii) mitigate the Purchaser's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser. The Purchaser will cooperate,
as reasonably requested and at Seller's expense, with Seller in its efforts to
sell the Real Estate that is to be subject to the Lease.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholder' discovery of the
occurrence of any development, event, circumstance or condition occurring after
the date hereof that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect upon the Purchased Assets, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller, the Shareholder shall, and
shall cause the Seller to, as the case may be, notify the Purchaser of such
development, event, circumstance or condition. In the event that the Purchaser
receives such notice or otherwise discovers the fact of any such development,
event, circumstance or condition, the Purchaser shall be entitled, at its
option, to terminate this Agreement within ten (10) days after so discovering
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without further obligation or liability upon the delivery of written notice to
the Seller to that effect; provided, however, that before Purchaser may exercise
its termination right, it must afford the Seller the opportunity to cure the
matter giving rise to the termination right (but for no longer than five days
following the date Purchaser notifies the Seller of its intent to terminate)
unless, in the judgment of the managing underwriter of the Initial Public
Offering, any such cure period might adversely affect the Initial Public
Offering.
(b) Promptly upon the Seller's or the Shareholder' discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by any or all of the Seller or the Shareholder to the Purchaser in this
Agreement to become untrue or inaccurate at any time after the date of this
Agreement, the Shareholder shall, and shall cause the Seller to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required for Purchaser Financing Transactions. The Seller
and the Shareholder shall furnish the Purchaser with the following information:
(a) any unaudited interim financial statements requested by the Purchaser
or any Underwriter to be included in any registration statement, prospectus,
document or other item, or any amendment or supplement thereof, relating any
Purchaser Financing Transaction, all of which shall (i) be in accordance with
the Books and Records maintained in accordance with good business practice and
in the normal and ordinary course of business, (ii) be prepared in accordance
with GAAP applied on a consistent basis (except for the absence of notes and
subject to normal year-end audit adjustments), (iii) present fairly the
financial position of the Seller as of the date thereof and the results of
operations and changes in Shareholder' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(b) such other written information with respect to themselves as the
Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto; provided, however, that the Purchaser will be responsible for
the expenses incurred by the Seller or Shareholder in connection with the
foregoing if (i) the Seller and Shareholder would not have incurred such
expenses but for their agreement herein and (ii) such expenses are out-of-pocket
expenses payable to a third party who is not an Affiliate of the Seller or
Shareholder.
5.6. Performance of Conditions. The Seller, the Shareholder and the
Purchaser shall, and the Shareholder shall cause the Seller to, take all
reasonable steps necessary or appropriate and use all commercially reasonable
efforts to effect as promptly as practicable the fulfillment of the conditions
required to be obtained that are necessary or advisable for the Seller and the
Purchaser to consummate the transactions contemplated by this Agreement
including, without limitation, all conditions precedent set forth in Article 6.
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5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Seller shall, and the Shareholder
shall cause the Seller to, operate the Business in the normal and ordinary
course in a manner consistent with past practice including, without limitation,
to do the following (except that, solely with respect to Subsection 5.7(h)
below, the Company shall be entitled to request the consent of the Purchaser to
take action, which consent shall not be unreasonably withheld, and, in the event
that the Purchaser fails to deliver to the Company its reply by telephone,
telecopy or in writing within 24 hours of receiving such request, such request
shall be deemed to be approved and the Company shall be entitled to proceed as
requested):
(a) to maintain the Seller's corporate existence and all Permits, bonds,
franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to preserve intact the
Seller's business relationships with its agents, customers, employees, creditors
and others with whom the Seller has a business relationship;
(d) to use its commercially reasonable best efforts to preserve the
Seller's assets, properties and rights (including, without limitation, the
Purchased Assets) necessary or advisable to the profitable conduct of the
Business;
(e) to pay when due all Taxes lawfully levied or assessed against the
Seller before any penalty or interest accrues on any unpaid portion thereof and
to file all Tax Returns when due (including after applicable extensions);
provided that no such payment shall be required which is being contested in good
faith and by proper proceedings and for which appropriate reserves as may be
required by GAAP have been established;
(f) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(g) to perform all material obligations under all Contracts to which the
Seller is a party or by which it or its properties are bound or subject;
(h) to maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments without the knowledge and consent of the
Purchaser, which consent shall not be unreasonably withheld; and
(i) to collect Receivables and pay Accrued Expenses in a manner consistent
with past practices.
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5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Seller shall not, and the Shareholder
shall not cause the Seller to do, and shall not permit the Seller to do,
directly or indirectly, any of the following without the express prior written
consent of the Purchaser, which consent shall not be unreasonably withheld
(except that, solely with respect to Subsection 5.8(n) and, to the extent
applicable, Subsection 5.8(q) below, the Company shall be entitled to request
the consent of the Purchaser to take action, which consent shall not be
unreasonably withheld, and, in the event that the Purchaser fails to deliver to
the Company its reply by telephone, telecopy or in writing within 24 hours of
receiving such request, such request shall be deemed to be approved and the
Company shall be entitled to proceed as requested):
(a) make or adopt any changes to or otherwise alter the Seller's
certificate or articles of incorporation, by-laws or any other governing or
constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance (other than salary increases aggregating
not more than $15,000 on an annualized basis);
(d) make any borrowings or otherwise create, incur, assume or guaranty any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business), issue any commercial paper or refinance any existing borrowings or
indebtedness other than in the ordinary course of business, except for the
borrowing by the Company against the cash value of certain life insurance
policies of an amount equal to approximately $130,000 to be used to repay the
outstanding mortgage on real property owned by the Company;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or an encumbrance on any
of the Seller's assets or the incurrence by the Seller of liabilities (other
than in the performance of services for customers in the ordinary course of
business) in any one transaction or series of related transactions in excess of
$10,000 and cause the aggregate commitment under all such new Contracts to
exceed $100,000, or (ii) involve a term of more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
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(h) enter into any transaction with any Affiliate of either or both of the
Seller or the Shareholder including, without limitation the purchase, sale or
exchange of property with, the rendering of any service to, or the making of any
loans to, any such Affiliate (provided that the foregoing will not restrict the
Seller's ability to pay bonuses to employees or to pay dividends on its common
stock);
(i) grant or issue any subscription, warrant, option or other right to
acquire any of the Seller's securities, whether debt or equity, and whether by
conversion or otherwise, or make any commitment to do so;
(j) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(k) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the Purchased
Assets;
(l) sell, lease, exchange, transfer or otherwise dispose of, or agree to
sell, lease, exchange, transfer or otherwise dispose of, any of the Seller's
assets with an individual fair market value of $5,000 or more, except for (i)
the disposition of obsolete or worn-out assets in the normal and ordinary course
of business, which assets do not exceed, in the aggregate, 5% of the Seller's
assets as reflected on the Seller Balance Sheet; (ii) sale-leaseback
transactions entered into in an arm's-length transaction in the ordinary course
of business or (iii) the sale of inventory in the ordinary course of business;
provided, however, that the Seller shall be permitted to sell the Real Property
that is subject to the Lease but only on the condition that the purchaser of
such Real Property agrees to lease it back to the Purchaser on terms no less
favorable to the Purchaser than are contained in the Lease;
(m) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended June 30, 1997, except, in either case, as may be required
by any applicable Requirement of Law, the IRS or GAAP;
(n) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(o) cause or permit the Seller or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination
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by the PBGC of any Employee Benefit Plan. As used in this Agreement, the terms
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in the Code and ERISA;
(p) enter into any transaction or conduct any operations not in the normal
and ordinary course of business; or
(q) enter into any Contract or make any commitment to do any of the
foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholder shall not: (i)
provide any information about the Seller or the Business to any Person (other
than the Purchaser or its representatives) with a view to sell, exchange or
dispose or solicit an offer for the acquisition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; (ii)
solicit or accept any other offers for the sale, exchange or other disposition
of any of the Purchased Assets or any ownership or other material interest in
the Seller or the Business; (iii) negotiate or discuss with any Person (other
than the Purchaser or any of its representatives) the possible sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; or (iv) sell, exchange or
otherwise dispose of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business, in any of the foregoing cases,
whether by equity sale, merger, consolidation, equity exchange, sale of assets
or otherwise. The Seller shall, and the Shareholder shall and shall cause the
Seller to, advise the Purchaser promptly of its or his receipt of any written
offer or written proposal concerning any of the Purchased Assets, the Seller, or
the Business or any material interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller nor
Shareholder shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the substance of this
Agreement prior to the consultation with and approval of the Purchaser. In
addition, prior to Closing, before the Purchaser issues a public statement that
refers to the Seller or Shareholder (other than in the Registration Statement)
the Purchaser will endeavor to consult with the Seller to the extent time
permits. Nothing contained herein shall restrict the ability of the Seller from
contacting a third party in order to obtain a Consent to the transactions
contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedule hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided that no amendment or supplement to the
Disclosure Schedule prepared by the Seller that constitutes or reflects an event
or occurrence that would
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have a Material Adverse Effect shall be effective unless the Purchaser consents
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 5.11.
Except as otherwise provided herein, no amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Seller and the Shareholder shall furnish or cause to be furnished
to the Purchaser and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Seller or the Shareholder
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Seller and the Shareholder agree promptly to advise the
Purchaser if at any time during the period in which a prospectus relating to the
Purchaser Financing Transaction is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Seller or the
Shareholder becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. The Purchaser agrees
to use its commercially reasonable best efforts to prepare and file the
Registration Statement as promptly as practicable, to furnish the Seller with a
copy thereof and each amendment thereto in substantially the form in which it is
to be filed as promptly as practicable prior to such filing (it being understood
that neither the Seller nor the Shareholder has any obligation to review the
same) and to diligently seek to cause the Registration Statement to be declared
effective and the Initial Public Offering to be completed. The Purchaser agrees
that neither the Seller nor the Shareholder shall have any responsibility for
pro forma adjustments that may be made to the Financial Statements.
(b) The Seller and the Shareholder acknowledge and agree: (i) that, prior
to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all; (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Shareholder, the Seller or any other person affiliated
or associated with the Seller for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all; and (iii) the decision of
the Shareholder and the Seller to enter into
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this Agreement and, if applicable, to vote in favor of or consent to the
transactions contemplated hereby, has been or will be made independent of, and
without reliance upon, any statements, opinions or other communications of, or
due diligence investigation which have been or will be made or performed by any
prospective Underwriter, relative to the Purchaser or the prospective Initial
Public Offering. The Seller acknowledges that shares of DocuNet Common Stock
received as a part of the Purchase Price, if any, will not be issued pursuant to
the Registration Statement; and, therefore, the Underwriters shall have no
obligation to the Seller or the Shareholder with respect to any disclosure
contained in the Registration Statement and neither Seller nor the Shareholder
may assert any claim against the Underwriters relating to the Registration
Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall provide to
Purchaser prior to the Closing Date the unaudited consolidated balance sheets of
the Seller for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and the unaudited consolidated statements of
income, cash flows and retained earnings of the Seller for such subsequent
fiscal months and quarters. In addition, the Seller shall prepare and deliver to
the Purchaser at Closing, the Most Recent Balance Sheet and shall deliver to the
Purchaser, within forty-five (45) days after the Closing Date, the Closing
Balance Sheet. Such financial statements, which shall be deemed to be Financial
Statements (as defined herein), shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except for the absence of notes and subject to
normal year-end audit adjustments).
5.14. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.10(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act, (ii) such compliance by the Seller and the Stockholder shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement, and such compliance by Purchaser shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to be
made. If filings under the Hart-Scott Act are required, the costs and expenses
thereof (including filing fees) shall be borne by Purchaser. The obligation of
each party to consummate the transactions contemplated by this Agreement is
subject to the expiration or termination of the waiting period under the
Hart-Scott Act, if applicable.
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5.16. Lease. At the Closing, Seller and Purchaser will execute the Lease
or, if the Real Property subject to such Lease has been sold to a third party,
Seller will cause such third party to lease such Real Property to the Purchaser
(by direct lease or assignment of Seller's Lease) on terms no less favorable to
the Purchaser than the terms contained in the Lease.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's Obligations. The Purchaser's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Purchaser of, prior
to or at the Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Seller and the Shareholder contained in this Agreement shall
be true and correct on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date except for those representations and warranties that by their terms
relate to an earlier date, which representations and warranties shall be true
and correct in all material respects with regard to such earlier date. The
Seller and each of the Shareholder shall execute and deliver to the Purchaser a
certificate dated the Closing Date, certifying that all of the Seller's and the
Shareholder' representations and warranties contained in this Agreement are true
and correct on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Seller and the
Shareholder shall have each performed and complied in all material respects with
each and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by the Seller and the Shareholder, as the case may be,
at or prior to the Closing Date. Each of the Seller and the Shareholder shall
execute and deliver to the Purchaser a certificate dated as of the Closing Date,
certifying that the Seller and the Shareholder have fully performed and complied
in all material respects with all the duties, obligations and conditions
required by this Agreement to be performed and complied with by them at or prior
to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholder shall have each
delivered to the Purchaser all documents, certificates, instruments and items
required to be delivered by him or it at or prior to the Closing Date pursuant
to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
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(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Most Recent Balance Sheet The Seller shall have delivered to the
Purchaser a true and complete copy of the Most Recent Balance Sheet, together
with a certificate dated the Closing Date, signed by the Seller's chief
financial officer that the Most Recent Balance Sheet is in accordance with the
Books and Records and with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments) and presents
fairly the financial position of the Seller as of its date.
(g) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Purchased Assets, or
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Seller.
(h) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the Purchaser
of all or any material portion of the business, assets or property of the
Seller; or (v) restraining, enjoining or prohibiting or seeking to restrain,
enjoin or prohibit the consummation of transactions contemplated by this
Agreement.
(i) Clerk's Certificate. The Seller shall have delivered to the Purchaser a
certificate or certificates dated as of the Closing Date and signed on its
behalf by its Clerk to the effect that (i)(A) the copy of the Seller's articles
of organization attached to the certificate is true, correct and complete, (B)
no amendment to such articles of organization has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct copy
of the Seller's bylaws as in effect on the date thereof and at all times since
the adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the Seller's and Shareholder's boards of
directors and Shareholder authorizing the actions taken in connection with the
sale of the Purchased Assets, including, without limitation, the execution,
delivery and performance of this Agreement, were duly adopted and continue in
force and effect (a copy of such resolutions to be annexed to such certificate);
and (ii) setting forth the Seller's incumbent
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officers and including specimen signatures on such certificate or certificates
as their genuine signatures.
(j) Opinion of Counsel of Seller. Palmer & Dodge LLP, counsel for the
Seller and the Shareholder, shall have delivered to the Purchaser its favorable
opinion, dated the Closing Date and in form and substance reasonably
satisfactory to the Purchaser and its counsel. In rendering such opinion,
counsel may rely to the extent recited therein on certificates of public
officials and of the Seller's officers as to matters of fact, and as to any
matter that involves other than federal or Massachusetts law, such counsel may
rely upon the opinion of local counsel reasonably satisfactory to the Purchaser
and its counsel.
(k) Employment Agreements. Each of the persons listed on Schedule 6.1(k)
shall have entered into an employment or consulting agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of Exhibit
E attached hereto.
(l) Escrow Agreement. Shareholder and the Seller shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
6.2. Conditions Precedent to Seller's Obligations. The Seller's obligation
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of, or waiver in writing by the Seller of, prior to or at the
Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the date of the Closing Date with
the same force as though such representations and warranties had been made on
and as of the Closing Date except for those representations and warranties that
by their terms relate to an earlier date, which representations and warranties
shall be true and correct in all material respects with regard to such earlier
date. The Purchaser shall execute and deliver to the Seller a certificate dated
as of the Closing Date, certifying that all of its representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser shall have
performed and complied in all material respects with each and every covenant,
agreement and condition required by this Agreement to be performed or satisfied
by the Purchaser at or prior to the Closing Date. The Purchaser shall execute
and deliver to the Seller a certificate dated as of the Closing Date, certifying
the Purchaser has fully performed and complied in all material respects with all
the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
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(c) Delivery of Documents. The Purchaser shall have delivered to the
Shareholder all documents, certificates, instruments and items required to be
delivered by it at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Seller to sell any of the Purchased Assets;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Seller or
any of its directors, officers or employees or on the Shareholder; or (iv)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements.
(g) Secretary's Certificate. The Purchaser shall have delivered to the
Seller a certificate or certificates dated as of the Closing Date and signed on
its behalf by its Secretary to the effect that (i)(A) the copy of the
Purchaser's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Purchaser's bylaws as
in effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Purchasers's board of directors authorizing the actions taken
in connection with the purchase of the Purchased Assets including, without
limitation, the execution, delivery and performance of this Agreement were duly
adopted and continue in force and effect (a copy of such resolutions to be
annexed to such certificate) and (ii) setting forth the incumbent officers of
the Purchaser and including specimen signatures on such certificate or
certificates of such officers executing this Agreement on behalf of the
Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Seller and Shareholder its
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(i). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of
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Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to effect the sale of the Purchased Assets and the
assumption of the Assumed Liabilities referred to herein; provided, that such
actions shall not include the actual completion of the sale and purchase of the
Purchased Assets and the assumption of the Assumed Liabilities, the delivery of
the Bill of Sale and the Assignment and Assumption Agreement, and the delivery
of the check(s) (or wire transfers) referred to in Section 2 hereof, each of
which actions shall only be taken upon the Closing Date as herein provided. In
the event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Seller advises Purchaser are required by
applicable laws of the Commonwealth of Massachusetts in order to rescind any
actions taken in furtherance of the sale of the Purchased Assets and the
assumption of the Assumed Liabilities as described in this Section. The taking
of the actions described above shall take place on the Pricing Date at the
offices of Pepper, Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch
Streets, Philadelphia, PA 19103. On the Closing Date (i) (a) the Seller's duly
executed Bill of Sale, (b) the Seller's duly executed counterpart to the
Assignment and Assumption Agreement and (c) all such endorsements, assignments
and other instruments of transfer and conveyance including, without limitation,
waivers or consents of lessors and other third Persons, and releases,
satisfactions and termination statements from secured parties, as may be
necessary to vest in the Purchaser indefeasible and marketable legal and
beneficial title to the Purchased Assets, free and clear of all Encumbrances, to
effect the assignment and assumption of the Assumed Liabilities and to
consummate the transactions contemplated by this Agreement, all of which shall
be in form and substance reasonably satisfactory to the Purchaser, (ii) all
transactions contemplated by this Agreement, the delivery of a bank check or
checks or a wire transfer in an amount equal to the consideration which the
Seller shall be entitled to receive pursuant to Section 2 hereof, and the
delivery of the documents contemplated to be delivered by Purchaser, Seller and
Shareholder pursuant to Section 6 hereof, and (iii) the closing with respect to
the Initial Public Offering shall occur and be deemed to be completed. The date
on which the actions described in the preceding clauses (i), (ii) and (iii)
occurs shall be referred to as the "Closing Date." Except as otherwise provided
in Section 11 hereof, during the period from the Pricing Date to the Closing
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
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ARTICLE 8
COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and not disclose any Confidential Information about any other
party to any Person unless the party desiring to disclose such Confidential
Information receives the prior written consent of the party about whom such
Confidential Information pertains, except (i) to any party's directors,
officers, employees, agents, advisors and representatives who have a need to
know such Confidential Information for the performance of their duties as
employees, agents or representatives, (ii) to the extent strictly necessary to
obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in thatcertain letter agreement among the Purchaser, the Seller and
the Shareholder dated June 24, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to
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directly or indirectly seek to acquire or merge with, or pursue or respond to,
with an intent to acquire or merge with, any Purchaser Targets until the later
of 300 days after the date of this Agreement or 180 days after termination of
this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Seller to enter into a provision similar to this Section 8.1 requiring each such
Founding Company to keep confidential any information obtained by such Founding
Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
consummation of the transactions contemplated by this Agreement, each of the
Seller and the Shareholder shall not, during the Restricted Period, do any of
the following, directly or indirectly, without the prior written consent of the
Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or any of its
Affiliates or Subsidiaries, or any of their respective successors or assigns,
whether now existing or hereafter created or acquired (collectively, the
"Related Companies"), or otherwise engage or participate, directly or
indirectly, in the business conducted by Purchaser or a Subsidiary as generally
described in the Registration Statement (the "Restricted Business") within any
geographic area located within the United States of America, its possessions or
territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner, co-
venturer, director, officer, employee, agent, consultant or otherwise), directly
or indirectly, in any Person that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8.2(b) shall
prohibit the Shareholder from owing, as a passive investor, not more than five
percent (5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's or any of the Related Companies' (A) customers or distributors
or prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser or any of the
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related Companies
or (D) employees (other than family members) to leave the employ of the
Purchaser or any of the Related Companies.
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8.3. Specific Enforcement; Extension of Period.
(a) The Seller and the Shareholder acknowledges that any breach or
threatened breach by it or him of any provision of Sections 8.1 or 8.2 will
cause continuing and irreparable injury to the Purchaser and the Related
Companies for which monetary damages would not be an adequate remedy.
Accordingly, the Purchaser and any of the Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, neither the Seller nor the Shareholder shall, in any action or
proceeding to so enforce any provision of this Article 8, assert the claim or
defense that an adequate remedy at law exists or that injunctive relief is not
appropriate under the circumstances. The rights and remedies of the Purchaser
and any of the Related Companies set forth in this Section 8.3 are in addition
to any other rights or remedies to which the Purchaser or any of the Related
Companies may be entitled, whether existing under this Agreement, at law or in
equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
Seller's or the Shareholder's, as applicable, first breach of the provisions of
Sections 8.1 or 8.2 or service of process upon the Seller or the Shareholder, as
applicable, through the expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and the Shareholder acknowledge that the
Purchaser or any of the Related Companies may provide a copy of this Agreement
or any portion of this Agreement to any Person with, through or on behalf of
which any of the Seller or the Shareholder may, directly or indirectly, breach
or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the parties that the
provisions of this Article 8 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if any
provision of this Article 8 shall be determined to be invalid, unenforceable or
illegal for any reason, then the validity and enforceability of all of the
remaining provisions of this Article 8 shall not be affected thereby. If any
particular provision of this Article 8 shall be adjudicated to be invalid or
unenforceable, then such provision shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such amendment to
apply only to the operation of such provision in the particular jurisdiction in
which such adjudication is made; provided that, if any provision contained in
this Article 8 shall be adjudicated to be invalid or unenforceable because such
provision is held to be excessively broad as to duration, geographic scope,
activity or subject, then such provision shall be deemed amended by limiting and
reducing it so as to be valid and enforceable to the maximum extent compatible
with the applicable laws and public policy of such jurisdiction, such amendment
only to apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
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8.6. Acknowledgment. Each of the Seller and the Shareholder acknowledges
that it has carefully read and considered the provisions of this Article 8. Each
of the Seller and the Shareholder acknowledges and understands that the
restrictions contained in this Article 8 may limit its ability to conduct a
business similar to that of the Purchaser or any of the Related Companies, but
each of the Seller and the Shareholder nevertheless believes that it has
received and will receive sufficient consideration and other benefits to justify
such restrictions. Each of the Seller and the Shareholder also acknowledges and
understands that these restrictions are reasonably necessary to protect the
Purchaser's and the Related Companies' interests, and each of the Seller and the
Shareholder do not believe that such restrictions will prevent it from
conducting businesses that are not competitive with those of the Purchaser or
any of the Related Companies during the term of such restrictions in the
Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1 and the provisions
of Section 2.7, the representations and warranties of the Seller and the
Shareholder on the one hand, and the Purchaser on the other hand, contained in
this Agreement shall survive until the second anniversary of the Closing Date,
except that the representations and warranties set forth in each of Section 3.9,
Section 3.17, Section 3.20 and Section 3.25 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Seller and the Shareholder on
the one hand, and of the Purchaser on the other hand, contained in this
Agreement will survive the Closing until, by their own respective terms, they
have been fully performed. Any representation, warranty, covenant or agreement
that would otherwise terminate in accordance with this Article 9 will continue
to survive if an Indemnity Notice, an Unliquidated Indemnity Notice or a Claim
Notice (as applicable) shall have been given in good faith based on facts
reasonably expected to establish a valid claim under Article 10 on or prior to
the date on which such representation, warranty, covenant or agreement would
have otherwise terminated, until the related claim for indemnification has been
satisfied or otherwise resolved as provided in Article 10. Any breach of
representation or warranty contained in this Agreement made by any party or any
written information furnished by any party that was made by such party
fraudulently or with intent to defraud or mislead or with gross negligence shall
indefinitely survive the Closing. Any representation or warranty made by the
Seller or the Shareholder in this Agreement or any written information furnished
or caused to be furnished by the Seller or the Shareholder to the Purchaser that
is incorporated in, or is the basis for omitting information from, the
Registration Statement, prospectus or other document, or any amendment or
supplement thereof in connection with any Purchaser Financing Transaction shall
survive until the expiration of all applicable statutes of limitations regarding
claims brought by investors in such Purchaser Financing Transaction alleging
material misstatements or omissions in such documents.
9.2. [Intentionally omitted.]
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9.3. Underwriter's Benefit. The representations and warranties and
covenants made by the Seller or the Shareholder contained in this Agreement or
any document, instrument, certificate or other item furnished or to be furnished
to Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly and subject to Section 2.7, any
such Underwriter, and each person, if any, who controls any such Underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, shall be
(i) an intended beneficiary of this Agreement, and (ii) deemed to be an
Indemnified Party for the purposes of the indemnification provided for in
Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholder's Indemnification. From and after the Closing
Date, the Seller and the Shareholder shall, jointly and severally, indemnify and
hold harmless the Purchaser and any of its Affiliates, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or any such
Affiliate, and each of their respective directors, officers, employees, agents,
successors and assigns and legal representatives, from and against all
Indemnifiable Losses that may be imposed upon, incurred by or asserted against
any of them resulting from, related to, or arising out of (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by the Seller or the Shareholder under this Agreement or any
document, instrument, certificate or other item required to be furnished to the
Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement; (ii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Seller or the Shareholder pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Seller or the Shareholder to the
Purchaser; provided that the Seller and Shareholder hereby acknowledge that the
information concerning the Seller and Shareholder in the Registration Statement,
except for any pro forma adjustments that may be made to the Financial
Statements in accordance with Section 5.12 shall be deemed to be provided to the
Purchaser for the purposes hereof; provided further that the Seller and
Shareholder shall not be liable for claims made under a prospectus that is based
upon any such misrepresentation or breach of a warranty or upon any such untrue
statement or omission if the prospectus is distributed after the Seller or
Shareholder has notified the Purchaser in writing to correct such specific
misstatement or omission; (iii) any obligation and liability of the Seller or
the Shareholder of any nature whatsoever, whether now existing or hereafter
arising or incurred (including without limitation Massachusetts tax liens),
except for the Assumed Liabilities;
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(iv) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like by the Seller; (v) any action,
claim or demand by any holder of the Seller's securities, whether debt or
equity, in such holder's capacity as such, whether now existing or hereafter
arising or incurred; (vi) any non-compliance with the Worker Adjustment and
Retraining Act, 29 U.S.C. ss.2101, et seq., as amended, and the rules and
regulations promulgated thereunder and any similar Requirement Law; and (vii)
any Legal Proceeding or Order, arising out of any of the foregoing even though
such Legal Proceeding or Order may not be filed, become final, or come to light
until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser shall indemnify and hold harmless the Seller and the Shareholder and
each of their respective legal representatives, successors and assigns from and
against all Indemnifiable Losses imposed upon, incurred by or asserted against,
the Seller or the Shareholder resulting from, related to, or arising out of: (i)
any misrepresentation, breach of any warranty or non-fulfillment of any covenant
to be performed by the Purchaser under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholder pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) Assumed Liabilities; (iii) any
untrue statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except for any untrue statement or omission contained in any
information furnished or caused to be furnished by the Seller or Shareholder;
and (iv) any Legal Proceeding or Order arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to
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give the Indemnifying Party the Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Indemnity Notice. Within thirty (30)
days after the receipt by the Indemnifying Party of the Indemnity Notice, the
Indemnifying Party shall either (i) pay to the Indemnified Party an amount equal
to the Indemnifiable Loss or (ii) object to such claim, in which case the
Indemnifying Party shall give written notice to the Indemnified Party of such
objection together with the reasons therefor, it being understood that the
failure of the Indemnifying Party to so object shall preclude the Indemnifying
Party from asserting any claim, defense or counterclaim relating to the
Indemnifying Party's failure to pay any Indemnifiable Loss. The Indemnifying
Party's objection shall not, in and of itself, relieve the Indemnifying Party
from its obligations under this Article 10. In the event that the parties are
unable to resolve the subject of the Indemnity Notice, the issue shall be
submitted for determination to a neutral third party designated by the President
of the Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall promptly, and in any event, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Promptly, but in any event within sixty (60) days
after the amount of such claim shall be finalized, resolved, or liquidated, the
Indemnified Party shall give the Indemnifying Party an Indemnity Notice, and the
Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action, or threatened claim or demand by
any third Person against the Indemnified Party, the Indemnified Party, within
the earlier of, as applicable, ten (10) days after receiving notice of the
filing of a lawsuit or sixty (60) days after receiving notice of the existence
of a claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Government Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction
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or the provisions of Section 3.20, the Indemnifying Party shall be entitled to
defend such claim in the name of the Indemnified Party at its own expense and
through counsel of its own choosing; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the Indemnified Party and the Indemnifying Party and the
Indemnified Party reasonably concludes that there are defenses available to it
that are different or additional to those available to the Indemnifying Party or
if the interests of the Indemnified Party may be reasonably deemed to conflict
with those of the Indemnifying Party, then the Indemnified Party shall have the
right to select separate counsel and to assume the Indemnified Party's defense
of such claim, demand or Legal Proceeding, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.20, to the extent the same involves the tax position of the
Indemnified Party, the Purchaser shall have right to control the defense thereof
at the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled
to defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure
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to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes involving the tax position of the
Purchaser shall be settled without the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser or any controlling Person of the Purchaser (within
the meaning of the Securities Act) makes a claim for indemnification pursuant to
Section 10.1(ii) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
Section 10.1(ii) provides for indemnification in such case, then, the Purchaser,
each controlling Person, the Seller and the Shareholder will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
Person may be subject (after contribution from others) as is appropriate to
reflect the relative fault of the Purchaser, such controlling Person, the
Seller, and the Shareholder in connection with the statements or omissions which
resulted in such Indemnifiable Losses, as well as the relative benefit received
by the Purchaser, such controlling Person, the Seller and the Shareholder as a
result of the issuance of the securities to which such Indemnifiable Losses
relate, it being understood that the parties acknowledge that the overriding
equitable consideration to be given effect in connection with this provision is
the ability of one party or the other to correct the statement or omission which
resulted in such Indemnifiable Losses, and that it would not be just and
equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; provided, however, that,
in any such case, no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser and the other Persons or
entities indemnified pursuant to Section 10.1 shall not assert any claim for
indemnification hereunder against the Seller or the Shareholder until such time
as the aggregate of all claims which such persons may have against the Seller or
the Shareholder shall exceed $45,000 (the "Indemnification Threshold"),
whereupon such claims shall be indemnified in full. Neither the Seller nor the
Shareholder shall assert any claim for indemnification hereunder against
Purchaser until such time as the aggregate of all claims which Seller or the
Shareholder may have against Purchaser shall exceed $45,000, whereupon such
claims shall be indemnified in full. The limitation on assertion of claims for
indemnification contained in this paragraph shall apply only to claims based
upon
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inaccuracies in, or breaches of, representations and warranties contained in
this Agreement or any document, instrument, certificate or other item required
to be furnished pursuant to this Agreement or in connection with the transaction
contemplated by this Agreement.
No person shall be entitled to indemnification under this Section 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Seller, the Shareholder and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Seller's or Shareholder's representations or warranties
contained in this Agreement were materially incorrect when made or become
materially incorrect;
(c) at any time before the Closing, by the Seller if any of the Purchaser's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one hand, or by
the Purchaser, on the other hand, upon any material breach by other(s) of such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non- breaching party to the
breaching party;
(e) at any time after the date which is 180 days after the date of this
Agreement, by the Seller on the one hand, or by the Purchaser on the other hand,
upon notification to the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party;
or
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(f) at any time before the Closing, by the Purchaser or Seller if the
shareholders of the Shareholder have not approved the transactions contemplated
hereby by October 10, 1997.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Seller, the Shareholder or the Purchaser
and all rights and obligations of each party to this Agreement shall cease;
provided, that (i) the provisions with respect to expenses in Section 14.4 shall
indefinitely survive any such termination; (ii) the provisions with respect to
confidentiality of Section 8.1 shall survive any such termination until it, by
its own terms, is no longer operative; (iii) the provision with respect to
exclusivity of negotiation in Section 5.9 shall survive for 180 days after such
termination, but only if the termination is made by the Purchaser pursuant to
Section 11.1(b), Section 11.1(d) or 11.1(f); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Further Cooperation. From and after the Closing Date, the Seller and
Shareholder shall assist and cooperate with the Purchaser in effecting the
orderly transfer of the Purchased Assets to the Purchaser. In addition, at the
Purchaser's request from time to time, the Seller and Shareholder shall execute
and deliver to the Purchaser such further endorsements, assignments and
instruments of transfer and conveyance and take such other actions as the
Purchaser reasonably requests to transfer, vest or perfect the Purchaser's
rights in and to the Purchased Assets free and clear of all Encumbrances and
otherwise to accomplish the orderly transfer of the Purchased Assets to the
Purchaser and to consummate the transactions contemplated by this Agreement. In
addition, the Seller and Shareholder shall (i) provide or cause to be provided
such written information with respect to themselves, (ii) execute and deliver or
cause to be executed and delivered such other documents, certificates or
instruments, and (iii) take or cause to be taken such actions, in each of the
foregoing cases, as the Purchaser, any
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Underwriter or any auditor reasonably deems necessary or desirable to complete
any audit of the Seller's financial statements (including, but not limited to,
the execution of management representation letters to any auditor by the
Seller's management or the Shareholder) or in connection with any Purchaser
Financing Transaction; provided, that neither the Seller nor the Shareholder
shall be required to execute any guaranty of any indebtedness obtained by the
Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3) years
after the Closing Date, the Purchaser shall maintain all Books and Records
maintained by the Seller on or prior to the Closing Date which are transferred
to the Purchaser and shall permit the Seller or the Shareholder or their
respective representatives and agents access, at the Seller's or the
Shareholder' sole cost and expense, to all such Books and Records, upon
reasonable notice by the Seller or the Shareholder, as applicable, and on terms
not disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholder, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by the Seller or the Shareholder
after the Closing Date or in completing any of the reasonable and customary
business objectives, (ii) prosecuting or defending on behalf of the Seller or
the Shareholder any litigation controlled by the Seller or the Shareholder under
Section 10.3(c) of this Agreement or (iii) complying with requests made of the
Seller or the Shareholder by any Taxing Authority or any Governmental or
Regulatory Authority conducting an audit, investigation or inquiry relating to
the Seller's activities during periods prior to the Closing Date. The Seller and
the Shareholder will hold all information provided to them pursuant to this
Article 12 (and any information derived therefrom) in confidence to the same
extent as required by Section 5.5 of this Agreement with respect to Confidential
Information.
12.3. By Seller and Shareholder. For a period of three (3) years after the
Closing Date, the Seller and the Shareholder shall maintain all Books and
Records possessed or to be possessed by the Seller and the Shareholder that
relate to the Business prior to the Closing Date. The Seller and the Shareholder
shall permit the Purchaser or its representatives and agents access, at the
Purchaser's sole cost and expense, to all of such Books and Records upon
reasonable prior written notice for any reasonable business purpose.
12.4. Use of Name. From and after the Closing Date, the Seller and the
Shareholder shall: (i) sign such consents and take such other actions as the
Purchaser shall reasonably request to permit the Purchaser to use the name
Spaulding Company, Inc. and all variants thereof (the "Name"); (ii) cease to use
the Name; and (iii) take all necessary action to change its corporate and trade
to such name or names that are substantially different from and not confusingly
similar to the Name.
12.5. [Intentionally omitted.]
12.6. Receivables. If, at any time after the Closing Date, the Seller or
the Shareholder shall receive any payments on account of any of the Receivables
or other rights to
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payment constituting a part of the Purchased Assets, then the Seller or the
Shareholder, as applicable, shall hold such funds in trust for, and shall
promptly remit such funds to the Purchaser immediately upon receipt thereof. The
Seller hereby, effective from and after the Closing Date, authorizes and grants
to the Purchaser (acting through any one or more of the Purchaser's authorized
representatives or agents) a power of attorney to endorse the Seller's name on
any check or any other remittances received by the Purchaser on account of the
Receivables. The foregoing power of attorney is coupled with an interest and is
irrevocable.
12.7. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Shareholder or the Seller become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of Seller or the Shareholder in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the Seller and the Shareholder shall promptly give notice of such fact
or circumstance to Purchaser.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller and the Shareholder shall jointly and severally indemnify and
hold harmless the Purchaser from and against all Transfer Taxes. All Taxes on
the ownership or use of the Purchased Assets (specifically excluding Taxes
measured by the net income of any party) that accrue on or prior to the Closing
Date shall be paid by the Seller, and all such Taxes that accrue after the
Closing Date shall be paid by the Purchaser; provided, that all such Taxes shall
be prorated to the Closing Date. Should Purchaser pay any such Taxes that accrue
on or prior to the Closing Date, Seller shall, immediately upon request, pay to
Purchaser that portion of such Taxes that accrued prior to the Closing Date.
ARTICLE 14
MISCELLANEOUS
14.1. Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 14.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
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(a) If to the Seller or Shareholder:
Mr. Walter Gilbert, Chairman
c/o Spaulding Company, Inc.
80 Hawes Way
Stoughton, MA 02072
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Jackson W. Wright, Jr.
(b) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
14.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
14.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
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14.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel, provided that the fees and expenses of
Arthur Andersen LLP in connection with the audit of Seller's June 30, 1997
financial statements shall be borne by the Purchaser (but shall be borne by
Seller if the shareholders of the Shareholder do not approve the transactions
contemplated hereby by October 10, 1997).
14.5. Further Assurances. Any or all of the Seller or the Shareholder on
the one hand, and the Purchaser on the other hand, shall, at their own
respective expense, from time to time upon the request of the other party,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by such other party, such other documents, certificates
and instruments and take such actions as such other party deem reasonably
necessary to consummate more fully the transactions contemplated by this
Agreement.
14.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
14.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
14.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Seller, the Shareholder nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser or entity owning all of the
capital stock of Purchaser, provided that such assignment shall not relieve the
Purchaser of any of its obligations hereunder.
14.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
14.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such
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prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such provision, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
14.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
IN WITNESS WHEREOF, the Shareholder, the Purchaser and the Seller have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce Gillis
_______________________________
Bruce Gillis
SPAULDING COMPANY, INC.
By: /s/ Mr. Walter Gilbert
_______________________________
Mr. Walter Gilbert,
Chairman
SEMCO INDUSTRIES, INC.
By: /s/ Carmen DiMatteo
________________________________
Carmen DiMatteo
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Schedule 6.2(i)
(____________________) __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of ______________________, 1997 (the "Purchase
Agreement"), among the Purchaser, __________________ , a __________________
corporation (the "Seller"), and ("Stockholder"). This opinion is furnished to
you pursuant to Section _________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natuua1 persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
A. The Purchaser is a corporation duly organized validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary corporate
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power and authority to enter into the Transaction Documents and to consummate
the transactions contemplated thereby.
B. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
C. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
D. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorginaztion, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope.
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
_______________________________
A Partner
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EXHIBIT A
Assignment and Assumption Agreement
To be delivered at a later date.
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<PAGE>
EXHIBIT B
Bill of Sale
To be delivered at a later date.
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<PAGE>
Schedule 1.54A
Lease
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Semco Industries, Inc., a Massachusetts corporation
("Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______
(the "Escrow Agent"). The Purchaser, the Seller and the Escrow Agent are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LIEN
IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW AGREEMENT DATED
________ ___, 1997 BY AND AMONG THE PURCHASER, CERTAIN PERSONS, AND
___________ AS ESCROW AGENT. THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ON TRANSFER UNTIL RELEASED FROM SUCH RESTRICTIONS IN
ACCORDANCE WITH THE TERMS OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
Mr. Walter Gilbert, Chairman
c/o Spaulding Company, Inc.
80 Hawes Way
Stoughton, MA 02072
With a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Jackson W. Wright, Jr., Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:________________________________
Name:
Title:
SEMCO INDUSTRIES, INC.
By:________________________________
[ESCROW AGENT]
By:________________________________
Name:
Title:
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EXECUTION
DOCUNET INC.
TIMCO ACQUISITION CORPORATION
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
TOTAL INFORMATION MANAGEMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES..................................11
2.1. Agreement to Sell and Purchase Assets...........................11
2.2. Intentionally Omitted ..........................................11
2.3. Consideration and Payment.......................................11
2.4. Payment of Purchase Price.......................................15
2.5. Delivery of Shares..............................................16
2.6. Allocation of Purchase Price....................................16
2.7. Assumption of Liabilities.......................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDER................................................17
3.1. Organization; Qualification; Good Standing......................17
3.2. Authorization for Agreement.....................................18
3.3. Ownership; Subsidiaries and Affiliates..........................18
3.4. Enforceability..................................................19
3.5. Legal Proceedings and Orders....................................19
3.6. Title to the Purchased Assets and Related Matters...............19
3.7. Compliance with Laws............................................19
3.8. Labor Matters...................................................20
3.9. Employee Benefit Plans..........................................21
3.10. Financial Statements...........................................23
3.11. Absence of Undisclosed Liabilities.............................24
3.12. Real Property..................................................24
3.13. Tangible Personal Property.....................................25
3.14. Contracts......................................................26
3.15. Insurance......................................................28
3.16. Proprietary Rights.............................................29
3.17. Environmental Matters..........................................29
3.18. Permits........................................................30
3.19. Regulatory Filings.............................................30
3.20. Taxes and Tax Returns..........................................31
3.21. Affiliate Transactions.........................................32
3.22. Accounts.......................................................32
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3.23. Receivables....................................................32
3.24. Solvency.......................................................32
3.25. Officers and Directors.........................................33
3.26. Broker's or Finders............................................34
3.27. No Other Agreements to Sell Assets.............................34
3.28. Customers......................................................34
3.29. Investment Company.............................................34
3.30. Absence of Changes.............................................34
3.31. Accuracy and Completeness of Information.......................36
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................36
4.1. Organization....................................................36
4.2. Authorization for Agreement.....................................36
4.3. Enforceability..................................................37
4.4. Litigation......................................................37
4.5. Registration Statement..........................................37
4.6. Brokers or Finders..............................................37
ARTICLE 5 - COVENANTS.......................................................37
5.1. Good Faith......................................................37
5.2. Approvals.......................................................37
5.3. Cooperation; Access to Books and Records........................38
5.4. Duty to Supplement..............................................39
5.5. Information Required for Purchaser Financing Transactions.......39
5.6. Performance of Conditions.......................................40
5.7. Conduct of Business.............................................40
5.8. Negative Covenants..............................................41
5.9. Exclusive Negotiation...........................................43
5.10. Public Announcements...........................................44
5.11. Amendment of Schedules.........................................44
5.12. Cooperation in Preparation of Registration Statement...........44
5.13. Examination of Final Financial Statement.......................45
5.13A. Audit Opinion.................................................45
5.14. Lock-Up Agreements.............................................46
5.15. Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott Act")..............46
5.16. Release of Guarantees..........................................46
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................47
6.1. Conditions Precedent to Purchaser's and Parent's Obligations....47
6.2. Conditions Precedent to Seller's Obligations....................49
ARTICLE 7 - CLOSING.........................................................51
ARTICLE 8 - COVENANT NOT TO COMPETE.........................................52
8.1. Confidentiality.................................................52
8.2. Covenant Not To Compete.........................................53
8.3. Specific Enforcement; Extension of Period.......................54
8.4. Disclosure......................................................55
8.5. Interpretation..................................................55
8.6. Acknowledgment..................................................55
ARTICLE 9 - SURVIVAL........................................................56
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................56
9.2. [Intentionally omitted.]........................................56
9.3. Underwriter's Benefit...........................................56
ARTICLE 10 - INDEMNIFICATION................................................57
10.1. Seller and Shareholders' Indemnification.......................57
10.2. Purchaser's and Parent's Indemnification.......................58
10.3. Payment; Procedure for Indemnification.........................58
10.4. Equitable Contribution Under the Securities Act................60
10.5. Exclusiveness of Indemnification...............................61
10.6. Limitations on Indemnification.................................61
ARTICLE 11 - TERMINATION AND REMEDIES.......................................62
11.1. Termination....................................................62
11.2. Effect of Termination..........................................62
ARTICLE 12 - POST-CLOSING COVENANTS.........................................63
12.1. Further Cooperation............................................63
12.2. Maintenance of Books and Records...............................63
12.3. By Seller and Shareholders.....................................64
12.4. Use of Name....................................................64
12.5. Discharge of Obligations.......................................64
12.6. Receivables....................................................64
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12.7. Disclosure.....................................................65
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS.............................65
ARTICLE 14 - TRANSFER RESTRICTIONS..........................................65
14.1. Transfer Restrictions..........................................65
ARTICLE 15 - SECURITIES LAWS REPRESENTATIONS................................66
15.1. Compliance with Law............................................66
15.2. Economic Risk; Sophistication..................................67
ARTICLE 16 - REGISTRATION RIGHTS............................................67
16.1. Piggyback Registration Rights..................................67
16.2. Registration Procedures........................................68
16.3. Underwriting Agreement.........................................68
16.4. Availability of Rule 144.......................................68
16.5. Survival.......................................................68
16.6. Applicability to Shareholders..................................69
ARTICLE 17 - MISCELLANEOUS..................................................69
17.1. Notices........................................................69
17.2. No Third Party Beneficiaries...................................70
17.3. Schedules......................................................70
17.4. Expenses.......................................................70
17.5. Further Assurances.............................................70
17.6. Entire Agreement; Amendment....................................70
17.7. Section and Paragraph Titles...................................71
17.8. Binding Effect.................................................71
17.9. Counterparts...................................................71
17.10. Severability...................................................71
17.11. Governing Law..................................................71
SCHEDULES
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or
supplemented from time to time, this "Agreement") is hereby made this 9th day of
September, 1997 by and among Total Information Management Corporation (the
"Seller"), a California corporation (the "Company"), James Bunker and Jeffry
Kalmon (each a "Shareholder" and collectively, the "Shareholders"), and TIMCO
Acquisition Corp., a Pennsylvania corporation ("Purchaser") and DocuNet Inc., a
Pennsylvania corporation (the "Parent").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document
management services. Shareholders own one hundred percent (100%) of the issued
and outstanding shares of the Seller's capital stock. Purchaser is a
wholly-owned subsidiary of the Parent. The Seller desires to sell to the
Purchaser and the Purchaser desires to purchase from the Seller all of the
Seller's assets that are used in or related to the operation of the Seller's
document management, document software and related businesses (the "Business"),
together with the goodwill related to the Business in accordance with the
provisions set forth in this Agreement. Except for those specific obligations
and liabilities of the Seller identified in this Agreement, the Purchaser is
assuming none of the Seller's obligations or liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. [Intentionally omitted.]
1.2. Accounts shall have the meaning set forth in Section 3.26.
1.3. Accrued Expenses shall mean, as of any date of determination,
accrued expenses as would appear on a balance sheet of the Business as of such
date prepared in accordance with GAAP, but specifically excluding any amounts
payable to any of the Seller's or the Shareholder's Affiliates or to any of the
Seller's directors, officers or employees that is contingent upon or payable as
a result of the transactions contemplated by this Agreement.
1.4. Acquired Liabilities shall mean, as of the applicable date,
Seller's Accounts Payable, Accrued Payroll and Related Liabilities, Other
Accrued Expenses and deferred revenue
<PAGE>
under service contracts and maintenance agreements, as would appear on a balance
sheet of the Company as of such date prepared in accordance with GAAP and
incurred in the ordinary course of business consistent with past practices.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable
date, the Seller's fixed assets as categorized on the Seller Balance Sheet
reported in accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable
date, the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current
Assets, minus Seller's Acquired Liabilities, reported on the Seller Balance
Sheet in accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable
date, the Seller's Current Assets minus its Acquired Liabilities, as reported on
the Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in
Section 3.21.
1.10. Allocation Schedule shall have the meaning set forth in
Section 2.6.
1.11. Assignment and Assumption Agreement shall mean the Assignment
and Assumption Agreement to be executed and delivered by and between the
Purchaser and the Seller in the form attached to this Agreement as Exhibit A.
1.12. Assumed Liabilities shall have the meaning set forth in
Section 2.7.
1.13. Balance Sheet Date shall mean June 30, 1997.
1.14. Bill of Sale shall mean the Bill of Sale to be executed and
delivered by the Seller to the Purchaser in the form attached to this Agreement
as Exhibit B.
1.15. Books and Records shall mean all records, documents, lists and
files, relating to either or both of the Purchased Assets or the Business
including, without limitation,
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price lists, lists of accounts, customers, suppliers and personnel, all product,
business and marketing plans, historical sales data and all books, ledgers,
files and business records (including, without limitation, all financial records
and books of account) of or relating to either or both of the Purchased Assets
or the Business; in any of the foregoing cases, whether in electronic form or
otherwise.
1.16. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.17. Cash Purchase Price shall have the meaning set forth in
Section 2.4.
1.18. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.19. Closing shall have the meaning set forth in Article 7.
1.20. Closing Balance Sheet shall mean the unaudited balance sheet
delivered by the Seller to the Purchaser as of the date immediately prior to the
Closing Date, in accordance with Section 3.10(d).
1.21. Closing Date shall mean the date on which the Closing actually
takes place.
1.22. [Intentionally omitted.]
1.23. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.24. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials, documents, financial reports,
business plans and marketing data that relate to the business, strategies or
operations of the parties hereto or a Potential Founding Company, disclosed or
otherwise made available by such party, such Affiliate or Potential Founding
Company (the "Discloser") to another party, affiliate or Potential Founding
Company (the "Recipient") in connection with the transactions contemplated by
this Agreement and (ii) each of the terms, conditions and other provisions
contained in this Agreement and in the agreements or documents to be delivered
pursuant to this Agreement. Notwithstanding the preceding sentence, the
definition of Confidential Information shall not include any information that
(i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Parent in connection with the Initial Public
Offering, or (iv) is disclosed to a party
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<PAGE>
or Potential Founding Company by any Person other than a party to this Agreement
or a Potential Founding Company; provided, that the party to whom such
disclosure has been made does not have actual knowledge that such Person is
prohibited from disclosing such information (either by reason of contractual, or
legal or fiduciary duty or obligation). For the purposes hereof, public domain
shall not include disclosure of information to a Potential Founding Company or
(except as otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.25. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.26. Current Assets shall mean, as of the applicable date, the
Seller's Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.27. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person or such Person's properties are bound.
1.28. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.29. DocuNet Common Stock shall mean the common stock, no par value
per share, of DocuNet Inc., the sole shareholder of Purchaser.
1.30. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
for retirees) within the previous six plan years or with respect to which
contributions are or were (within such six year period) made or required to be
made by the Seller or any ERISA Affiliate or with respect to which the Seller
has any liability.
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1.31. Encumbrances shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, mortgages, conditional or
installment sales Contracts, title retention Contracts, transferability
restrictions and other claims or burdens of any nature whatsoever attached to or
adversely affecting such asset other than liens arising in the ordinary course
of business which are not incurred in connection with the borrowing of money and
which, in the aggregate, are not material.
1.32. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.33. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.34. ERISA Affiliate shall mean any Person that is included with
the Seller in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.35. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.36. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.4, substantially in
the form attached hereto as Exhibit C.
1.37. Escrow Amount shall have the meaning set forth in Section
2.4(c).
1.37A. Escrow Account shall mean the account into which the Escrow
Amount is placed.
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1.38. Excluded Assets shall mean those assets listed on Schedule
2.1(b) attached to this Agreement.
1.39. Financial Statements shall have the meaning set forth in
Section 3.10(a).
1.40. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements with the Purchaser
or Parent in anticipation of a simultaneous acquisition by Purchaser or Parent
and the Initial Public Offering.
1.41. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for the
aforementioned; and shall also mean the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period unless specific exemption is noted in the financial statements
where a change of accounting method, principle or presentation has occurred.
1.42. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.43. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.44. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.45. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.47. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under the Securities Act.
1.48. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
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1.49. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.50. Interim Financial Statements shall have the meaning set forth
in Section 3.10(b).
1.51. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.52. IRS means the Internal Revenue Service or any successor
organization thereto.
1.53. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or, in the case of an
entity, the actual knowledge of any officer or director of such entity, and, in
the case of any such officer or director that knowledge that a reasonably
prudent officer or director should have if such person duly performed his or her
duties as an officer or director of such party or made reasonable and diligent
inquiry and exercised due diligence with respect thereto.
1.54. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.55. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.56. Obligations and liabilities and words of similar import
include, without limitation, any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
choate or inchoate, liquidated or unliquidated, secured or unsecured.
1.57. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
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1.58. Payables shall mean, as of any date of determination, the
Seller's accounts payable associated with the Business as of such date in
accordance with GAAP consistently applied, other than amounts that are payable
to any Affiliate of the Seller or any of the Shareholders.
1.59. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.60. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.61. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.62. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholders, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.62A Pricing shall mean the determination by Parent and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.62B Pricing Date shall mean the date on which the Pricing takes
place.
1.63. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser or Parent, or their
Affiliates, to participate in the simultaneous acquisition by Purchaser or
Parent and the Initial Public Offering.
1.64. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.65. Purchased Assets shall have the meaning set forth in Section
2.1.
1.66. Purchase Price shall have the meaning set forth in Section
2.3.
1.67. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Parent or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Parent or any of its Subsidiaries.
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1.68. [Intentionally omitted.]
1.69. Real Property shall mean all real property of the Seller.
1.70. Receivables shall mean, as of any date of determination, the
Seller's accounts receivable, notes receivable and other miscellaneous
receivables associated with the Business at such date.
1.71. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.72. Related Companies shall have the meaning set forth in Section
8.2(a).
1.73. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
or any Order, to which, in each case, such Person or any of such Person's
properties, operations, business or assets is bound or subject.
1.74. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.75. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.76. Restricted Period shall mean, with respect to the Seller and
the Shareholders, the period commencing on the Closing Date and ending on the
later of (i) the first anniversary of the date on which such Shareholder's
employment with the Purchaser, if any, expires, is not renewed, or is otherwise
terminated, and (ii) the fifth anniversary of the Closing Date, as such period
may be extended pursuant to Section 8.3(b); provided that (with respect to the
Shareholders) the reference to "fifth anniversary" in this clause (ii) shall be
automatically changed to "fourth anniversary" if the average closing price of
the DocuNet Common Stock during any 20-trading day period within the 60-day
period prior to or following the date on which such Shareholder's employment
with the Purchaser terminates is less than 50% of the Initial Public Offering
Price (as adjusted proportionately for any stock splits, stock dividends or
reverse stock splits).
1.77. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.78. Seller Accountants shall have the meaning set forth in Section
2.3.
1.79. Seller Balance Sheet shall have the meaning set forth in
Section 3.11.
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1.80. [Intentionally omitted.]
1.81. [Intentionally omitted.]
1.82. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.83. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.84. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.85. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed, with or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.86. Trade Accounts Receivable shall mean, as of the applicable
date, the Seller's trade accounts receivable associated with the Business.
1.87. Transfer Taxes shall mean any applicable documentary, sales,
use, filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.88. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.89. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.90. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
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ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Seller and the Shareholders
to the Purchaser and Parent in this Agreement, the Seller shall sell to the
Purchaser and the Purchaser shall purchase and receive from the Seller, free and
clear of all Encumbrances and all obligations and liabilities (other than the
Assumed Liabilities), all of the tangible and intangible assets of the Seller,
whether real, personal or mixed, that are incremental or relating to, or used in
connection with, the Business, wherever located, including, without limitation
(i) the assets included on the Seller Balance Sheet (ii) the assets listed on
Schedule 2.1(a) attached to this Agreement, and (iii) all assets acquired by the
Seller after June 30, 1997 and on or prior to the Closing Date, but excluding
the Excluded Assets (collectively, the "Purchased Assets").
2.2. Intentionally Omitted
2.3. Consideration and Payment. As full consideration for the
Purchased Assets being purchased pursuant to this Agreement (in addition to the
assumption of the Assumed Liabilities), the Purchaser shall pay, deliver or
cause to be delivered to the Seller, in the manner set forth in Section 2.4 of
this Agreement, the Base Purchase Price (as hereinafter defined), less the
Working Capital Adjustment (as hereinafter defined), Cash Adjustment (as
hereinafter defined) and, subject to Section 2.3(e) below, the Net Book Value of
Depreciable Assets Adjustment (as hereinafter defined), on the terms and
conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.4(c), the Purchaser
shall pay to the Seller at the Closing the sum of Three Million Four
Hundred Thousand dollars ($3,400,000), subject to adjustments as set forth
herein (the "Base Purchase Price").
(b) Working Capital Adjustment. The Base Purchase Price shall be
reduced, at Closing, by $1.00 for each $1.00 that the Company's Adjusted
Working Capital (as hereinafter defined) is less than $500,000 on the
Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Purchased Assets, less:
(i) the Assumed Liabilities, (ii) the portion of trade receivables that
are more than 100 days past the original invoice date; (ii) promissory
notes due from employees or Affiliates of the Company; and (iii) the
amount, if any, by which the sum of the Closing Balance Sheet items
"Supplies," "Deposits," "Prepaid Expenses," "Unbilled Services" and
"Inventory" (each as calculated pursuant to GAAP) exceeds $130,000.
Promptly following the Closing, and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the
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independent certified public accountant of the Purchaser (the
"Accountants") to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to
the Seller no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Seller's objection to the Accountants' CAWCA Report. The Seller's
objection, if any, to the Accountants' CAWCA Report (the "Seller's CAWCA
Objection") shall set forth in reasonable detail the Seller's objection(s)
to the Accountants' CAWCA Report and the Seller's calculation of the
Closing Adjusted Working Capital Amount. Within ten (10) days after
receipt of the Seller's CAWCA Objection, the Purchaser will notify the
Seller whether it accepts or disputes the Seller's adjustments, if any,
which notification shall set forth in reasonable detail the adjustments
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's CAWCA Response Notice"). If the Seller does not object to the
Accountants' CAWCA Report, or if the Purchaser agrees to accept the
Seller's adjustments to the Accountants' CAWCA Report, then the adjustment
based on the then final Closing Adjusted Working Capital Amount (the
"Final Adjusted Working Capital Amount"), if any, shall be paid by Seller
to the Purchaser in immediately available funds within five (5) business
days of such acceptance. If such amount is not received by Purchaser
within such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. If the Seller
objects to the Accountants' CAWCA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount discussed
determined as provided above shall be paid to the Purchaser in immediately
available funds within five (5) business days of the determination of such
amount by such accounting firm. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of
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the costs and expenses of such independent accounting firm, and if the
parties hereto are unable to agree upon an independent accounting firm,
the Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(c) Net Book Value of Depreciable Assets Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Assets as reflected on the
Closing Balance Sheet, is less than $250,000 on the Closing Date (the
"Closing Net Book Value Amount"). The Net Book Value of the Company's
Assets shall mean the Company's tangible Purchased Assets, less Assumed
Liabilities, calculated pursuant to GAAP. Promptly following the Closing,
and in order to verify the accuracy of the adjustment made at the Closing,
the Purchaser agrees to cause the Accountants to verify the amount of the
Closing Net Book Value Amount. The Accountants shall issue a report as to
their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to
the Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the Seller
shall object to the Accountants' CNBVA Report within fifteen (15) days
following their receipt of the Accountants' CNBVA Report. The Seller's
objection, if any, to the Accountants' CNBVA Report (the "Seller's CNBVA
Objection") shall set forth in reasonable detail the Seller's objection(s)
to the Accountants' CNBVA Report and the Seller's calculation of the
Closing Net Book Value Amount. Within ten (10) days after receipt of the
Seller's CNBVA Objection, the Purchaser will notify the Seller whether it
accepts or disputes the Seller's adjustments, if any, which notification
shall set forth in reasonable detail the adjustments made by the Seller
which the Purchaser continues to dispute (the "Purchaser's CNBVA Response
Notice"). If the Seller does not object to the Accountants' CNBVA Report,
or if the Purchaser agrees to accept the Seller's adjustments to the
Accountants' CNBVA Report, then the adjustment based on the then final
Closing Net Book Value Amount (the "Final Net Book Value Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CNBVA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Net Book
Value Amount and the Final Net Book Value Amount, based upon the
calculations of the independent accountants, and any adjustments of Base
Purchase Price based on the amount determined as provided above
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shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent, upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Seller shall each bear one-half of all of
the costs and expenses of such independent accounting firm, and if the
parties hereto are unable to agree upon an independent accounting firm,
the Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(d) Cash Adjustment. The Base Purchase Price shall be further
reduced, at Closing, by $1.00 for each $1.00 that the Company's Cash (as
hereinafter defined) is less than the Cash Threshold (as hereinafter
defined) on the Closing Date (the "Cash Amount"). The Seller's Cash shall
mean the Seller's cash and cash equivalents, including any bank overdraft,
which shall be a subtraction from the cash and cash equivalents. The Cash
Threshold shall mean (i) $35,000 if the Closing Date is on or after the
10th of any month or (ii) if the Closing Date is prior to the 10th of any
month, an amount equal to $125,000 (minus $125,000) plus any cash receipts
by the Seller from the 1st of the month in which Closing occurs through
and including the day prior to Closing. Promptly following the Closing,
the Purchaser agrees to cause the Accountants to verify the amount of the
Seller's Cash as of the Closing Date (the "Closing Cash Amount"). The
Accountants shall issue a report as to their determination of the Closing
Cash Amount (the "Accountants' Cash Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' Cash Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Cash Amount
by the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' Cash Report within
fifteen (15) days following the receipt of the Accountants' Cash Report.
The Seller's objection, if any, to the Accountants' Cash Report (the
"Seller's Cash Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' Cash Report and the Seller's
calculation of the Closing Cash Amount. Within ten (10) days after receipt
of the Seller's Cash Objection, the Purchaser will notify the Seller
whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any,
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's Cash Response Notice"). If the Seller does not object to the
Accountants' Cash Report, or if the Purchaser agrees to accept the
Seller's adjustments to the Accountants' Cash Report, then the adjustment
based on the then final Closing Cash Amount (the "Final Cash Amount"), if
any, shall be paid by Seller to the Purchaser in
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immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Seller objects to the
Accountants' Cash Report as set forth above and the Purchaser does not
accept the Seller's proposed adjustments, then an independent accounting
firm mutually satisfactory to the Seller and the Purchaser shall be
engaged to determine the Closing Cash Amount and the Final Cash Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount discussed above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Seller shall each bear one-half of all of
the costs and expenses of such independent accounting firm, and if the
parties hereto are unable to agree upon an independent accounting firm,
the Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and
Liabilities Adjustment, Seller shall only be obligated to pay the greater
of the two adjustment amounts to Purchaser.
(f) Shareholder Obligation. The Shareholders hereby agree that the
Shareholders will be jointly and severally liable for all obligations of
Seller under the Purchase Price adjustments set forth in this Section 2.3
of this Agreement including, but not limited to, the obligation to
replenish the Escrow Amount.
(g) Additional Purchase Price. The Base Purchase Price shall be
increased by $100,000 if the Closing Date is prior to January 1, 1998.
2.4. Payment of Purchase Price.
(a) Stock Purchase Price. Subject to Section 2.4(c), a number
of shares of DocuNet Common Stock equal to (i) $775,000 (the "Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be issued at
Closing to Seller.
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(b) Cash Purchase Price In addition, an amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) less the
reductions, if any, to be made at Closing pursuant to Sections 2.3(b), 2.3(c),
2.3(d), 2.3(e) and 2.3(f) shall be payable at the Closing in cash to the Seller
("Cash Purchase Price"). The specific amount of the Cash Purchase Price shall be
payable to the Seller by a bank check payable to the order of Seller in
immediately available funds, or a wire transfer to an account to be designated
by Seller in writing not less than three (3) business days prior to the Closing,
such method of payment to be at the sole discretion of Purchaser.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock, having a Value equal to $170,000 shall
be delivered at Closing to the Escrow Agent pursuant to the Escrow Agreement
(the "Escrow Amount"), by the Seller. The Escrow Amount shall be available to
fund (but shall not be the sole source of funding) any obligations of Seller and
Shareholders under this Agreement pursuant to the terms of the Escrow Agreement;
provided, however, if the amount of cash plus the value of the shares of DocuNet
Common Stock (valued at the Initial Public Offering Price) in the Escrow Account
falls below $170,000 (the "Threshold Value") due to payment from the Escrow
Amount pursuant to Section 2.3 hereof, the Seller or Shareholder shall
contribute additional shares of DocuNet Common Stock (valued at the Initial
Public Offering Price) to the Escrow Account in an amount necessary so that the
amount of cash plus the value of the shares of DocuNet Common Stock (valued at
the Initial Public Offering Price) in the Escrow Account would equal the
Threshold Value.
2.5. Delivery of Shares. At the Closing, the Purchaser shall deliver
to the Seller a certificate or certificates, registered in the name of the
Seller, representing the Stock Purchase Price (less the Escrow Amount) and shall
deliver to the Escrow Agent, a certificate or certificates registered in the
name of the Seller, representing the Escrow Amount.
2.6. Allocation of Purchase Price. Seller shall on or before thirty
(30) days after the Closing Date initially determine and send to Purchaser a
schedule containing the allocation of the Purchase Price and the Assumed
Liabilities among the Purchased Assets as is required by Section 1060 of the
Code (the "Allocation Schedule"). The Allocation Schedule will be deemed to be
accepted by Purchaser unless Purchaser provides a written notice of disagreement
to Seller within five (5) business days after receipt of the Allocation
Schedule. If Purchaser provides such written notice, Seller and Purchaser shall
proceed to negotiate in good faith to create a mutually acceptable Allocation
Schedule. If no mutually acceptable Allocation Schedule is created within ten
(10) business days of Seller's receipt of the written notice of disagreement,
then an independent accountant mutually satisfactory to the Seller and Purchaser
(the "Independent Accountant') shall be engaged to determine the Allocation
Schedule. The fees for such
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determination shall be borne by Purchaser, unless the Independent Accountant
disagrees materially with the Allocation Schedule originally submitted by
Seller, in which case such fees shall be borne by Seller. Such determination by
the Independent Accountant, or the original Allocation Schedule if not objected
to by the Purchaser, shall be binding and conclusive to all parties to the
Agreement and all parties shall file all relevant tax returns consistent with
such final determination, unless otherwise required by applicable law; provided,
however, that if the Purchase Price or the Assumed Liabilities are adjusted in
accordance with Section 2.3 of this Agreement, the Allocation Schedule otherwise
determined shall be adjusted accordingly, as required by Section 1060 of the
Code.
2.7. Assumption of Liabilities. At the Closing, the Purchaser will
assume only the Seller's obligations and liabilities expressly listed on
Schedule 2.7 attached to this Agreement, if any (collectively, the "Assumed
Liabilities"). Except for the Assumed Liabilities, the Purchaser shall not, by
virtue of its purchase of the Purchased Assets or otherwise, acquire, assume or
become responsible for any obligations or liabilities of the Seller. Nothing
contained in this Agreement shall be construed as an assumption of any specific
Assumed Liability until any required Consent shall have been obtained.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Except as set forth on the disclosure schedule delivered by the
Seller and the Shareholders to the Purchaser and Parent on the date hereof (the
"Disclosure Schedule"), the numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Seller and the
Shareholders hereby, jointly and severally, represent and warrant to the
Purchaser and Parent as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
or organization, (ii) has the power and authority to own and operate its
properties and assets and to transact the Business and (iii) is duly qualified
and authorized to do business and is in good standing in all jurisdictions where
the failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon the Seller's Business, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of either of the Seller or the Shareholders, threatened against or
affecting the Seller revoking, limiting or curtailing, or seeking to revoke,
limit or curtail the Seller's power, authority or qualification to own, lease or
operate its properties or assets or to transact the Business.
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(c) True and complete copies of the Seller's articles or
certificate of incorporation, bylaws and other constitutive documents are
attached to this Agreement as part of the Disclosure Schedule. Except as set
forth in the Disclosure Statement, the minute books of the Seller, as heretofore
made available to the Purchaser or Parent, are correct and complete in all
material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller: (i) are within the Seller's corporate powers
and duly authorized by all necessary corporate and shareholder action on the
part of the Seller and (ii) do not (A) require any action by or in respect of,
or filing with, any Governmental or Regulatory Authority (B) contravene, violate
or constitute, whether with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable to
the Seller or any of its properties or any Contract to which the Seller or any
of its properties is bound or subject or (C) result in the creation of any
Encumbrance or any obligation and liability on any of the Purchased Assets.
(b) The Shareholders. The Shareholders' execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by the Shareholders (i) are within the powers and authority,
corporate or otherwise, of the Shareholders and are duly authorized by all
necessary corporate and Shareholder action on the part of a corporate
Shareholder and (ii) do not (A) require any action by or in respect of, or
filing with, any Governmental or Regulatory Authority, or (B) contravene,
violate or constitute, whether with or without the passage of time or the giving
of notice or both, a breach or default under, any Requirement of Law applicable
to the Shareholders, any of his or its properties or any Contract to which the
Shareholders or any of his or its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than the Shareholders
own record, beneficial or equitable ownership of any of the Seller's securities,
whether debt or equity.
(b) No Interest in Other Entities. Seller does not own,
directly or indirectly, any debt, equity or other ownership or financial
interest in any other Person. No shares or other ownership or other interests,
either of record, beneficially or equitably, in any Person are included in the
Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete
and accurate list of all Persons (other than the Shareholders or any of the
Persons described in the first sentence of Section 1.8, subpart (iii)) that are
Affiliates of the Seller, detailing the nature of the relationship between the
Seller and each such Person that causes such Person to be an Affiliate of the
Seller.
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(d) No Acquisitions. Since the Balance Sheet Date, the Seller
has not acquired, or agreed to acquire, whether by merger or consolidation, by
purchase of equity interests or assets, or otherwise, any business or any other
Person, or otherwise acquired, or agreed to acquire, any assets other than in
the ordinary course of business that are material, either individually or in the
aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Seller and the Shareholders and constitutes the legal, valid
and binding obligation of the Seller and the Shareholders, enforceable against
each of them in accordance with its terms.
3.5. Legal Proceedings and Orders. Except as set forth in the
Disclosure Schedule there is no Legal Proceeding or Order pending against, or to
either of the Seller's or the Shareholders' knowledge, threatened against or
affecting, the Seller, the Business, the Purchased Assets or the Assumed
Liabilities that could reasonably be expected to have a Material Adverse Effect
or to adversely affect or restrict the ability of the Seller to consummate fully
the transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. Neither the Seller nor any of the
Shareholders has knowledge of any fact, event, condition or circumstance that
may give rise to the commencement of any Legal Proceeding or the entering of any
Order against the Seller or any of the Seller's properties including, without
limitation, any Legal Proceeding or Order that could adversely affect or
restrict the ability of any Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
the validity of this Agreement.
3.6. Title to the Purchased Assets and Related Matters. Except for
the items of Tangible Personal Property leased by the Seller and disclosed in
the Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance
with all Requirements of Law applicable to it or any of its properties or to
which the Seller or its properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth on the Disclosure Schedule
attached to this Agreement, since January 1, 1992, none of the Seller or the
Shareholders has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Seller or
any of its properties or to which the Seller or any of its properties is bound
or subject including, without limitation, any of the Credit Acts. None of the
Seller, the Shareholders, any of their respective Affiliates (other than a
Person who is an
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Affiliate solely by virtue of clause (iii) of the definition thereof), or any of
such Affiliates' respective Affiliates (other than a Person who is an Affiliate
solely by virtue of clause (iii) of the definition thereof) has made any illegal
kickback, bribe, gift or political contribution to or on behalf of any customer,
or to any officer, director, employee of any customer, or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Seller is a
party or may otherwise be bound or subject, and the compensation to which each
consultant is entitled under its respective Contract. The Seller has delivered
or caused to be delivered to the Purchaser or Parent true and complete copies of
all such Contracts, each of which is attached to the Disclosure Schedule. Since
the Balance Sheet Date, the Seller has not increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. No
individuals retained by the Seller as an independent contractor or consultant
would be reclassified by the IRS, the U.S. Department of Labor or any other
Governmental or Regulatory Authority as an employee of the Seller for any
purpose whatsoever.
(b) Attached to the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Seller, together with such
employee's position or function, the rate of hourly, monthly or annual
compensation (as the case may be) paid or to be paid to such employee in 1995,
1996 and, to the extent known, 1997, any accrued sick leave or pay or vacation
and any incentive or bonus arrangement with respect to any such employee. Except
as is set forth on the Disclosure Statement, since the Balance Sheet Date, the
Seller has not increased the compensation payable to its employees or the rate
of compensation payable to its employees. The Disclosure Schedule also
identifies those employees with whom the Seller has entered into an employment
Contract or a Contract obligating the Seller to pay severance or similar
payments to any employee. The Seller and the Shareholders have delivered or
caused to be delivered to the Purchaser or Parent true and complete copies of
such Contracts, all of which are attached or listed on the Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated. To the knowledge of either of the
Seller or the Shareholders, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the Seller.
(d) Except as set forth on the Disclosure Schedule, there is
no, and since January 1, 1992 there has been no, work stoppage, strike,
slowdown, picketing or other labor disturbance or controversy by or with respect
to any of the Seller's employees or former employees. In addition, no dispute
with or claim against the Seller relating to any labor or employment matter
including, without limitation employment practices, discrimination, terms
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and conditions of employment, or wages and hours is outstanding or, to either of
the Seller's or the Shareholders' knowledge, is threatened. There is no claim or
petition pending before, and at no time since January 1, 1992 has there been,
any claim or petition made to, any Governmental or Regulatory Authority
including, without limitation, the National Labor Relations Board or the Equal
Employment Opportunity Commission against the Seller with respect to any labor
or employment matter.
3.9. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Seller and the Shareholders have delivered or caused
to be delivered to the Purchaser or Parent true and complete copies of (i) the
plan document, trust agreement and any other document governing such Employee
Benefit Plan, (ii) the summary plan description, (iii) all Form 5500 annual
reports and attachments, and (iv) the most recent IRS determination letter, if
any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Seller has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such in the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Seller has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan"
covering employees of the Seller within the meaning of Section 3(35) of ERISA
subject to Title IV of ERISA or any "Multiemployer Plan" within the meaning of
Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Seller with respect thereto.
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(f) The Seller has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser, Parent or the Seller to any Tax, penalty
or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of either of the Seller or the
Shareholders threatened, and to the knowledge of the Seller or any of the
Shareholders, there are no facts, events, conditions or circumstances that could
give rise to any such Legal Proceeding or claim (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course).
(i) Neither the Seller or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Seller who
are on leave of absence under either of the Uniformed Services Employment or
Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Seller or any of its respective officers,
directors or significant employees (as such term is defined in Regulation S-K of
the Securities Act), or any other Person has made any statement or communication
or provided any materials to any employee or former employee of the Seller that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in any increase in or acceleration of any obligation or liability under any
Employee Benefit Plan or to any employee or former employee of the Seller.
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3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused
to be delivered to the Purchaser or Parent a copy of the Seller's balance sheets
as of June 30, 1995, 1996 and 1997 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto, (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to in the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Seller as of the date of such Financial
Statements and the results of operations and changes in shareholders' equity and
cash flows for the periods covered thereby.
(b) The Books and Records accurately and fairly reflect, in
reasonable scope and detail and in accordance with good business practice, the
transactions and assets and liabilities of the Seller and such other information
as is contained therein.
(c) Since the Balance Sheet Date: (i) the Seller has operated,
and the Shareholders have caused the Seller to operate, the Businesses in the
normal and ordinary course in a manner consistent with past practices; (ii)
there has been no development, event, condition, or circumstance that has had,
or could reasonably be expected to have, a Material Adverse Effect upon the
Seller; (iii) there has not been any change in the accounting methods or
practices followed by the Seller, except as required by GAAP and disclosed on
the Disclosure Schedule; (iv) the Seller has not sustained any material damage,
destruction, theft, loss or interference with the Purchased Assets or the
Business, whether or not covered by insurance; (v) the Seller has not, except as
set forth on the Disclosure Schedule, (x) paid or declared any dividends or made
any distributions or payment in respect of, or made any payment on account of,
or set apart assets for a sinking or another analogous fund for, the purchase
redemption, defeasance, retirement or other acquisition of, the Seller's
securities, whether debt or equity, and whether in cash or in property or in
obligations of the Seller or (y) paid any management or similar fee to any
Person; (vi) no development, event, condition or circumstance that constitutes,
whether with or without the passage of time or the giving of notice or both, a
default under any of the Seller's outstanding debt obligations has occurred;
(vii) the Seller has not created, incurred, assumed or guaranteed any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business) other than (x) for trade indebtedness incurred in the normal and
ordinary course of the Business and (y) as described in the Disclosure Schedule;
(iv) the Seller has not made or committed to make any capital expenditure or
capital addition or betterments in excess of an aggregate of $10,000; and (v)
the Seller has not made a gift or contribution (charitable or otherwise) to any
Person (other than gifts made since the Balance Sheet Date which, in the
aggregate, do not exceed $5,000).
(d) On the Closing Date, the Seller and the Shareholders will
also deliver or caused to be delivered to the Purchaser or Parent a true and
complete copy of the Closing
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Balance Sheet. The Closing Balance Sheet will be prepared in accordance with the
books and records of the Seller and its Subsidiaries, all of which have been
maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.11. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Seller at June 30, 1997, including without limitation, all notes thereto,
prepared in accordance with GAAP (the "Seller Balance Sheet"), the Seller has no
liabilities or obligations, whether direct or indirect, matured or unmatured,
contingent or otherwise as of such date required to be disclosed in the Seller
Balance Sheet in accordance with GAAP, and has incurred no such liabilities or
obligations since such date, except for liabilities or obligations that were
incurred consistently with past business practice in or as a result of the
normal and ordinary course of business since June 30, 1997.
3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The
Disclosure Schedule includes a complete and accurate list of all the locations
of all Real Property and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Seller and the Shareholders
have delivered or caused to be delivered to the Purchaser or Parent true and
complete copies of all Contracts relating to Real Property (including, without
limitation, all leases and all management, service, supply, security,
maintenance and similar Contracts, and all attornment Contracts, subordination
Contracts or similar Contracts, and all other Contracts affecting or relating to
the use and quiet and peaceful enjoyment of the Real Property) to which the
Seller is a party or is otherwise bound or subject, and all certificates of
occupancy required to be obtained and maintained with respect to any of such
Real Property, and, in each case, all amendments thereof, which relate to or
affect any of the Real Property. Except for the leases pertaining to the Real
Property identified in and attached to the Disclosure Schedule, neither the
Seller nor any of the Shareholders is a party to any Contract that commits or
purports to commit the Seller to purchase or otherwise acquire or lease any real
property including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Real Property, (iii) is free of all
Encumbrances, and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(c) The Seller has performed the obligations required to be
performed by it to date under all Contracts relating to or affecting the Real
Property and is not in default or breach thereof. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
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and the Shareholders, has threatened to terminate or not renew any such Contract
or (iii) is to the knowledge of the Seller and the Shareholders, in breach or
default under any provision thereof, and to the knowledge of the Seller and the
Shareholder, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) The Real Property is in good condition and repair
(ordinary wear and tear excepted) and there has been no damage, destruction or
loss to any of the Real Property that remains unremedied to date, and the Real
Property is suitable to carry out the Business as conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of either the Seller or any of the Shareholders, threatened, against
any of the Real Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any obligation and liability upon the Seller or any
Encumbrance upon any of the Purchased Assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any Real Property, the lease of Real
Property or acquisition of new businesses, with respect to which the Seller has
made any expenditure in the two-years prior to the date of this Agreement in
excess of $10,000, or which if pursued by the Seller would require additional
expenditures of capital in excess of $10,000.
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are
presently used in the conduct of the Businesses and the Seller's operations. The
Seller and the Shareholders have delivered or caused to be delivered to the
Purchaser or Parent true and complete copies of all Contracts (including,
without limitation, leases and service, supply, maintenance and similar
Contracts) to which the Seller is a party or is otherwise bound or subject, and
all amendments thereto, which relate to or affect any of the tangible personal
property owned, possessed or used by the Seller (the "Tangible Personal
Property"). A complete and accurate list of all such Contracts set forth in, and
true and complete copies of such Contracts are attached to the Disclosure
Schedule. Except (i) for those assets disposed of in the normal and ordinary
course of business since the Balance Sheet Date, (ii) with respect to Tangible
Personal Property that is
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leased or rented by the Seller, and (iii) as otherwise set forth on the
Disclosure Schedule, the Seller, as the case may be, has good and valid title to
all of its Tangible Personal Property, including all items of Tangible Personal
Property reflected on the Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not incurred
or suffered any material physical damage, destruction, theft or loss of their
respective tangible items of material personal property, whether owned or
leased. All material Tangible Personal Property including, without limitation,
all computer hardware and software (including all operating and application
systems), is in good working order, condition and repair (ordinary wear and tear
excepted) and suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Seller
peaceful, undisturbed and exclusive possession of the applicable Tangible
Personal Property, (iii) is free of all Encumbrances and (iv) constitutes a
valid and binding obligation of, and is enforceable in accordance with its terms
against, the respective parties thereto.
(d) The Seller has performed the obligations required to be
performed by it to date under all Contracts relating to or affecting the
Tangible Personal Property and is not in default or breach thereof. In addition,
no party to any such Contract (i) has provided any notice to the Seller of its
intent to terminate or not renew any such Contract, (ii) to the knowledge of the
Seller and Shareholders, threatened to terminate or not renew any such Contract
or (iii) is, to the knowledge of the Seller and Shareholders, in breach or
default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrances upon any of the Purchased Assets under the terms of
any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which the Seller or any of its
properties is party or is otherwise bound or subject:
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(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either Seller's right to engage in, or compete with any Person in, any
business;
(iv) any Contract involving a pledge or encumbering of
Seller's assets or the incurrence by the Seller of liabilities (other than
liabilities to render services to customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of $10,000,
or that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either
Seller has created, incurred, assumed or guaranteed any indebtedness other than
for trade indebtedness incurred in the normal and ordinary course of the
Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of
the Purchased Assets; and
(viii) any Contract that (A) either (x) does not fit
within one of the foregoing categories described in (i) through (vii) above or
(y) is not otherwise identified in the Disclosure Schedule and (B) would be
required by Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act to be attached as an exhibit to any registration statement on Form S-1 filed
by the Seller under the Act if the Seller were to file such a registration
statement under the Act on the date on which this representation and warranty is
made.
(b) Each material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) is valid and binding
on each of the parties thereto in accordance with its terms, (ii) was made in
the normal and ordinary course of the Business and (iii) contains no provision
or covenant prohibiting or limiting the ability of the Seller or any Subsidiary
to operate their respective Businesses.
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(c) No party to any material Contract to which the Seller or
any of its properties is a party or is otherwise bound or subject (i) has
provided any notice to the Seller of its intent to terminate or withdraw its
participation in any such Contract, (ii) has, to the knowledge of the Seller and
Shareholders, threatened to terminate or withdraw from participation in any such
Contract or (iii) is, to the knowledge of the Seller and Shareholders, in breach
or default under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject is required in connection
with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its properties is a party or is otherwise
bound or subject, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Contract or (iii) result in the creation or imposition of any
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes a complete and
accurate list of all insurance policies held by the Seller identifying all of
the following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and the Seller has not received any
notice of any cancellation, non-renewal or termination in respect of any such
policy. The Seller is not in default under any such policy. To the knowledge of
either the Seller or any of the Shareholders, no such insurer is the subject of
insolvency proceedings. Neither the Seller nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. The
Seller has notified its insurance carriers of all litigation, claims and facts
which could reasonably be expected to give rise to a claim, all of which are
disclosed in the Disclosure Schedule (including worker's compensation claims).
The liability insurance maintained by the Seller is and has at all times prior
to the date of this Agreement been on an "occurrence" basis.
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3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and
accurate list and full description of each item of the Seller's Intellectual
Property together with, in the case of registered Intellectual Property: the (i)
applicable registration number; (ii) filing, registration, issue or application
date; (iii) record owner; (iv) country; (v) title or description; and (vi)
remaining life. In addition, the Disclosure Schedule identifies whether each
item of Intellectual Property is owned by the Seller or possessed and used by
the Seller under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Seller, such representation and warranty is
given solely to the knowledge of the Seller and Shareholders.
(b) There is neither pending, nor to either the Seller's or
any of the Shareholders knowledge, threatened, any Legal Proceeding against the
Seller contesting the validity or right of the Seller to use any of the
Intellectual Property, and the Seller has not received any notice of
infringement upon or conflict with any asserted right of others nor, to either
the Seller's or any of the Shareholders 'knowledge, is there a basis for such a
notice. To either the Seller's or any of the Shareholders' knowledge, no Person
is infringing the Seller's rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule,
the Seller does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided on the
Disclosure Schedule, the Seller has not granted any license or other right to
use, in any manner, any of the Intellectual Property, whether or not requiring
the payment of royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any obligation and liability upon the Seller or
any Encumbrances upon any of the Purchased Assets under the terms of any such
Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business is and has
been in compliance with all applicable Environmental Laws.
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(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Seller or Shareholders (or to the knowledge of the
Seller or Shareholders, caused by a third party) that may give rise to any
common law or statutory liability, or otherwise form the basis of any Legal
Proceeding, Order or action involving or relating to the Seller, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Seller and Shareholders, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Seller and Shareholders, no polychlorinated byphenyls (PCBs) are present, in
use or stored on any of the Real Property. No radon gas or the presence of
radioactive decay products of radon are present on, or underground at any of the
Real Property at levels beyond the minimum safe levels for such gas or products
prescribed by applicable Environmental Laws.
3.18. Permits.
(a) Each of the Seller and its employees, independent
contractors and agents has obtained and holds in full force, and the Disclosure
Schedule sets forth a complete and accurate list of, all Permits that are
necessary for the operation of their respective Businesses. Neither the Seller
nor any such employee, independent contractor or agent is in noncompliance with
the terms of any such Permit. Any Permits that cannot be transferred to the
Purchaser are identified as such on the Disclosure Schedule.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
(c) Except as set forth in the Disclosure Schedule there is no
Order outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholders' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Seller.
3.19. Regulatory Filings. The Seller has filed all registrations,
filings, reports, or submissions that are required by any Requirement of Law.
All such filings were made in compliance with applicable Requirements of Law
when filed and no deficiencies have been
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asserted by any Governmental or Regulatory Authority with respect to such
filings and submissions that have not been finally resolved.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Each
such Tax Return is true, accurate and complete. The Seller has paid in full all
Taxes for the period covered by such Tax Return. All Taxes not yet due and
payable have been withheld or reserved for or, to the extent that they relate to
periods on or prior to the date of the Seller Balance Sheet, are reflected as a
liability thereon. The Seller duly and properly filed an election to be an S
corporation and such election is currently in effect, under section 1362 of the
Code and the rules and regulations promulgated thereunder. Such election has
been in effect without interruption, including without limitation any
inadvertent termination which has been reinstated, since the Seller was
incorporated. Since the Seller was incorporated, all of the current and former
stockholders of the Seller are and have been permitted stockholders under
Section 1362 of the Code and the rules and regulations promulgated thereunder.
The Seller has never had a taxable year in which it was other than an S
corporation. The Seller's federal S election is recognized and given effect or
the Seller has made an appropriate and timely election to be treated as an S
corporation for state income taxation purposes in California. Such election has
been in effect since the date of incorporation of the Seller.
(b) The Seller has complied with all applicable Requirements
of Law relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Section 1441 and 1442 of the Code,
or similar provisions under any foreign Requirements of Law) and have, within
the time and in the manner prescribed by applicable Requirements of Law,
withheld from employee wages and paid over, in a timely manner, to the proper
Taxing Authorities all amounts required to be so withheld and paid over under
applicable Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Seller that has not been resolved and paid in full or fully reserved
for and identified on the Seller Balance Sheet and, to the knowledge of the
Seller and Shareholders, no deficiency for any Taxes has been proposed that has
not been fully reserved for and identified on the Seller Balance Sheet. The
Seller has not received any outstanding and unresolved notices from the IRS or
any other Taxing Authority of any proposed examination or of any proposed change
in reported information relating to the Seller. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns is outstanding,
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nor, to the knowledge of the Seller and the Shareholders, is any request for any
such waiver or consent pending.
(e) None of the Purchased Assets is required to be treated as
owned by any other person pursuant to the "safe harbor lease" provisions of
former Section 168(f)(8) of the Code.
(f) No state of facts exists or has existed that would
constitute grounds for the assessment of Tax liability with respect to period
that have not been audited by the IRS or any other Taxing Authority.
3.21. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.8, 3.9 and 3.25), pursuant to which
the Seller is, or, at any time during the previous five (5) years has been, a
party or otherwise bound with any Affiliate of any or all of the Seller and the
Shareholders (an "Affiliate Transaction"). Each Affiliate Transaction (i) has
been entered into the normal and ordinary course of the Business.
3.22. Accounts. The Disclosure Schedule attached to this Agreement
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Seller maintains any account (whether checking,
savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto.
3.23. Receivables. Except as disclosed in the Disclosure Schedule,
since the Balance Sheet Date, the Seller has not written-off, nor under GAAP is
it appropriate to write off, any Receivables. All Receivables currently owing to
the Seller are completely and accurately listed and aged in the Disclosure
Schedule. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Seller has good, valid and marketable title to its Receivables,
free and clear of all Encumbrances. The Seller has not sold, factored,
securitized, or consummated any similar transaction with respect to any of its
Receivables. Subject to proper reserves taken into account in accordance with
GAAP as reflected in the Disclosure Schedule, each Receivable is fully
collectable in the normal and ordinary course of business (i.e., without resort
to litigation or assignment to a collection agency), and is not subject to any
dispute, counterclaim, defense, set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after
giving effect to the Closing and any other transactions contemplated by this
Agreement, (i) the sum of the Seller's obligations and liabilities is not
greater than all of the assets of the Seller at a fair valuation, (ii) the
present fair salable value of the Seller's assets is not less than that will be
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required to pay the probable liability of the Seller on its obligations and
liabilities (excluding those to be assumed by the Purchaser) as they become
absolutely mature, (iii) the Seller has not incurred, will not incur, does not
intent to incur and does not believe that it will incur, obligations and
liabilities beyond the Seller's ability to pay such obligations and liabilities
as they mature, (iv) the Seller is not engaged in, and is not about to engage
in, a business or transaction for which the Seller's assets constitutes or would
constitute unreasonably small capital, and (v) the Seller is not insolvent as
defined in, or otherwise in a condition which could in any circumstances then or
subsequently render any transfer or conveyance made by it voidable or fraudulent
pursuant to, any Requirements of Law pertaining to bankruptcy, insolvency or
creditors' rights generally including, without limitation the Bankruptcy Code of
1978, 11 U.S.C. ss.101, et. seq., as amended, or any other applicable
Requirements of Law relating to fraudulent conveyances, fraudulent transfers or
preferences. The Seller is receiving reasonably equivalent value and
consideration from the Purchaser for the Purchased Assets and is not selling the
Purchased Assets to the Purchaser with intent to hinder, delay or defraud any of
its creditors.
3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Seller's directors, executive officers, and any of the Seller's
significant employees (as such terms are defined in Regulation S-K under the
Securities Act) (a "significant employee"), and the compensation payable to each
of them to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of
the Shareholders or any of the current directors, current executive officers or
current significant employees (as such term is defined in Section 3.25(a)) of
the Seller or any Shareholder has, within the past five (5) years:
(i) (x) filed or had filed against it, him or her a
petition under the Federal bankruptcy laws or any state insolvency or similar
law, or (y) had a receiver, conservator, fiscal agent or similar officer
appointed by a court for the business, property or assets of such individual or
corporation, or any partnership in which it, he or she was a general partner or
any other Person of which he or she was a director or an executive officer or
had a position having similar powers and authority at or within two (2) years of
the date of such filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law
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respecting financial institutions, insurance companies, or fiduciary duties owed
to any Person, (z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting it, him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.26. Broker's or Finders. Except as set forth in the Disclosure
Letter, neither the Seller nor the Shareholders has engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Purchaser or Parent for any commission, fee or other
compensation as a finder or broker thereof on account of any action on the part
of the Seller or Shareholders. Without degradation to any of the foregoing, the
Seller and the Shareholders are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Seller or
Shareholders.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor any
of the Shareholders have granted, and there is not outstanding any option,
right, agreement, Contract or other obligation or commitment pursuant to which
any other Person could reasonably claim a right to acquire in any way the
Purchased Assets or any ownership or other material interest in either the
Seller or the Business.
3.28. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar volume
of purchases) of the Seller and details the Seller's total revenue attributable
to each such customer for the fiscal years ended 1994, 1995 and 1996 and the
current fiscal year to date. Except as set forth in the Disclosure Schedule,
there has been no adverse change in the Seller's business relationship with any
such customer that, in the aggregate, would have a Material Adverse Effect upon
the Seller or the Business.
3.29. Investment Company. The Seller is not an "investment company"
within the meaning of the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder, as amended from time to time, or any
successors thereto.
3.30. Absence of Changes. Since the Balance Sheet Date, except as
set forth on the Disclosure Schedule there has not been with respect to the
Seller:
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(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments.
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by the Seller.
(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 business to any person, including,
without limitation, the Shareholders and their Affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Shareholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Shareholders or any Affiliate thereof, other
than the negotiation and adjustment of bills in the course of
good faith disputes with customers in a manner consistent with
past practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
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(x) any waiver of any of its material rights or claims;
(xi) any transaction by the Seller outside the ordinary
course of its respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.31. Accuracy and Completeness of Information. To the knowledge of
the Seller and Shareholders, all information furnished, to be furnished or
caused to be furnished to the Purchaser or Parent by either the Seller or the
Shareholders with respect to the Purchased Assets, the Assumed Liabilities, the
Business, the Seller or the Shareholders for the purposes of or in connection
with this Agreement, or any transaction contemplated by this Agreement is or, if
furnished after the date of this Agreement, will be true and complete in all
material respects and does not, and, if furnished after the date of this
Agreement, will not, contain any untrue statement of material fact or fail to
state any material fact necessary to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT
The Purchaser and Parent hereby, jointly and severally, represent and
warrant to the Seller and the Shareholders as follows:
4.1. Organization. The Purchaser and Parent each is a corporation
duly incorporated, validly existing and in good standing under the laws of the
state of its incorporation, (ii) has the power and authority to own and operate
its properties and assets and to transact its business as currently conducted
and (iii) is duly qualified and authorized to do business and is in good
standing in all jurisdictions where the failure to be duly qualified, authorized
and in good standing would have a material adverse effect upon the Purchaser's
or Parent's, as the case may be businesses, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser and Parent (i) are within the Purchaser's
and Parent's corporate powers and duly authorized by all necessary corporate
action on the part of the Purchaser and Parent and (ii) do not (A) require any
action by or in respect of, or filing with, any governmental body, agency or
official, except as set forth in this Agreement or (B) contravene, violate or
constitute, whether with or without the passage of time or the giving of notice
or both, a breach or default under, any Requirement of Law applicable to
Purchaser, Parent or any of their properties or any Contract to which the
Purchaser, Parent or any of their properties is bound, except filings and
approvals in connection with the Initial Public Offering.
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4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and Parent and constitutes the legal, valid and
binding obligation of the Purchaser and Parent, enforceable against the
Purchaser and Parent in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser or Parent, threatened against or
affecting, the Purchaser, Parent or any of their properties or otherwise that
could adversely affect or restrict the ability of the Purchaser or Parent to
consummate fully the transactions contemplated by this Agreement or that in any
manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Seller, the Shareholders or any of the other
Founding Companies, such representation and warranty shall be deemed based on
the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser or Parent has not engaged the
services of any broker or finder with respect to the transactions contemplated
by this Agreement, and no Person has or will have, as a result of the
consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Seller or Shareholders for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Purchaser or Parent. Without degradation to any
of the foregoing, the Purchaser and Parent are solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser or Parent.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders, Parent and
the Purchaser shall perform each and every of their respective obligations under
this Agreement and shall perform the transactions contemplated by this Agreement
in good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Seller, the Shareholders, Parent and the
Purchaser shall use their respective commercially reasonable best efforts to
obtain all Regulatory Approvals and Consents from such other third parties
including, without limitation, Consents required under any Contract, Permit or
Requirement of Law, that are necessary or advisable in connection with the
consummation of the transactions contemplated by this Agreement. The
Shareholders shall
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use their commercially reasonably best efforts to cause the Seller to cooperate
with the Purchaser and Parent to the fullest extent practicable in seeking to
obtain all such Regulatory Approvals and Consents, and shall provide, and shall
cause the Seller to provide, such information and communications to all
Governmental or Regulatory Authorities as they, the Purchaser or Parent may
request from time to time in connection therewith. Nothing contained herein
shall require either of the Seller, Parent or the Purchaser to amend the
provisions of this Agreement, to pay or cause any of its Affiliates to pay any
money, or to provide or cause any of its Affiliates to provide any guaranty to
obtain any such Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholders will and will cause
the Seller to, cooperate with the Purchaser and Parent in connection with the
transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Seller will, and the
Shareholders will and will cause the Seller to, afford to the Purchaser, its
agents, legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Seller (including
those in the possession or control or their accountants, attorneys and any other
third party), as the case may be, for the purpose of permitting the Purchaser or
Parent to make such investigation and examination of the business and properties
of the Seller as the Purchaser or Parent, in its discretion, shall deem
necessary, appropriate or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. The Seller will, and the Shareholders will cause the Seller to,
cause each of their respective directors, officers, employees and
representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser or Parent in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser's and Parent's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by any or all of the
Seller or the Shareholders in this Agreement, (ii) relieve the Seller or the
Shareholders from its or their obligations with respect to such representations
and warranties (including, without limitation, the indemnification obligations
under Article 10), or (iii) mitigate the Seller's or the Shareholders'
obligations to disclose all material facts to the Purchaser and Parent with
respect to the Seller and the Business.
(b) The Purchaser and Parent will cooperate with the Seller in
connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser and Parent will afford to the Seller and its agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser and Parent (including those in the possession or control or
their accountants, attorneys and any other third party), as the case may be, for
the purpose of permitting the Seller to make such
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investigation and examination of the business and properties of the Purchaser
and Parent and any of their Subsidiaries as the Seller, in its discretion, shall
deem necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser and Parent will cause each of their directors,
officers, employees and representatives, including, without limitation, its
counsel and accountants, to cooperate fully with the Seller, in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Seller's sole benefit, and shall not (i) impair or
reduce any representation or warranty made by the Purchaser or Parent in this
Agreement, (ii) relieve the Purchaser or Parent from their obligations with
respect to such representations and warranties (including, without limitation,
the Purchaser's and Parent's obligations under Article 10), or (iii) mitigate
the Purchaser's and Parent's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser and Parent.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholders' discovery
of the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Purchased Assets, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller, the
Shareholders shall, and shall cause the Seller to, as the case may be, notify
the Purchaser and Parent of such development, event, circumstance or condition.
In the event that the Purchaser or Parent receives such notice or otherwise
discovers the fact of any such development, event, circumstance or condition,
the Purchaser or Parent shall be entitled, in its sole discretion, to terminate
this Agreement within ten (10) days after so discovering without further
obligation or liability upon the delivery of written notice to the Seller to
that effect; provided, however, that before Purchaser or Parent may exercise its
termination right, it must afford the Seller the opportunity to cure the matter
giving rise to the termination right (but for no longer than five days following
the date Purchaser or Parent notifies the Seller of its intent to terminate)
unless, in the judgement of the managing underwriter of the Initial Public
Offering, any such cure period might adversely affect the Initial Public
Offering.
(b) Promptly upon the Seller's or the Shareholders' discovery
of any fact, event, condition or circumstance that causes any representation or
warranty made by any or all of the Seller or the Shareholders to the Purchaser
and Parent in this Agreement to become untrue or inaccurate at any time after
the date of this Agreement, the Shareholders shall, and shall cause the Seller
to, notify the Purchaser and Parent of such fact, event, condition or
circumstance.
5.5. Information Required for Purchaser Financing Transactions. The
Seller shall, and the Shareholders shall and shall cause the Seller to, furnish
the Purchaser and Parent with the following information:
(a) the Seller's audited balance sheet as of December 31,
1994, 1995 and 1996 and the related statements of operations, shareholders'
equity and cash flows for the year
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then ended, together with all proper exhibits, schedules and notes thereto,
audited by Arthur Andersen LLP, all of which shall be prepared in accordance
with GAAP consistently applied with prior periods and shall present fairly the
financial position of the Seller for the years ended December 31, 1994, 1995 and
1996 and the results of operations and changes in shareholders' equity and cash
flows for the periods covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser and Parent or any Underwriter to be included in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, relating any Purchaser Financing Transaction, all of which shall (i) be
in accordance with the Books and Records maintained in accordance with good
business practice and in the normal and ordinary course of business, (ii) be
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments), (iii)
present fairly the financial position of the Seller as of the date thereof and
the results of operations and changes in shareholders' equity and cash flows for
the periods covered thereby, and (iv) include comparable interim financial
statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser, Parent or any Underwriter may reasonably deem necessary,
desirable or appropriate in connection with any Purchaser Financing Transaction
or the preparation of any registration statement, prospectus, document or other
item relating thereto.
5.6. Performance of Conditions. The Seller, the Shareholders, Parent
and the Purchaser shall, and the Shareholders shall cause the Seller to, take
all reasonable steps necessary or appropriate and use all commercially
reasonable efforts to effect as promptly as practicable the fulfillment of the
conditions required to be obtained that are necessary or advisable for the
Seller, Parent and the Purchaser to consummate the transactions contemplated by
this Agreement including, without limitation, all conditions precedent set forth
in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Seller shall, and the
Shareholders shall cause the Seller to, operate the Business in the normal and
ordinary course in a manner consistent with past practice including, without
limitation, to do the following:
(a) to maintain the Seller's corporate existence and all
Permits, bonds, franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to
preserve intact the Seller's business relationships with its agents, customers,
employees, creditors and others with whom the Seller has a business
relationship;
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(d) to preserve the Seller's assets, properties and rights
(including, without limitation, the Purchased Assets) necessary or advisable to
the profitable conduct of the Business;
(e) to pay when due all Taxes lawfully levied or assessed
against the Seller before any penalty or interest accrues on any unpaid portion
thereof and to file all Tax Returns when due (including after applicable
extensions) provided that no such payment shall be required which is being
contested in good faith and by proper proceedings and for which appropriate
reserves as may be required by GAAP have been established;
(f) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(g) to perform all material obligations under all Contracts to
which the Seller is a party or by which it or its properties are bound or
subject;
(h) to 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 the Purchaser or Parent, which consent shall not be
unreasonably withheld; and
(i) to collect Receivables and pay Accrued Expenses in a
manner consistent with past practices.
5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Seller shall not, and the
Shareholders shall not cause the Seller to do, and shall not permit the Seller
to do, directly or indirectly, any of the following without the express prior
written consent of the Purchaser or Parent, which consent shall not be
unreasonably withheld:
(a) make or adopt any changes to or otherwise alter the
Seller's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
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(d) make any borrowings or otherwise create, incur, assume or
guaranty any indebtedness (except for the endorsement of negotiable instruments
for deposit or collection or similar transactions in the normal and ordinary
course of the Business), issue any commercial paper or refinance any existing
borrowings or indebtedness other than in the ordinary course of business;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or an
encumbrance on any of the Seller's assets or the incurrence by the Seller of
liabilities (other than in the performance of services for customers in the
ordinary course of business) in any one transaction or series of related
transactions in excess of ($10,000) and cause the aggregate commitment under all
such new Contracts to exceed ($100,000), or (ii) involve a term of more than one
(1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) enter into any transaction with any Affiliate of either or
both of the Seller or the Shareholders including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (provided that the foregoing will
not restrict the Seller's ability to pay dividends or S-Corp distributions on
its common stock);
(i) grant or issue any subscription, warrant, option or other
right to acquire any of the Seller's securities, whether debt or equity, and
whether by conversion or otherwise, or make any commitment to do so;
(j) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(k) mortgage, pledge, hypothecate or grant a security interest
in, or otherwise permit or suffer to exist any Encumbrance upon, any of the
Purchased Assets;
(l) sell, lease, exchange, transfer or otherwise dispose of,
or agree to sell, lease, exchange, transfer or otherwise dispose of, any of the
Seller's assets with an individual fair market value of $5,000 or more, except
for the disposition of obsolete or worn-out assets in the normal and ordinary
course of business, which assets do not exceed, in the aggregate, 5% of the
Seller's assets as reflected on the Seller Balance Sheet (however, nothing
herein shall prohibit the Seller from utilizing cash assets to pay business
liabilities consistent with the ordinary course of business and past practice);
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(m) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended December 31, 1996, except, in
either case, as may be required by any applicable Requirement of Law, the IRS or
GAAP;
(n) enter into any Contract or make any commitment to make any
capital expenditures or capital additions or betterments in excess of an
aggregate of $10,000;
(o) cause or permit the Seller or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Employee Benefit Plan. As used
in this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA;
(p) enter into any transaction or conduct any operations not
in the normal and ordinary course of business; or
(q) enter into any Contract or make any commitment to do any
of the foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholders shall
not: (i) provide any information about the Seller or the Business to any Person
(other than the Purchaser, Parent or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the
Purchased Assets or any ownership or other material interest in the Seller or
the Business; (ii) solicit or accept any other offers for the sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; (iii) negotiate or discuss with
any Person (other than the Purchaser, Parent or any of their representatives)
the possible sale, exchange or other disposition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; or
(iv) sell, exchange or otherwise dispose of any of the Purchased Assets or any
ownership or other material interest in the Seller or the Business, in any of
the foregoing cases, whether by equity sale, merger, consolidation, equity
exchange, sale of assets or otherwise. The Seller shall, and the Shareholders
shall and shall cause the Seller to, advise the Purchaser and Parent promptly of
its or his receipt of any written offer or written proposal concerning any of
the Purchased Assets, the Seller, or the Business or any material interest
therein, and the terms thereof.
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5.10. Public Announcements. Prior to the Closing, neither the Seller
nor any Shareholder shall issue any public report, statement, press release or
similar item or make any other public disclosure with respect to the substance
of this Agreement prior to the consultation with and approval of the Purchaser
or Parent. In addition, prior to Closing, before the Purchaser or Parent issues
a public statement that refers to the Seller or Shareholders (other than in the
Registration Statement) the Purchaser or Parent will endeavor to consult with
the Seller to the extent time permits. Nothing contained herein shall restrict
the ability of the Seller from contacting a third party in order to obtain a
Consent to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedule
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 Seller that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect shall be effective
unless the Purchaser or Parent consents to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 6 and 7 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 5.11. Except as otherwise provided
herein, no amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement in
connection with the Initial Public Offering (the "Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Seller and the Shareholders shall furnish or cause to
be furnished to the Purchaser, Parent and the underwriters of the Initial Public
Offering (the "Underwriters") all of the information concerning the Seller or
the Shareholders reasonably requested by the Purchaser, Parent and the
Underwriters, and will cooperate with the Purchaser, Parent and the Underwriters
in the preparation of, any registration statement (or similar document) relating
to the Purchaser Financing Transaction and the prospectus (or similar document)
included therein (including audited financial statements, prepared in accordance
with generally accepted accounting principles). The Seller and the Shareholders
agree promptly to advise the Purchaser and Parent if at any time during the
period in which a prospectus relating to the Purchaser Financing Transaction is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the Seller or the Shareholders becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy. The Purchaser and Parent agree to use their
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Seller with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as reasonably practicable prior to such filing (it being understood
that neither
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the Seller nor any of the Shareholders has any obligation to review the same
other than with respect to information regarding the Company or the Seller or
the Shareholders) and to diligently seek to cause the Registration Statement to
be declared effective and the Initial Public Offering to be completed. The
Purchaser and Parent agree that neither the Seller nor any of the Shareholders
shall have any responsibility for pro forma adjustments that may be made to the
Financial Statements.
(b) The Seller and each of the Shareholders acknowledge and
agree: (i) that, prior to the execution and delivery of a definitive
underwriting agreement, the Underwriters have made no firm commitment, binding
agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, that the Registration Statement will become effective
or that the Initial Public Offering pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that none of
the prospective Underwriters of the Purchaser's common stock, in the Initial
Public Offering nor any officers, directors, agents or representatives of such
Underwriters shall have any liability to the Shareholders, the Seller or any
other person affiliated or associated with the Seller for any failure of the
Registration Statement to become effective, the Initial Public Offering to occur
at a particular price or within a particular range of prices or occur at all;
and (iii) the decision of the Shareholders and the Seller to enter into this
Agreement and, if applicable, to vote in favor of or consent to the transactions
contemplated hereby, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications of, or due
diligence investigation which have been or will be made or performed by any
prospective Underwriter, relative to the Purchaser or the prospective Initial
Public Offering. The Seller acknowledge that shares of DocuNet Common Stock
received as a part of the Purchase Price, if any, will not be issued pursuant to
the Registration Statement; and, therefore, the Underwriters shall have no
obligation to the Seller or the Shareholders with respect to any disclosure
contained in the Registration Statement and neither Seller nor any Shareholder
may assert any claim against the Underwriters relating to the Registration
Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall
provide to Purchaser and Parent prior to the Closing Date, the unaudited
consolidated balance sheets of the Seller for each month and fiscal quarter end
between the date of this Agreement and the Closing Date, and the unaudited
consolidated statements of income, cash flows and retained earnings of the
Seller for such subsequent fiscal months and quarters. In addition, the Seller
shall prepare and deliver to the Purchaser and Parent at Closing, the Closing
Balance Sheet. Such financial statements, which shall be deemed to be Financial
Statements (as defined herein) shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except for the absence of notes and subject to
normal year-end audit adjustments).
5.13A Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.10(a) have been received by Arthur Andersen
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Seller and each Shareholder
hereby irrevocably agrees that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. None of the Seller or the
Shareholders, without the prior written consent of the Underwriters, shall
exercise any demand, mandatory, piggyback, optional or any other registration
rights, if any such rights exist, for a period of 180 days from the Effective
Date. The Seller and the Shareholders agree that the foregoing shall be binding
upon their transferees, successors, assigns, heirs and personal representatives
and shall benefit and be enforceable by the underwriters in the Initial Public
Offering. In furtherance of the foregoing, the Parent and its transfer agent,
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the Seller
and the Stockholder shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser and Parent shall be deemed a condition precedent in
addition to the conditions precedent set forth in Article 6 of this Agreement,
and (iii) the parties agree to cooperate and use their best efforts to cause all
filings required under the Hart-Scott Act to be made. If filings under the
Hart-Scott Act are required, the costs and expenses thereof (including filing
fees) shall be borne by Purchaser and Parent. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
5.16. Release of Guarantees. Purchaser and Parent shall use best
commercial efforts to effect the release of all guarantees of Shareholders in
connection with Assumed Liabilities.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's and Parent's Obligations.
The Purchaser's and Parent's obligation to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of, or waiver in
writing by the Purchaser or Parent of, prior to or at the Closing, each and
every of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Seller and the Shareholders contained in
this Agreement shall be true and correct on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date except for those representations and
warranties that by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Seller and each of the Shareholders shall execute and
deliver to the Purchaser and Parent a certificate dated the Closing Date,
certifying that all of the Seller's and the Shareholders' representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Seller and
the Shareholders shall have each performed and complied in all material respects
with each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Seller and the Shareholders, as the case may
be, at or prior to the Closing Date. Each of the Seller and the Shareholders
shall execute and deliver to the Purchaser and Parent a certificate dated as of
the Closing Date, certifying that the Seller and the Shareholders have fully
performed and complied in all material respects with all the duties, obligations
and conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholders
shall have each delivered to the Purchaser or Parent all documents,
certificates, instruments and items required to be delivered by him or it at or
prior to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Seller shall have
satisfied and discharged all of their respective outstanding obligations and
liabilities in connection with Purchased Assets.
(g) Closing Balance Sheet The Seller shall have delivered to
the Purchaser and Parent a true and complete copy of the Closing Balance Sheet
together with a certificate dated the Closing Date, signed by the Seller's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Seller as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Purchased
Assets, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Seller.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Purchased Assets; (ii) imposing
or seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser's
or Parent's business, operations and assets; (iii) imposing or seeking to impose
other sanctions, damages or liabilities arising out of the transactions
contemplated by this Agreement on the Purchaser or Parent, or any of their
directors, officers or employees; (iv) requiring or seeking to require
divestiture by the Purchaser of all or any material portion of the business,
assets or property of the Seller; or (v) restraining, enjoining or prohibiting
or seeking to restrain, enjoin or prohibit the consummation of transactions
contemplated by this Agreement.
(j) Secretary's Certificate. The Seller shall have delivered
to the Purchaser and Parent a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that (I)(A)
the copy of the Seller's articles or certificate of incorporation attached to
the certificate is true, correct and complete, (B) no amendment to such articles
or certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy of
the Seller's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed to such certificate,
(D) the resolutions by the Seller's board of directors and shareholders
authorizing the actions taken in connection with the sale of the Purchased
Assets, including, without limitation, the execution, delivery and performance
of this Agreement, were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate); (ii) setting forth the
Seller's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the Seller is
in good standing
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in all jurisdictions where the ownership or lease of property or the conduct of
its business requires it to qualify to do business, except for those
jurisdictions where the failure to be duly qualified, authorized and in good
standing would not have a material adverse effect upon the business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) of the Seller. The certification referred to above in (iii) shall
attach certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Randick & O'Dea, counsel for
the Seller and the Shareholders, shall have delivered to the Purchaser and
Parent their favorable opinion, dated the Closing Date and in form and substance
reasonably satisfactory to the Purchaser, Parent and their counsel. In rendering
such opinion, counsel may rely to the extent recited therein on certificates of
public officials and of the Seller's officers as to matters of fact, and as to
any matter that involves other than federal or California law, such counsel may
rely upon the opinion of local counsel reasonably satisfactory to the Purchaser,
Parent and their counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Seller and the Shareholders or Affiliates of the Seller
or Shareholders, other than those set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment or consulting agreement
(collectively, the "Employment Agreements") with the Purchaser or Parent
substantially in the form of Exhibit E attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the
Shareholders shall have repaid the Seller in full all amounts owing by the
Shareholders or employees of the Seller to the Seller.
(o) FIRPTA Certificate. Each Shareholder shall have delivered
to the Purchaser and Parent a certificate to the effect that he is not a foreign
person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Escrow Agreement. Shareholders and the Seller shall have
executed the Escrow Agreement substantially in the form of Exhibit C attached
hereto.
6.2. Conditions Precedent to Seller's Obligations. The Seller's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Seller of, prior to
or at the Closing, each and every of the following conditions precedent:
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(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser and Parent contained in this
Agreement shall be true and correct in all material respects on and as of the
date of the Closing Date with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser and Parent shall
execute and deliver to the Seller a certificate dated as of the Closing Date,
certifying that all of its representations and warranties contained in this
Agreement are true and correct on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
and Parent shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Purchaser and Parent at or prior to the Closing
Date. The Purchaser and Parent shall execute and deliver to the Seller a
certificate dated as of the Closing Date, certifying the Purchaser and Parent
have fully performed and complied in all material respects with all the duties,
obligations and conditions required by this Agreement to be performed and
complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Parent shall have
delivered to the Shareholders all documents, certificates, instruments and items
required to be delivered by it at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to sell any of the Purchased
Assets; (ii) imposing or seeking to impose other sanctions, damages or
liabilities arising out of the transactions contemplated by this Agreement on
the Seller or any of its directors, officers or employees or on the Shareholder;
or (iv) restraining, enjoining or prohibiting or seeking to restrain, enjoin or
prohibit the consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Parent shall have
executed the Escrow Agreement substantially in the form of Exhibit C attached
hereto.
(f) Employment Agreements. The Purchaser shall have entered
into an employment agreement (collectively, the "Employment Agreements") with
each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Parent shall
have delivered to the Seller a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that (I)(A)
the copy of the Purchaser's and the Parent's articles or
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certificate of incorporation attached to the certificate is true, correct and
complete, (B) no amendment to such articles or certificate of incorporation has
occurred since the date of the last amendment annexed (such date to be
specified), (C) a true and correct copy of the Purchaser's and the Parent's
bylaws as in effect on the date thereof and at all times since the adoption of
the resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Purchaser's and Parent's board of directors authorizing the
actions taken in connection with the purchase of the Purchased Assets including,
without limitation, the execution, delivery and performance of this Agreement
were duly adopted and continue in force and effect (a copy of such resolutions
to be annexed to such certificate) and (ii) setting forth the incumbent officers
of the Purchaser and Parent and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of the Purchaser and Parent as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton &
Scheetz LLP, counsel for Purchaser, shall have delivered to the Seller and
Shareholder its favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
(j) Related Transactions. The purchase by Purchaser or its
Affiliates of all of the outstanding stock of Codelex Microfilming Corporation
pursuant to that certain stock purchase agreement dated as of the date hereof
and the purchase by Purchaser or its Affiliates of all of the outstanding stock
of Laser Graphics Systems and Services, Inc. pursuant to that certain stock
purchase agreement dated as of the date hereof
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to effect the sale of the Purchased
Assets and the assumption of the Assumed Liabilities referred to herein;
provided, that such actions shall not include the actual completion of the sale
and purchase of the Purchased Assets and the assumption of the Assumed
Liabilities, the delivery of the Bill of Sale and the Assignment and Assumption
Agreement, and the delivery of the check(s) (or wire transfers) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Seller advises
Purchaser are required by applicable laws of the State of California in order to
rescind any actions taken in furtherance of
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the sale of the Purchased Assets and the assumption of the Assumed Liabilities
as described in this Section. The taking of the actions described above shall
take place on the Pricing Date at the offices of Pepper, Hamilton & Scheetz LLP,
3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA 19103. On the
Closing Date (i) (a) the Seller's duly executed Bill of Sale, (b) the Seller's
duly executed counterpart to the Assignment and Assumption Agreement and (c) all
such endorsements, assignments and other instruments of transfer and conveyance
including, without limitation, waivers or consents of lessors and other third
Persons, and releases, satisfactions and termination statements from secured
parties, as may be necessary to vest in the Purchaser indefeasible and
marketable legal and beneficial title to the Purchased Assets, free and clear of
all Encumbrances, to effect the assignment and assumption of the Assumed
Liabilities and to consummate the transactions contemplated by this Agreement,
all of which shall be in form and substance reasonably satisfactory to the
Purchaser, (ii) all transactions contemplated by this Agreement, including the
delivery of shares of DocuNet Common Stock to the Sellers, the delivery of the
shares of DocuNet Common Stock to the Escrow Agent on account of the Escrow
Agreement, the delivery of a bank check or checks or a wire transfer in an
amount equal to the cash portion of the consideration which the Seller shall be
entitled to receive pursuant to Section 2 hereof, and the delivery of the
documents contemplated to be delivered by Purchaser, Parent, Seller and
Shareholders pursuant to Section 6 hereof, and (iii) the closing with respect to
the Initial Public Offering shall occur and be deemed to be completed. The date
on which the actions described in the preceding clauses (i), (ii) and (iii)
occurs shall be referred to as the "Closing Date." Except as otherwise provided
in Section 11 hereof, during the period from the Pricing Date to the Closing
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written consent of the
party about whom such Confidential Information pertains, except (i) to any
party's directors, officers, employees, agents, advisors and representatives who
have a need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any Regulatory
Approvals, that may be required or advisable to consummate the transactions
contemplated by this Agreement, (iii) to enforce such party's rights and
remedies under this Agreement, (iv) with respect to disclosures that are
compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose
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Confidential Information pertaining to any other party shall notify such other
party thereof and use his or its commercially reasonable efforts to cooperate
with such other party to obtain a protective order or other similar
determination with respect to such Confidential Information; (v) made to any
party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the Parent,
the Seller and the Shareholders dated July 31, 1997, and (ii) survive the
termination of this Agreement, or the Closing, as applicable, for a period of
two years after the date of such termination or the Closing Date, respectively;
provided, that, if the Closing shall occur, then the Purchaser's and Parent's
obligation of confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser or Parent,
including but not limited to the Potential Founding Companies (collectively, the
"Purchaser Targets"), in the course of discussions with Purchaser, Parent or a
Potential Founding Company. Accordingly, the parties hereto each agree not to
directly or indirectly seek to acquire or merge with, or pursue or respond to,
with an intent to acquire or merge with, any Purchaser Targets until the later
of 300 days after the date of this Agreement or 180 days after termination of
this Agreement.
(e) The Purchaser or Parent will cause each of the Founding
Companies other than the Seller to enter into a provision similar to this
Section 8.1 requiring each such Founding Company to keep confidential any
information obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's consummation of the transactions contemplated by this Agreement,
each of the Seller and the Shareholders shall not, during the Restricted Period,
do any of the following, directly or indirectly, without the prior written
consent of the Purchaser or Parent in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or any
of its Affiliates or Subsidiaries, or any of their respective successors or
assigns, whether now existing or hereafter created or acquired (collectively,
the "Related Companies"), or otherwise engage or participate, directly or
indirectly, in the business conducted by Purchaser or a Subsidiary (the
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"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, however, that nothing contained
in this Section 8.2(b) shall prohibit the Shareholders from owing, as a passive
investor, not more than five percent (5%) of the outstanding securities of any
class of any publicly-traded securities of any publicly held company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's or any of the Related Companies' (A) customers
or distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Purchaser or
any of the Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Purchaser or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related Companies
or (D) employees to leave the employ of the Purchaser or any of the Related
Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and each of the Shareholders acknowledges that
any breach or threatened breach by it or him of any provision of Sections 8.1 or
8.2 will cause continuing and irreparable injury to the Purchaser and the
Related Companies for which monetary damages would not be an adequate remedy.
Accordingly, the Purchaser and any of the Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Seller nor any of the Shareholders shall, in any action
or proceeding to so enforce any provision of this Article 8, assert the claim or
defense that an adequate remedy at law exists or that injunctive relief is not
appropriate under the circumstances. The rights and remedies of the Purchaser
and any of the Related Companies set forth in this Section 8.3 are in addition
to any other rights or remedies to which the Purchaser or any of the Related
Companies may be entitled, whether existing under this Agreement, at law or in
equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the
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period of time from the earlier of the Seller's or the Shareholders' as
applicable, first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller or the Shareholders, as applicable, through the
expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and each of the Shareholders acknowledge
that the Purchaser or any of the Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Seller or the Shareholders may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the parties that
the provisions of this Article 8 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if any
provision of this Article 8 shall be determined to be invalid, unenforceable or
illegal for any reason, then the validity and enforceability of all of the
remaining provisions of this Article 8 shall not be affected thereby. If any
particular provision of this Article 8 shall be adjudicated to be invalid or
unenforceable, then such provision shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such amendment to
apply only to the operation of such provision in the particular jurisdiction in
which such adjudication is made; provided that, if any provision contained in
this Article 8 shall be adjudicated to be invalid or unenforceable because such
provision is held to be excessively broad as to duration, geographic scope,
activity or subject, then such provision shall be deemed amended by limiting and
reducing it so as to be valid and enforceable to the maximum extent compatible
with the applicable laws and public policy of such jurisdiction, such amendment
only to apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
8.6. Acknowledgment. The Seller and each of the Shareholders
acknowledges that it or he has carefully read and considered the provisions of
this Article 8. The Seller and each of the Shareholders acknowledges and
understands that the restrictions contained in this Article 8 may limit their
respective ability to conduct a business similar to that of the Purchaser or any
of the Related Companies, but the Seller and each of the Shareholders
nevertheless believes that it and he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller and
each of the Shareholders also acknowledges and understands that these
restrictions are reasonably necessary to protect the Purchaser's and the Related
Companies' interests, and the Seller and each of the Shareholders does not
believe that such restrictions will prevent it or him from conducting businesses
that are not competitive with those of the Purchaser or any of the Related
Companies during the term of such restrictions in the Restricted Area.
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ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller and the Shareholders on the one
hand, and the Purchaser and Parent on the other hand, contained in this
Agreement shall survive until the second anniversary of the Closing Date, except
that the representations and warranties set forth in each of Section 3.9,
Section 3.17, Section 3.20 and Section 3.25 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Seller and the Shareholders on
the one hand, and of the Purchaser and Parent on the other hand, contained in
this Agreement will survive the Closing until, by their own respective terms,
they have been fully performed. Any representation, warranty, covenant or
agreement that would otherwise terminate in accordance with this Article 9 will
continue to survive if an Indemnity Notice, an Unliquidated Indemnity Notice or
a Claim Notice (as applicable) shall have been given in good faith based on
facts reasonably expected to establish a valid claim under Article 10 on or
prior to the date on which such representation, warranty, covenant or agreement
would have otherwise terminated, until the related claim for indemnification has
been satisfied or otherwise resolved as provided in Article 10. Any breach of
representation or warranty contained in this Agreement made by any party or any
written information furnished by any party that was made by such party
fraudulently or with intent to defraud or mislead or with gross negligence shall
indefinitely survive the Closing. Any representation or warranty made by any or
all of the Seller or the Shareholders in this Agreement or any information
furnished or caused to be furnished by any or all of the Seller or the
Shareholders to the Purchaser or Parent that is incorporated in, or is the basis
for omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by any or all of the Seller or the Shareholders contained in this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to Purchaser or Parent pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement shall run to the benefit of
any Underwriter of the Parent's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser and Parent. Accordingly,
any such Underwriter, and each person, if any, who controls any such Underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, shall be
(i) an intended beneficiary of this Agreement, and (ii) deemed to be an
Indemnified Party for the purposes of the indemnification provided for in
Article 10.
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ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholders' Indemnification. From and after the
Closing Date, the Seller and the Shareholders shall, jointly and severally,
indemnify and hold harmless the Purchaser and any of its Affiliates, and each
Person who controls (within the meaning of the Securities Act) the Purchaser or
any such Affiliate, and each of their respective directors, officers, employees,
agents, successors and assigns and legal representatives, from and against all
Indemnifiable Losses that may be imposed upon, incurred by or asserted against
any of them resulting from, related to, or arising out of (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by any or all of the Seller or the Shareholders under this
Agreement or any document, instrument, certificate or other item required to be
furnished to the Purchaser or Parent pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any untrue statement
of any material fact contained in any registration statement, prospectus,
document or other item, or any amendment or supplement thereof, prepared, filed,
distributed or executed in connection with any Purchaser Financing Transaction,
or any omission to state in any such registration statement, prospectus,
document, item, amendment or supplement a material fact required to be stated
therein or necessary to make the statements therein not misleading, that is
based upon any misrepresentation or breach of any warranty made by any or all of
the Seller or the Shareholders pursuant to this Agreement or upon any untrue
statement or omission contained in any information furnished or caused to be
furnished by any or all of the Seller or the Shareholders to the Purchaser or
Parent (provided that the Seller and Shareholders shall not be liable with
respect to a distribution of the prospectus that is distributed after they have
notified the Purchaser and Parent in writing to correct a misstatement or
omission); (iii) any obligation and liability of the Seller or the Shareholders
of any nature whatsoever, whether now existing or hereafter arising or incurred,
except for the Assumed Liabilities; (iv) any non-compliance with applicable
Requirements of Law relating to bulk sales, bulk transfers and the like or to
fraudulent conveyances, fraudulent transfers, preferential transfers and the
like by the Seller; (v) any action, claim or demand by any holder of the
Seller's securities, whether debt or equity, in such holder's capacity as such,
whether now existing or hereafter arising or incurred; (vi) any non-compliance
with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as
amended, and the rules and regulations promulgated thereunder and any similar
Requirement Law; and (vii) any Legal Proceeding or Order, arising out of any of
the foregoing even though such Legal Proceeding or Order may not be filed,
become final, or come to light until after the Closing Date.
10.1.A No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
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10.2. Purchaser's and Parent's Indemnification. From and after the
Closing Date, the Purchaser and Parent shall jointly and severally indemnify and
hold harmless the Seller and the Shareholders and each of their respective legal
representatives, successors and assigns from and against all Indemnifiable
Losses imposed upon, incurred by or asserted against, the Seller or the
Shareholders resulting from, related to, or arising out of: (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by the Purchaser or Parent under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholders pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) Assumed Liabilities; (iii) any
untrue statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except for any untrue statement or omission contained in any
information furnished or caused to be furnished by the Seller or Shareholders;
and (iv) any Legal Proceeding or Order, arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the Philadelphia office of the American Arbitration
Association.
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(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall, within fourteen (14) days after obtaining sufficient
information to articulate such grounds, give written notice to the applicable
Indemnifying Party thereof, together with such information as is reasonably
sufficient to describe the potential or contingent claim to the extent then
feasible (an "Unliquidated Indemnity Notice"). The failure of an Indemnified
Party to give the Indemnifying Party the Unliquidated Indemnity Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however that the Indemnifying Party shall not be liable for Indemnifiable Losses
incurred by the Indemnified Party that would not have been incurred but for the
delay in the delivery of, or the failure to deliver, the Unliquidated Indemnity
Notice. Within sixty (60) days after the amount of such claim shall be
finalized, resolved, or liquidated, the Indemnified Party shall give the
Indemnifying Party an Indemnity Notice, and the Indemnifying Party's obligations
under this Article 10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action, or threatened
claim or demand by any third Person against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Government Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.20, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense of such claim, demand or Legal
Proceeding, with the reasonable fees, expenses and disbursements of such counsel
to be reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.20, the Purchaser and
Parent shall have right to control the defense
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thereof at the Indemnifying Party's expense. Whenever the Indemnifying Party is
entitled to defend any claim hereunder, the Indemnified Party may elect, by
notice in writing to the Indemnifying Party, to continue to participate through
its own counsel, at its expense, but the Indemnifying Party shall have the right
to control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party,
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser or Parent.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser or any controlling Person of the Purchaser
(within the meaning of the Securities Act) makes a claim for indemnification
pursuant to Section 10.1(ii) but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
Section 10.1(ii) provides for indemnification in such case, then, the Purchaser,
each controlling Person, the Seller and the Shareholders will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
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Person may be subject (after contribution from others) as is appropriate to
reflect the relative fault of the Purchaser, such controlling Person, the
Seller, and the Shareholders in connection with the statements or omissions
which resulted in such Indemnifiable Losses, as well as the relative benefit
received by the Purchaser, such controlling Person, the Seller and the
Shareholders as a result of the issuance of the securities to which such
Indemnifiable Losses relate, it being understood that the parties acknowledge
that the overriding equitable consideration to be given effect in connection
with this provision is the ability of one party or the other to correct the
statement or omission which resulted in such Indemnifiable Losses, and that it
would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, Parent and the
other Persons or entities indemnified pursuant to Section 10.1 shall not assert
any claim for indemnification hereunder against the Seller or the Shareholders
until such time as the aggregate of all claims which such persons may have
against the Seller or the Shareholders shall exceed $34,000 (the
"Indemnification Threshold"), whereupon such claims shall be indemnified in
full. None of the Seller or the Shareholders shall assert any claim for
indemnification hereunder against Purchaser or Parent until such time as the
aggregate of all claims which Seller or the Shareholders may have against
Purchaser or Parent shall exceed $34,000, whereupon such claims shall be
indemnified in full. The limitation on assertion of claims for indemnification
contained in this paragraph shall apply only to claims based upon inaccuracies
in, or breaches of, representations and warranties contained in this Agreement
or any document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller and the
Shareholders shall not be liable under this Article 10 for an amount which
exceeds the aggregate amount of proceeds received by the Seller in connection
with the transactions contemplated herein. For purposes of calculating the value
of the DocuNet Stock received by Seller, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price.
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No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period, if applicable.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Seller, the Shareholders, Parent and the Purchaser;
(b) at any time before the Closing, by the Purchaser or Parent
pursuant to Section 5.4(a), or if any of the Seller's or any of the
Shareholders' representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's or Parent's representations or warranties contained in this
Agreement were materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one
hand, or by the Purchaser or Parent, on the other hand, upon any material breach
by other(s) of such other party's covenants or agreements contained in this
Agreement and the failure of such other party to cure such breach, if curable,
within ten (10) days after written notice thereof is given by the non-breaching
party to the breaching party; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller on the one hand, or by the Purchaser or
Parent on the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Seller, the Shareholders
or the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 17.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative;
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(iii) the provisions with respect to exclusivity of negotiations of Section 5.9
shall survive for 180 days after such termination, but only if the termination
is made by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv)
this Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Further Cooperation. From and after the Closing Date, the
Seller shall, and the Shareholders shall and shall cause the Seller to, assist
and cooperate with the Purchaser and Parent in effecting the orderly transfer of
the Purchased Assets to the Purchaser. In addition, at the Purchaser's request
from time to time, the Seller shall, and the Shareholders shall and shall cause
the Seller to, execute and deliver to the Purchaser such further endorsements,
assignments and instruments of transfer and conveyance and take such other
actions as the Purchaser reasonably requests to transfer, vest or perfect the
Purchaser's rights in and to the Purchased Assets free and clear of all
Encumbrances and otherwise to accomplish the orderly transfer of the Purchased
Assets to the Purchaser and to consummate the transactions contemplated by this
Agreement. In addition, the Seller and each of the Shareholders shall (i)
provide or cause to be provided such written information with respect to
themselves, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, Parent,
any Underwriter or any auditor reasonably deems necessary or desirable to
complete any audit of the Seller's financial statements (including, but not
limited to, the execution of management representation letters to any auditor by
the Seller's management or the Shareholders) or in connection with any Purchaser
Financing Transaction; provided, that none of the Shareholders shall be required
to execute any guaranty of any indebtedness obtained by the Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3)
years after the Closing Date, the Purchaser or Parent shall maintain all Books
and Records maintained by the Seller on or prior to the Closing Date which are
transferred to the Purchaser and shall permit any or all of the Seller or the
Shareholders or their respective representatives and agents access, at the
Seller's or the Shareholders' sole cost and expense, to all such Books and
Records, upon reasonable notice by the Seller or the Shareholders, as
applicable, and on terms not disruptive to the business, operation or employees
of the Purchaser or any of the Purchaser's Affiliates to
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assist the Seller or the Shareholders, as applicable, in (i) completing any tax
or regulatory filings or financial statements required or appropriate to be made
by any or all of the Seller or the Shareholders after the Closing Date or in
completing any other reasonable and customary business objective, (ii)
prosecuting or defending on behalf of any or all of the Seller or the
Shareholders any litigation controlled by any or all of the Seller or the
Shareholders under Section 10.3(c) of this Agreement or (iii) complying with
requests made of any or all of the Seller or the Shareholders by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Seller's activities during periods
prior to the Closing Date. The Seller and the Shareholders will hold all
information provided to them pursuant to this Article 12 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.3. By Seller and Shareholders. For a period of three (3) years
after the Closing Date, the Seller shall, and the Shareholders shall and shall
cause the Seller to, maintain all Books and Records possessed or to be possessed
by any or all of the Seller and the Shareholders that relate to the Business
prior to the Closing Date. The Seller shall, and the Shareholders shall and
shall cause the Seller to, permit the Purchaser or Parent, or their
representatives and agents access, at the Purchaser's sole cost and expense, to
all of such Books and Records upon reasonable prior written notice for any
reasonable business purpose.
12.4. Use of Name. From and after the Closing Date, the Seller
shall, and the Shareholders shall cause the Seller to: (i) sign such consents
and take such other actions as the Purchaser and Parent shall reasonably request
to permit the Purchaser and Parent to use the name Total Information Management
Corporation and all variants thereof (the "Name"); (ii) cease to use the Name;
and (iii) take all necessary action to change its corporate and trade names to
such name or names that are substantially different from and not confusingly
similar to the Name.
12.5. Discharge of Obligations. From and after the Closing Date, the
Seller shall, and the Shareholders shall cause the Seller to, pay and discharge
diligently, in accordance with past practice but not less than on a timely
basis, all of the Seller's obligations and liabilities (other than the Assumed
Liabilities) including, without limitation, any obligations and liabilities to
employees, trade creditors and customers.
12.6. Receivables. If, at any time after the Closing Date, the
Seller or the Shareholders shall receive any payments on account of any of the
Receivables or other rights to payment constituting a part of the Purchased
Assets, then the Seller or the Shareholders, as applicable, shall hold such
funds in trust for, and shall promptly remit (and the Shareholders shall cause
the Seller to remit promptly) such funds to the Purchaser immediately upon
receipt thereof. The Seller hereby, effective from and after the Closing Date,
authorizes and grants to the Purchaser (acting through any one or more of the
Purchaser's authorized representatives or agents) a power of attorney to endorse
the Seller's name on any check or any other remittances received by the
Purchaser on account of the Receivables. The foregoing power of attorney is
coupled with an interest and is irrevocable.
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12.7. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser or Parent utilized
in connection with the Initial Public Offering, the Shareholders or the Seller
become aware of any fact or circumstance which would change (or, if after the
Closing Date, would have changed) a representation or warranty of Seller or the
Shareholders in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Seller and the Shareholders shall promptly
give notice of such fact or circumstance to Purchaser or Parent.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Purchaser shall pay, and the Purchaser shall indemnify and hold
harmless the Seller and the Shareholders from and against all Transfer Taxes,
including costs in connection with California state sales and use taxes. All
Taxes on the ownership or use of the Purchased Assets (specifically excluding
Taxes measured by the net income of any party) that accrue on or prior to the
Closing Date shall be paid by the Seller, and all such Taxes that accrue after
the Closing Date shall be paid by the Purchaser; provided, that all such Taxes
shall be prorated to the Closing Date. Should Purchaser pay any such Taxes,
Seller shall, immediately upon request, pay to Purchaser that portion of such
Taxes that accrued prior to the Closing Date.
ARTICLE 14
TRANSFER RESTRICTIONS
14.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 14.1 (or trusts for the benefit of the Seller, Shareholders or family
members, the trustees of which so agree), for a period of one year from the
Closing, except pursuant to Section 16 hereof, neither the Seller of the
Shareholders shall (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of (a) any shares of DocuNet Common
Stock received by the Seller pursuant to this Agreement, or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
DocuNet Common Stock, in whole or in part, and no such attempted transfer shall
be treated as effective for any purpose; or (ii) engage in any transaction,
whether or not with respect to any shares of DocuNet Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of DocuNet Common Stock acquired pursuant to this Agreement
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the Seller may transfer such shares of DocuNet Common Stock to the
Shareholders, subject to the Shareholders holding such shares subject to the
restrictions set forth in this Agreement. The certificates evidencing the
DocuNet Common Stock delivered to the Seller pursuant to Section 2 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as the Purchaser may deem necessary or
appropriate:
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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 FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 15
SECURITIES LAWS REPRESENTATIONS
The Seller and the Shareholders acknowledge that the shares of
DocuNet Common Stock to be delivered to the Seller pursuant to this Agreement
have not been and will not be registered under the Securities Act or any other
state securities laws, and therefore may not be resold without compliance with
the Securities Act. The DocuNet Common Stock to be acquired by the Seller
pursuant to this Agreement is being acquired solely for its own respective
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
15.1. Compliance with Law. The Seller and Shareholders covenant,
warrant and represent that none of the shares of DocuNet Common Stock issued to
Seller will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act, the rules and regulations of the Securities
and Exchange Commission and applicable state securities laws. All the DocuNet
Common Stock shall bear the following legend in addition to any other legends
required under this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS,
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UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
15.2. Economic Risk; Sophistication. The Seller and the Shareholders
are able to bear the economic risk of an investment in the DocuNet Common Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Seller and the Shareholders or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser and Parent
concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of the Purchaser and Parent, the plans for the
operations of the business of the Purchaser and Parent, the business, operations
and financial condition of the Founding Companies, and any plans for additional
acquisitions and the like. The Seller and Shareholders acknowledge receipt and
review of the draft Registration Statement attached hereto as Schedule 15.2 for
informational purposes and subject to the limitations of Section 5.12(b). The
Seller and the Shareholders acknowledge that such draft is subject to completion
and subject to change, and Seller and the Shareholders acknowledge that they or
their respective purchaser representatives have had an adequate opportunity to
ask questions and receive answers from the officers of the Purchaser pertaining
thereto.
ARTICLE 16
REGISTRATION RIGHTS
16.1. Piggyback Registration Rights. Subject to Sections 5.14 and
16.5, at any time following the Closing, whenever the Parent proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
the DocuNet Common Stock; (ii) registrations of shares to be used as
consideration for acquisitions of additional businesses by the Purchaser or
Parent and (iii) registrations relating to employee benefit plans, the Purchaser
or Parent shall give the Seller prompt written notice of its intent to do so.
Upon the written request of the Seller given within 30 days after receipt of
such notice, Purchaser or Parent shall cause to be included in such registration
all of the DocuNet Common Stock which any such Seller requests. However, if the
Purchaser or Parent are advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 16.1 that the number of shares
to be sold by persons other than the Purchaser or Parent is greater than the
number of such shares which can be offered without adversely affecting the
offering, the Purchaser and Parent may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares held
by such persons) to a number
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deemed satisfactory by such managing underwriter or such managing underwriter
can eliminate the participation of all such persons in the offering, provided
that, for each such offering made by the Parent after the Initial Public
Offering, a reduction shall be made first by reducing the number of shares to be
sold by persons other than the Purchaser, Parent, the Seller, the Founding
Companies and the stockholders of the Founding Companies and other Stockholders
(the "Other Stockholders") of the Company immediately prior to the Initial
Public Offering, and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Seller, the Founding Companies and the
stockholders of the Founding Companies, and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
16.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 16 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller and Shareholders) shall be borne by the Purchaser or
Parent. In connection with registrations under Section 16.1, the Parent shall
(i) prepare and file with the Securities and Exchange Commission as soon as
reasonably practicable, a registration statement with respect to the DocuNet
Common Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all DocuNet Common Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the DocuNet Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the DocuNet Common Stock; and (iii) take such other actions as
are reasonable and necessary to comply with the requirements of the Securities
Act and the regulations thereunder.
16.3. Underwriting Agreement. In connection with each registration
pursuant to Section 16.1 covering an underwritten registration public offering,
the Purchaser, Parent and each participating holder agree to enter into a
written agreement with the managing underwriters in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriters and companies of the Parent's
size and investment stature, including indemnification and the prohibition of
sales or transfers of such holders' common stock for an applicable lock-up
period.
16.4. Availability of Rule 144. The Parent shall not be obligated to
register shares of DocuNet Common Stock held by the Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to Seller.
16.5. Survival. The provisions of this Article 16 shall survive the
Closing until December 31, 1999.
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16.6. Applicability to Shareholders. The provisions of this Article
16 shall apply to any Shareholder to the extent that the DocuNet Common Stock
constituting the Stock Purchase Price is subsequently distributed to such
Shareholder.
ARTICLE 17
MISCELLANEOUS
17.1. Notices. All notices required to be given to any of the
parties to this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 17.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Seller:
Total Information Management Corporation
1545 Park Avenue
Emeryville, CA 94608
with a copy to:
Robert A. Randick, Jr.
Randick & O'Dea
1800 Harrison, Suite 2350
Oakland, California 94612
(b) If to the Shareholders:
(i) James Bunker & Jeffry Kalmon
40 TIMCO
1545 Park Avenue
Emeryville, California 94608
with a copy to:
Robert A. Randick, Jr.
Randick & O'Dea
1800 Harrison, Suite 2350
Oakland, California 94612
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(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attn: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
17.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
17.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
17.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel.
17.5. Further Assurances. Any or all of the Seller or the
Shareholders on the one hand, and the Purchaser and Parent on the other hand,
shall, at their own respective expense, from time to time upon the request of
the other party, execute and deliver, or cause to be executed and delivered, at
such times as may reasonably be requested by such other party, such other
documents, certificates and instruments and take such actions as such other
party deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement.
17.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and
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supersede all prior agreements, understandings, and negotiations, whether
written or oral, with respect to the subject matter of this Agreement. None of
the terms and provisions contained in this Agreement can be changed without a
writing signed by all parties hereto.
17.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
17.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Seller, the Shareholders, Parent nor the Purchaser shall have the right to
assign this Agreement without the prior written consent of the others, except
that Purchaser or Parent may assign its rights and obligations under this
Agreement prior to the Closing to any wholly-owned Subsidiary of the Purchaser
or entity owning all of the capital stock of Purchaser, provided that such
assignment shall not relieve the Purchaser of any of its obligations hereunder.
17.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
17.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
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IN WITNESS WHEREOF, the Shareholders, the Purchaser, the Parent and
the Seller have caused this Agreement to be duly executed as of the date first
written above.
DOCUNET INC.
By: /s/ Bruce Gillis
_______________________________
Bruce Gillis
TIMCO ACQUISITION CORP.
By: /s/ S. David Model
_______________________________
Name:
Title:
TOTAL INFORMATION MANAGEMENT
CORPORATION
By: /s/ James Bunker
_______________________________
Witness: /s/ James Bunker
_______________________ _______________________________
____________, Individually
Witness: /s/ Jeffry Kalman
_______________________ _______________________________
___________, Individually
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Total Information Management Corporation (the "Seller"),
DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______ (the "Escrow
Agent"). The Purchaser, the Sellers and the Escrow Agent are sometimes
collectively referred to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote such shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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<PAGE>
12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
With a copy to:
C. If to the Escrow Agent:
With a copy to:
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<PAGE>
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow with cash in a like amount, valued at the
Share Value.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
[NAME]
-----------------------------------
[NAME]
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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<PAGE>
EXECUTION
DOCUNET INC.
STOCK PURCHASE AGREEMENT
FOR THE STOCK OF
IMAGE MEMORY SYSTEMS, INC.
<PAGE>
EXECUTION
TABLE OF CONTENTS
Page
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND DELIVERY OF SHARES.....................................10
2.1. Agreement to Sell and Purchase Shares...........................10
2.2. Purchase Price..................................................10
2.3. Payment of Purchase Price.......................................11
2.4. Delivery of Shares..............................................12
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER........................13
3.1. Organization; Qualification; Good Standing......................13
3.2. Authorization for Agreement.....................................13
3.3. Capitalization; Subsidiaries and Affiliates.....................14
3.4. Enforceability..................................................15
3.5. Matters Affecting Shares; Title to Shares.......................15
3.6. Predecessor Status; etc.........................................15
3.7. Spin-off by the Company.........................................15
3.8. Legal Proceedings...............................................15
3.9. Compliance with Laws............................................16
3.10. Labor Matters..................................................16
3.11. Employee Benefit Plans.........................................17
3.12. Financial Statements...........................................19
3.13. Distributions..................................................20
3.14. Absence of Undisclosed Liabilities.............................20
3.15. Real Property..................................................21
3.16. Tangible Personal Property.....................................22
3.17. Contracts......................................................23
3.18. Insurance......................................................25
3.19. Proprietary Rights.............................................25
3.20. Environmental Matters..........................................26
3.21. Permits........................................................27
3.22. Regulatory Filings.............................................27
3.23. Taxes and Tax Returns..........................................27
3.24. Investment Portfolio...........................................30
3.25. Affiliate Transactions.........................................30
3.26. Accounts, Power of Attorney....................................30
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Page
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3.27. Receivables....................................................30
3.28. Officers and Directors.........................................31
3.29. Corporate Records..............................................31
3.30. Broker's or Finders............................................32
3.31. Customers......................................................32
3.32. Investment Company.............................................32
3.33. Absence of Changes.............................................32
3.34. Accuracy and Completeness of Information.......................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................34
4.1. Organization....................................................34
4.2. Authorization for Agreement.....................................34
4.3. Enforceability..................................................34
4.4. Litigation......................................................34
4.5. Registration Statement..........................................34
4.6. Brokers or Finders..............................................34
ARTICLE 5 - COVENANTS.......................................................36
5.1. Good Faith......................................................36
5.2. Approvals.......................................................36
5.3. Cooperation; Access to Books and Records........................36
5.4. Duty to Supplement..............................................37
5.5. Information Required For Purchaser Financing Transactions.......38
5.6. Performance of Conditions.......................................38
5.7. Conduct of Business.............................................38
5.8. Negative Covenants..............................................40
5.9. Exclusive Negotiation...........................................42
5.10. Public Announcements...........................................42
5.11. Amendment of Schedules.........................................42
5.12. Cooperation in Preparation of Registration Statement...........43
5.13. Examination of Final Financial Statement.......................44
5.14. Lock-Up Agreements.............................................44
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act")............................45
5.16. Transaction Bonuses............................................45
5.17. Lease..........................................................45
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<PAGE>
Page
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................46
6.1. Conditions Precedent to the Purchaser's Obligations.............46
6.2. Conditions Precedent to Company's and Seller's Obligations......48
ARTICLE 7 - CLOSING.........................................................51
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE.....................52
8.1. Confidentiality.................................................52
8.2. Covenant Not To Compete.........................................53
8.3. Specific Enforcement; Extension of Period.......................53
8.4. Disclosure......................................................54
8.5. Interpretation..................................................54
8.6. Seller's Acknowledgment.........................................54
ARTICLE 9 - SURVIVAL........................................................55
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................55
9.2. Intentionally Omitted...........................................55
9.3. Underwriter's Benefit...........................................55
ARTICLE 10 - INDEMNIFICATION................................................56
10.1. Seller's Indemnification.......................................56
10.1A. No Indemnification of Projected Information...................57
10.2. Purchaser's Indemnification....................................57
10.3. Payment; Procedure for Indemnification.........................57
10.4. Equitable Contribution Under the Securities Act................59
10.5. Exclusiveness of Indemnification...............................60
10.6. Limitations on Indemnification.................................60
10.7. Value of DocuNet Common Stock..................................61
ARTICLE 11 - TERMINATION AND REMEDIES.......................................61
11.1. Termination....................................................61
11.2. Effect of Termination..........................................61
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<PAGE>
Page
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ARTICLE 12 - POST-CLOSING COVENANTS.........................................62
12.1. Maintenance and Access to Records..............................62
12.2. Disclosure.....................................................62
12.3. Accounts Receivable............................................63
ARTICLE 13 - TRANSFER RESTRICTIONS..........................................63
13.1. Transfer Restrictions..........................................63
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS................................64
14.1. Compliance with Law............................................64
14.2. Economic Risk; Sophistication..................................64
ARTICLE 15 - REGISTRATION RIGHTS............................................65
15.1. Piggyback Registration Rights..................................65
15.2. Registration Procedures........................................65
15.3. Underwriting Agreement.........................................66
15.4. Availability of Rule 144.......................................66
15.5. Survival.......................................................66
ARTICLE 16 - MISCELLANEOUS..................................................66
16.1. Notices........................................................66
16.2. No Third Party Beneficiaries...................................68
16.3. Schedules......................................................68
16.4. Expenses.......................................................68
16.5. Further Assurances.............................................68
16.6. Entire Agreement; Amendment....................................68
16.7. Section and Paragraph Titles...................................68
16.8. Binding Effect.................................................69
16.9. Counterparts...................................................69
16.10. Severability..................................................69
16.11. Governing Law.................................................69
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (as amended or supplemented from time
to time, this "Agreement") is hereby made this ____ day of September, 1997 by
and among Ovidio Pugnale (the "Seller"), Image Memory Systems, Inc., an Ohio
corporation (the "Company"), and DocuNet Inc., a Pennsylvania corporation (the
"Purchaser").
PRELIMINARY STATEMENTS
The Company is engaged in the business of providing document
management services. The Seller owns one hundred percent (100%) of the issued
and outstanding shares of the common stock, no par value per share, of the
Company (collectively, the "Shares"). The Seller desires to sell to the
Purchaser and the Purchaser desires to purchase from the Seller all of the
Shares in accordance with the provisions set forth in this Agreement.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. [Intentionally Omitted.]
1.2. Accountants' CDA Report shall have the meaning set forth in
Section 2.2.
1.3. Accounts shall have the meaning set forth in Section 3.26.
1.4. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.4A. Adjusted Current Liabilities shall have the meaning set forth
in Section 2.2.
1.5. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation
<PAGE>
to the previous sentence, (x) "control" of a Person means the power, direct or
indirect, to direct or cause the direction of management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise, and (y) any Person owning more than ten percent (10%) or more of the
voting securities or similar interests of another Person shall be deemed to be
an Affiliate of that Person.
1.6. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.7. Balance Sheet Date shall mean May 31, 1997.
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set
forth in Section 2.1.
1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.3.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally Omitted.]
1.14. Closing Date shall mean the date on which the Closing actually
takes place.
1.15. Closing Debt Amount shall have the meaning set forth in
Section 2.2.
1.16. Closing Balance Sheet shall mean the balance sheet delivered
by the Company to the Purchaser as of the date immediately prior to the Closing
Date in accordance with Section 3.12(d).
1.17. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value per
share, of the Company.
1.19. Company Balance Sheet shall have the meaning set forth in
Section 3.14.
1.20. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials,
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<PAGE>
documents, financial reports, business plans and marketing data that relate to
the business, strategies or operations of the parties hereto or a Potential
Founding Company, disclosed or otherwise made available by such party, such
Affiliate or Potential Founding Company (the "Discloser") to another party,
affiliate or Potential Founding Company (the "Recipient") in connection with the
transactions contemplated by this Agreement, and (ii) each of the terms,
conditions and other provisions contained in this Agreement and in the
agreements or documents to be delivered pursuant to this Agreement.
Notwithstanding the preceding sentence, the definition of Confidential
Information shall not include any information that (i) is in the public domain
at the time of disclosure to the Recipient or becomes part of the public domain
after such disclosure through no fault of the Recipient, (ii) is possessed in
writing by the Recipient at the time of disclosure to such Recipient, (iii) is
contained in the Registration Statement on Form S-1 to be filed by Purchaser in
connection with the Initial Public Offering or (iv) is disclosed to a party or
Potential Founding Company by any Person other than a party to this Agreement or
a Potential Founding Company; provided, that the party to whom such disclosure
has been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall not
include disclosure of information to a Potential Founding Company or (except as
otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.21. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et. seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.2.
1.24. DocuNet Common Stock shall mean the common stock, no par value
per share, of DocuNet Inc.
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<PAGE>
1.25. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.26. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.27. Escrow Amount shall have the meaning set forth in Section
2.3(c).
1.28. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.3, substantially in
the form attached hereto as Exhibit A.
1.30. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.31. ERISA Affiliate shall mean any Person that is included with
the Company in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.32. [Intentionally Omitted.]
1.33. Final Debt Amount shall have the meaning set forth in Section
2.2.
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<PAGE>
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for the
aforementioned; and shall also mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period unless specific exemption is noted in the financial statements
where a change of accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.42. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under Section 5 of the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright
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<PAGE>
rights and all intellectual, industrial or proprietary rights and trade secrets,
technology and know-how relating to the Business, in each case together with any
amendments, modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth
in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of the Seller, that knowledge that
the Seller should have if the Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49A. Lease shall mean the lease of real property with the terms
and conditions set forth on Exhibit D attached hereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. [Intentionally Omitted.]
1.52. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.53. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
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1.54. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.55. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.56. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser, or its Affiliates, to
participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.57. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.58A. Pricing Date shall mean the date on which the Pricing takes
place.
1.58. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.59. Purchase Price shall have the meaning set forth in Section
2.2.
1.60. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.61. [Intentionally Omitted.]
1.62. [Intentionally Omitted.]
1.63. Real Property shall mean all real property leased to or owned
by the Seller, the Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
1.65. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section
8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if
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any, and any provision of law, statute, treaty, rule, regulation, ordinance or
pronouncement having the effect of law, or any Order, to which, in each case,
such Person or any of such Person's properties, operations, business or assets
is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.69. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.70. Restricted Period shall mean, with respect to the Seller, the
period commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which Seller's employment with the Purchaser, if any,
expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which Seller's
employment with the Purchaser terminates is less than 50% of the Initial Public
Offering Price (as adjusted proportionately for any stock splits, stock
dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.72. [Intentionally Omitted.]
1.73. [Intentionally Omitted.]
1.74. [Intentionally Omitted.]
1.75. Shares shall have the meaning set forth in the Preliminary
Statements of this Agreement.
1.76. Stock Purchase Price shall have the meaning set forth in
Section 2.3.
1.77. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
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1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.81. Transfer Taxes shall mean any applicable documentary, sales,
use, filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.82. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.84. [Intentionally Omitted.]
1.85A. Value shall have the meaning set forth in Section 2.2.
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ARTICLE 2
SALE AND DELIVERY OF SHARES
2.1. Agreement to Sell and Purchase Shares. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Company and the Seller to the
Purchaser in this Agreement, the Seller shall sell to the Purchaser and the
Purchaser shall purchase and receive from the Seller, a total of 33 and one half
(33 1/2) Shares.
2.2. Purchase Price. As full consideration for the Shares, the
Purchaser shall pay, deliver or cause to be delivered to the Seller, in the
manner set forth in Section 2.3 of this Agreement, the Base Purchase Price (as
hereinafter defined), less the Debt Adjustment (as hereinafter defined), on the
terms and conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Except as set forth in Section 2.3(c), the
Purchaser shall pay to the Seller at the Closing $3,137,200, subject to
adjustments as set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's
Closing Balance Sheet (the "Closing Debt Amount"). The Company's Debt
shall mean all of the Company's liabilities, contingent or otherwise,
except Adjusted Current Liabilities, in accordance with GAAP. The
Company's Adjusted Current Liabilities shall mean all of the Company's
liabilities which would be classified as current liabilities in accordance
with GAAP, except current amounts owing: (i) under promissory notes or
lines of credit to lending institutions, (ii) to an employee or an
Affiliate of the Company, or the Seller, (iii) to a lessor under a capital
lease, or (iv) on account of Taxes or earned insurance premiums. Promptly
following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount
by the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CDA Report and the Seller's
calculation of the Closing Debt Amount. Within ten (10) days after receipt
of the Seller's CDA Objection, the Purchaser will notify the Seller
whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any,
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's CDA Response Notice"). If the Seller does not object to the
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Accountants' CDA Report, or if the Purchaser agrees to accept the Seller's
adjustments to the Accountants' CDA Report, then the adjustment based on
the then final Closing Debt Amount (the "Final Debt Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amounts shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. The term "Value" in respect of a share of DocuNet Common
Stock shall mean the lower of the Initial Public Offering Price and the
average closing price of the DocuNet Common Stock during the 20 trading-
day period ending immediately prior to the applicable payment date. If the
Seller objects to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is
not received by Purchaser within such time period, such amounts shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of
such independent accounting firm, and if the parties hereto are unable to
agree upon an independent accounting firm, the Seller and the Purchaser
will request that one be designated by the President of the Philadelphia
office of the American Arbitration Association.
2.3. Payment of Purchase Price.
(a) Cash Purchase Price. An amount equal to the Base Purchase
Price less (I) the Stock Purchase Price and (ii) the reductions, if any, to be
made at Closing pursuant to Sections 2.2(b), shall be payable at the Closing in
cash to the Seller ("Cash Purchase Price"). The specific amount of the Cash
Purchase Price shall be payable to the Seller by a check payable to the order of
the Seller, or a wire transfer to an account to be designated by Seller in
writing not less than three (3) business days prior to the Closing, such method
of payment to be determined in the sole discretion of Purchaser.
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(b) Stock Purchase Price. In addition, and subject to Section
2.3(c), a number of shares of DocuNet Common Stock, equal to (i) $800,000 (the
"Stock Purchase Price") divided by (ii) the Initial Public Offering Price, shall
be issued at Closing to Seller.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock equal to (i) $160,000 divided by (ii)
the Initial Public Offering Price, shall be delivered at Closing to the Escrow
Agent pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount
shall be available to fund (but shall not be the sole source of funding) any
obligations of Seller under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash plus the value of the shares
of DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount falls below $160,000 (the "Threshold Value") due to payment from
the Escrow Amount pursuant to Section 2.2 hereof, the Seller shall contribute
additional cash or shares of DocuNet Common Stock to the Escrow Amount in an
amount necessary so that the amount of cash plus the value of the shares of
DocuNet Common Stock (valued at the Initial Public Offering Price) in the Escrow
Account would equal the Threshold Value.
2.4. Delivery of Shares. At the Closing, the Seller shall deliver to
the Purchaser a certificate or certificates, registered in the name of the
Seller, properly endorsed and with all required transfer stamps, representing
the Shares being purchased by the Purchaser from the Seller. At the Closing, the
Purchaser shall deliver to the Seller a certificate or certificates, registered
in the name of the Seller, representing the Stock Purchase Price (less the
Escrow Amount) and shall deliver to the Escrow Agent, a certificate or
certificates registered in the name of the Seller, representing the Escrow
Amount.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Schedule delivered by the
Company and Seller to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Seller hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are
corporations duly incorporated, validly existing and in good standing under the
laws of the state of their respective incorporation or organization, (ii) have
the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of the Company or the Seller, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or seeking
to revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule. Except
as set forth in the Disclosure Schedule, the minute books of the Company and
each of its Subsidiaries, as heretofore made available to the Purchaser, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company: (i) are within the Company's corporate
powers and duly authorized by all necessary corporate and shareholder action on
the part of the Company and (ii) do not (A) require any action by or in respect
of, or filing with, any Governmental or Regulatory Authority, (B) contravene,
violate or constitute, with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable to
the Company or any of its properties or any Contract to which the Company or any
of its properties is bound or subject or (C) result in the creation of any
Adverse Claim on any of the Shares.
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(b) Individual Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller (i) are within the powers and authority of the
Seller and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company
consists of 750 shares of a single class of common stock, having no par value
per share, of which 33 and one half (33 1/2) shares are issued and outstanding.
All of the Shares are owned by the Seller. The Company does not have any other
authorized class or classes of securities of any kind, whether debt or equity.
All of the Shares are validly issued, fully paid and non-assessable and have not
been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. The Company does not hold any shares of its capital stock in its
treasury or otherwise, and no shares of the Company's capital stock are reserved
by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule
is a complete and accurate list of all the Company's Subsidiaries, showing the
percentage of Company's ownership or control of, as well as the identity of any
other owners and the percentage of each such other owner's ownership of, the
outstanding capital stock of, or other ownership interest in, each Subsidiary.
The authorized capital stock of each Subsidiary currently consists of a single
class of common stock, the number of authorized shares and par value of which
are set forth opposite each such Subsidiary's name in the Disclosure Schedule.
No Subsidiary has any other authorized class or classes of securities of any
kind, whether debt or equity. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable, is free of
any Adverse Claims, and has not been issued in violation of applicable
securities laws or of any preemptive rights or other rights to subscribe for,
purchase or otherwise acquire securities. No Subsidiary holds any shares of its
capital stock in its treasury or otherwise, and no shares of any Subsidiary's
capital stock are reserved by such Subsidiary for issuance. Except as set forth
in the Disclosure Schedule, neither the Company nor any Subsidiary owns or
controls, directly or indirectly, any debt, equity or other financial or
ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a
complete and accurate list of all Persons (other than the Seller or any of the
Persons described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
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(d) No Acquisitions. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has acquired, or agreed to acquire, whether
by merger or consolidation, by purchase of equity interests or assets, or
otherwise, any business or any other Person, or otherwise acquired, or agreed to
acquire, any assets that are material, either individually or in the aggregate,
to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of the Company and the Seller, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. The Seller has full
legal and beneficial title to his Shares and has full power, right and authority
to sell and deliver such Shares in accordance with this Agreement, free of any
Adverse Claims. There are no existing agreements, subscriptions, options,
warrants, calls, commitments, conversion rights or other rights of any character
to purchase or otherwise acquire from the Seller at any time, or upon the
happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is
a listing of all names of all predecessor companies for the past five years of
the Company, including the names of any entities from whom the Company
previously acquired material assets outside the ordinary course of business.
Except as disclosed in the Disclosure Schedule, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Seller. There is no Legal Proceeding or Order pending
against, or to the knowledge of the Seller, threatened against or affecting, the
Seller or any of his properties or otherwise, that could adversely affect or
restrict the ability of the Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
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the validity of this Agreement. The Seller has no knowledge of any fact, event,
condition or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against the
Seller that could adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule
completely and accurately lists and fully describes all Orders outstanding
against the Company or any of its Subsidiaries. In addition, the Disclosure
Schedule completely and accurately lists and fully describes each pending, and,
to the Company's or the Seller's knowledge, each threatened, Legal Proceeding
that has been commenced, brought or asserted by (i) the Company or any of its
Subsidiaries, as the case may be, against any Person or (ii) any Person against
the Company or any of its Subsidiaries, as the case may be. Neither the Company
nor the Seller has knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries
is operating in compliance with all Requirements of Law applicable to it or any
of its respective properties or to which the Company or any of its Subsidiaries
or any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, any of their respective Affiliates (other than a Person who
is an Affiliate solely by virtue of clause (iii) of the definition thereof), or
any of such Affiliates' respective Affiliates (other than a Person who is an
Affiliate solely by virtue of clause (iii) of the definition thereof) has made
any illegal kickback, bribe, gift or political contribution to or on behalf of
any customer, or to any officer, director, employee of any customer, or to any
other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Company or any
of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser true and complete copies of all such Contracts, each of which is
included in the Disclosure Schedule. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. To the
knowledge of the Company and the Seller, no individuals retained by the Company
or any of its Subsidiaries as an independent contractor or
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consultant would be reclassified by the IRS, the U.S. Department of Labor or any
other Governmental or Regulatory Authority as an employee of the Company or of
any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the Seller
have delivered or caused to be delivered to the Purchaser true and complete
copies of such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the employees of the Company or any of
its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Company and the Seller have delivered or caused to be
delivered to the Purchaser true and complete copies of (i) the plan document,
trust agreement and any other document governing such Employee Benefit Plan,
(ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
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(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Company has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan"
covering employees of the Company or any of its Subsidiaries within the meaning
of Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer
Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Company or any of its
Subsidiaries with respect thereto.
(f) The Company has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary duty with respect to any of the Employee Benefit
Plans that could subject the Purchaser, the Company or any of their respective
Subsidiaries to any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of the Company or the Seller threatened,
and to the knowledge of the Company or the Seller, there are no facts, events,
conditions or circumstances that could give rise to any such Legal Proceeding or
claim (other than routine claims for benefits from eligible participants or
beneficiaries in the normal and ordinary course).
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(i) Neither the Company or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Company or
any of its Subsidiaries who are on leave of absence under either of the
Uniformed Services Employment or Reemployment Rights Act or the Family Medical
Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of
their respective officers, directors or significant employees (as such term is
defined in Regulation S-K of the Securities Act), or any other Person has made
any statement or communication or provided any materials to any employee or
former employee of the Company of any of its Subsidiaries that provides for or
could be construed as a contract, agreement or commitment by the Purchaser or
any of its Affiliates to provide for any pension, welfare, or other employee
benefit or fringe benefit plan or arrangement to any such employee or former
employee, whether before or after retirement or separation or otherwise.
(m) Except as set forth on the Disclosure Schedule, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not result in any increase in
or acceleration of any obligation or liability under any Employee Benefit Plan
or to any employee or former employee of the Company or any of its Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be
delivered to the Purchaser a copy of the Company's consolidated balance sheets
as of November 30, 1994, 1995 and 1996 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Company and the Seller have also delivered or caused
to be delivered to the Purchaser a true and complete copy of the Company's
audited interim financial statements consisting of a consolidated balance sheet
as of May 31, 1997 and the related statements of operations, shareholders'
equity and cash flows for the six-month period then ended
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(collectively, the "Interim Financial Statements"). A true and complete copy of
Interim Financial Statements is attached to the Disclosure Schedule. The Interim
Financial Statements are in accordance with the books and records of the Company
and its Subsidiaries, all of which have been maintained in accordance with good
business practice and in the normal and ordinary course of business, were
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments), and fairly
present the financial position of the Company and its Subsidiaries as of the
date thereof and the results of its operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and each of
its Subsidiaries have operated, and the Seller has caused the Company and each
of its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Seller will also
deliver or caused to be delivered to the Purchaser a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at May 31, 1997 including, without limitation, all
notes thereto, prepared in accordance with GAAP (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since May 31, 1997.
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3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any
real property. The Disclosure Schedule contains a complete and accurate list of
all the locations of all Real Property leased by the Company or any of the
Subsidiaries and the name and address of the lessor and, if a Person different
than such lessor, the manager thereof. The Company and the Seller have delivered
or caused to be delivered to the Purchaser true and complete copies of all
Contracts relating to Real Property (including, without limitation, all leases
and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and
there has been no damage, destruction or loss to any of the Real Property that
remains unremedied to date (ordinary wear and tear excepted) and (ii) suitable
to carry out each of the Company's and its Subsidiaries' respective Business as
conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or the Seller, threatened, against any of the Real
Property.
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(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any Real Property, the lease of Real
Property or acquisition of new businesses, with respect to which the Company or
any Subsidiary has made any expenditure in the two-years prior to the date of
this Agreement in excess of $10,000, or which if pursued by the Company would
require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases
all such properties as are presently used in the conduct of their respective
Businesses and operations. The Company and the Seller have delivered or caused
to be delivered to the Purchaser true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred or suffered any material physical damage,
destruction, theft or loss of their respective tangible items of material
personal property, whether owned or leased. All material Tangible Personal
Property including, without limitation, all computer hardware and software
(including all operating and application systems), is in good working order,
condition and repair and suitable to carry out each of the Company's and its
Subsidiaries' respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Company or
such Subsidiary, as the case
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may be, peaceful, undisturbed and exclusive possession of the applicable
Tangible Personal Property, (iii) is free of all Adverse Claims and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Seller,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which either the Company or
any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
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(iv) any Contract involving a pledge or encumbering of
either Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the
Company or any of its Subsidiaries has created, incurred, assumed or guaranteed
any indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within
one of the foregoing categories described in (i) through (vi) above or (z) is
not otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act to be
attached as an exhibit to any registration statement on Form S-1 filed by either
the Company or any of its Subsidiaries under the Act if the Company were to file
such a registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) is valid and binding on each of the parties thereto in
accordance with its terms, (ii) was made in the normal and ordinary course of
the Business and (iii) contains no provision or covenant prohibiting or limiting
the ability of the Company or any Subsidiary to operate their respective
Businesses.
(c) No party to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) has provided any notice to the Company or any of
its Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject is required in connection with the transactions contemplated by
this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person
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any right of termination, non-renewal, cancellation, withdrawal, acceleration or
modification in or with respect to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject, (ii) result in or give to any Person any additional
rights or entitlement to increased, additional, accelerated or guaranteed
payments under any such Contract or (iii) result in the creation or imposition
of any Adverse Claim upon the Company or any of its Subsidiaries or any of their
respective assets under the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete
and accurate list of all insurance policies held by the Company and by each of
its Subsidiaries identifying all of the following for each such policy: (i) the
type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and
accurate list and full description of each item of the Company's and each of its
Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Company, such representation and warranty is
given solely to the knowledge of the Company and the Seller.
(b) There is neither pending, nor to the Company's or the
Seller's knowledge, threatened, any Legal Proceeding against the Company or any
of its Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the
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Intellectual Property, and neither the Company nor any such Subsidiary has
received any notice of infringement upon or conflict with any asserted right of
others nor, to the Company's or the Seller's knowledge, is there a basis for
such a notice. To the Company's and the Seller's knowledge, no Person is
infringing the Company's or any of its Subsidiaries rights to the Intellectual
Property.
(c) Except as otherwise provided in the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any obligation to compensate
others for the use of any Intellectual Property. In addition, except as
otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Seller, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Seller, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Company and the Seller, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Seller, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
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3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their
respective employees, independent contractors and agents has obtained and holds
in full force, and the Disclosure Schedule sets forth a complete and accurate
list of, all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is
no Order outstanding against the Company or any of its Subsidiaries, nor is
there now pending, or to the Company's or the Seller's knowledge, threatened,
any Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries
has filed all registrations, filings, reports, or submissions that are required
by any Requirement of Law. All such filings were made in compliance with
applicable Requirements of Law when filed and no deficiencies have been asserted
by any Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and
timely filed all Tax Returns. Each such Tax Return is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Return. All Taxes not yet due and payable
have been withheld or reserved for or, to the extent that they relate to periods
on or prior to the date of the Company Balance Sheet, are reflected as a
liability thereon. The Company duly and properly filed an election to be an S
corporation on December 1, 1996 and such election was in effect, under Section
1362 of the Code and the rules and regulations promulgated thereunder, until
August 22, 1997 (the "S Period"). Such election was in effect during the S
Period without interruption, including without limitation any inadvertent
termination which was reinstated. During the S Period, all of the stockholders
of the Company were permitted stockholders under Section 1362 of the Code and
the rules and regulations promulgated thereunder. The Company's federal S
election was recognized and given effect or the Company
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has made an appropriate and timely election to be treated as an S corporation
for state income taxation purposes in Ohio.
(b) The Company and each of its Subsidiaries has complied with
all applicable Requirements of Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Requirements
of Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries that has not been resolved and
paid in full or fully reserved for and identified on the Company Balance Sheet
and, to the knowledge of the Company and the Seller, no deficiency for any Taxes
has been proposed that has not been fully reserved for and identified on the
Company Balance Sheet. Neither the Company nor any of its Subsidiaries has
received any outstanding and unresolved notices from the IRS or any other Taxing
Authority of any proposed examination or of any proposed change in reported
information relating to the Company or any such Subsidiary. Except as set forth
in the Disclosure Schedule (which sets forth the nature of the proceeding, the
type of Tax Return, the deficiencies proposed or assessed and the amount
thereof, and the taxable year in question), no Legal Proceeding or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or
any of its Subsidiaries regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge
of the Company and the Seller, is any request for any such waiver or consent
pending.
(e) There are no liens or encumbrances of any kind for Taxes
upon any assets or properties of the Company or any of its Subsidiaries other
than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party
to any Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed
to make, nor is any of them required to make, any adjustment under Section
481(a) of the Code for any period ending after the Closing Date by reason of a
change in accounting method or
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otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party
to any venture, partnership, Contract or arrangement under which it could be
treated as a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a
permanent establishment located in any tax jurisdiction other than the United
States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Other than in respect of a period for which a Tax is not
yet due, no state of facts exists or has existed that would constitute grounds
for the assessment of any Tax liability with respect to a period that has not
been audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or
any of its Subsidiaries with respect to any matter relating to Taxes that is
currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries is a party
to any Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code ss.338 (or any predecessory
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Code ss.279(b).
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3.24. Investment Portfolio. Except as set forth in the Disclosure
Schedule attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule,
since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Company's and each of its Subsidiaries' respective directors,
executive officers, and any of their respective significant employees (as such
term is defined in Regulation S-K under the Securities Act) and the compensation
payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to
this Agreement, the Seller or any of the current directors, current executive
officers or current significant employees (as such term is defined in Section
3.28(a)) of either the Company or any of its Subsidiaries has not, within the
past five (5) years:
(i) (x) filed or had filed against him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar law, or (y)
had a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
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3.30. Broker's or Finders. Except as set forth in the Disclosure
Schedule, neither the Company, any of its Subsidiaries nor the Seller has
engaged the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Company, its Subsidiaries or the Seller. Without degradation to any
of the foregoing, the Company, its Subsidiaries and the Seller are solely
responsible for the payment of the commissions, fees and other compensation
payable to the Person having any such right, interest or claim on account of any
action on the part of the Company, its Subsidiaries or the Seller, including,
without limitation, the Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar value
of purchases) of the Company and each of its Subsidiaries and details the
Company's and each such Subsidiary's total revenue attributable to each such
customer for the 1994, 1995 and 1996 fiscal years and the current fiscal year to
date. Except as set forth in the Disclosure Schedule, there has been no adverse
change in the Company's or any of its Subsidiaries' business relationship with
any such customer that, in the aggregate, would have a Material Adverse Effect
upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as
set forth on Schedule 3.33 there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
it to any of its respective officers, directors, stockholders,
employees, consultants or
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agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that
would have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any
agreement to sell or transfer, any material assets, property
or rights of any of its respective business to any person,
including, without limitation, the Seller and his affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Seller and his
affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Seller or any affiliate thereof, other than
the negotiation and adjustment of bills in the course of good
faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course
of their respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of
the Company and the Seller, all information furnished, to be furnished or caused
to be furnished to the Purchaser by the Company or the Seller with respect to
the Seller, the Company or any of its Subsidiaries for the purposes of or in
connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Seller and the Company
as follows:
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser (i) are within the Purchaser's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental body, agency or official, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or a default under,
any Requirement of Law applicable to the Purchaser or any of its properties or
any Contract to which the Purchaser or any of its properties is bound, except
filings and approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser, threatened against or affecting,
the Purchaser or any of its properties or otherwise that could adversely affect
or restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Company, the Seller or any of the other Founding
Companies, such representation and warranty shall be deemed based on the
knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person
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has or will have, as a result of the consummation of the transaction
contemplated by this Agreement, any right, interest or valid claim against or
upon the Seller for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Purchaser. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser.
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ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Seller and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Seller and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company or the Purchaser to
amend the provisions of this Agreement, to pay or cause any of their respective
Affiliates to pay any money, or to provide or cause any of their respective
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company and the Seller will and will cause the Company
and each of its Subsidiaries to, cooperate with the Purchaser in connection with
the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Company and the Seller
will and will cause the Company and each of its Subsidiaries to, afford to the
Purchaser, its agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Company or any of its Subsidiaries (including those in the possession or control
or their accountants, attorneys and any other third party), as the case may be,
for the purpose of permitting the Purchaser to make such investigation and
examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
and the Seller will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Purchaser's sole benefit, and shall not (i) impair or reduce
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any representation or warranty made by the Company or the Seller in this
Agreement, (ii) relieve the Company or the Seller from its or his obligations
with respect to such representations and warranties (including, without
limitation, the Seller's obligations under Article 10), or (iii) mitigate the
Company's and the Seller's obligations to otherwise disclose all material facts
to the Purchaser with respect to the Company, each of its Subsidiaries and their
respective Businesses.
(b) The Purchaser will cooperate with the Company and Seller
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, Seller and their agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Company and Seller to make such investigation and
examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and Seller, in their discretion, shall deem
necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Company and Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and Seller's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Purchaser in this
Agreement, (ii) relieve the Purchaser from its obligations with respect to such
representations and warranties (including, without limitation, the Purchaser's
obligations under Article 10), or (iii) mitigate the Purchaser's obligations to
otherwise disclose all material facts to the Company and the Seller with respect
to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of
the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries, the Seller shall, and shall cause the Company or the applicable
Subsidiary to, as the case may be, notify the Purchaser of such development,
event, circumstance or condition. In the event that the Purchaser receives such
notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and Seller the
opportunity to cure the matter giving rise to the termination right (but for no
longer than five days following the date Purchaser notifies the Company or
Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
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(b) Promptly upon the Company's or Seller's discovery of any
fact, event, condition or circumstance that causes any representation or
warranty made by the Company or the Seller to the Purchaser in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Seller shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchaser Financing Transactions. The
Company shall and shall cause its Subsidiaries to, and the Seller shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser with the following information:
(a) the Company's audited consolidated balance sheet as of
November 30, 1996 and the related statements of operations, shareholders' equity
and cash flows for the year then ended, together with all proper exhibits,
schedules and notes thereto, audited by Arthur Andersen LLP, all of which shall
be prepared in accordance with GAAP consistently applied with prior periods and
shall present fairly the financial position of the Company and its Subsidiaries
for the year then ended and the results of operations and changes in
shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, the Seller and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Seller and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Company shall, and the
Seller shall cause the Company
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and each of its Subsidiaries to, operate their respective Businesses in the
normal and ordinary course in a manner consistent with past practice including,
without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's
Business in substantially the same manner as it has heretofore and not introduce
any material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's
corporate existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to
preserve intact the Company's and each such Subsidiary's business relationships
with its agents, customers, employees, creditors and others with whom the
Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's
assets, properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to the
profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed
against the Company or any such Subsidiary, as the case may be, before any
penalty or interest accrues on any unpaid portion thereof and to file all Tax
Returns when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by proper
proceedings and for which appropriate reserves as may be required by GAAP have
been established;
(g) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to
which the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which consent
shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with
past practices.
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5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Company shall not, and the Seller
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the
Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any
borrowings or otherwise create, incur, assume or guaranty any indebtedness
(except for the endorsement of negotiable instruments for deposit or collection
or similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or indebtedness;
provided that no borrowings may be made without Purchaser's consent which
include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance
on any of the Company's or any of its Subsidiaries' assets or the incurrence by
the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of Ten Thousand
Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem,
subdivide, combine, change or purchase any of the Company's or any of its
Subsidiary's shares, notes or other securities, whether debt or equity, or make
any Contract or commitments to do so;
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(i) enter into any transaction with any Affiliate of the
Seller, the Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (except as set forth in Section
5.18 and except for the distribution of income from the Accumulated Adjustments
Account to the Seller on the S corporation Taxes);
(j) (i) declare or pay any dividend, distribution or payment
in respect of, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any of the Company's or any of its
Subsidiaries' securities, whether debt or equity, and whether in cash or
property or in obligations of the Company or any of its Subsidiaries, or (ii)
pay any royalty or management fee (except as set forth in Section 5.18 and
except for the distribution of income from the Accumulated Adjustments Account
to the Seller on the S corporation Taxes);
(k) grant or issue any subscription, warrant, option or other
right to acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, hypothecate, transfer or otherwise dispose of, any of the Company's or
any of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended November 30, 1996, except, in
either case, as may be required by any applicable Requirement of Law, the IRS or
GAAP;
(o) enter into any Contract or make any commitment to make any
capital expenditures or capital additions or betterments in excess of an
aggregate of $10,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk
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of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not
in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to do any
of the foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to, advise the Purchaser promptly of their or its receipt of any written offer
or written proposal concerning the Shares, the Company, any of its Subsidiaries,
any part of their respective Businesses or any material interest therein, and
the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Seller shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Seller (other than
in the Registration Statement) Purchaser will endeavor to consult with Seller to
the extent time permits. Nothing contained herein shall restrict the ability of
the Company or Seller from contacting a third party in order to obtain a Consent
to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedules
hereto with respect to any matter hereafter arising or discovered
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which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Articles 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Seller shall furnish or cause to be
furnished to the Purchaser and the underwriters of the Initial Public Offering
(the "Underwriters") all of the information concerning the Company or the Seller
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Company and the Seller agree promptly to advise the Purchaser
if at any time during the period in which a prospectus relating to the Purchaser
Financing Transaction is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the Seller
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy. The Purchaser agrees to use its
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Company with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as reasonably practicable prior to such filing (it being understood
that neither the Company nor the Seller has any obligation to review the same
other than with respect to information regarding the Company or the Seller) and
to diligently seek to cause the Registration Statement to be declared effective
and the Initial Public Offering to be completed. The Purchaser agrees that
neither the Company nor the Seller shall have any responsibility for pro forma
adjustments that may be made to the Financial Statements.
(b) The Company and the Seller acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become
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effective, the Initial Public Offering to occur at a particular price or within
a particular range of prices or occur at all, and (iii) the decision of the
Seller to enter into this Agreement and, if applicable, to vote in favor of or
consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller with respect to any
disclosure contained in the Registration Statement and the Seller may not assert
any claim against the Underwriters relating to the Registration Statement on
account thereof.
5.13. Examination of Final Financial Statement. The Company shall
provide to Purchaser prior to the Closing Date unaudited consolidated balance
sheets of the Company for each month and fiscal quarter end between the date of
this Agreement and the Closing Date, and unaudited consolidated statements of
income, cash flows and retained earnings of the Company for such subsequent
months and fiscal quarters. In addition, the Company shall prepare and deliver
to Purchaser at Closing the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein), shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year end adjustments). Such financial
statements shall present fairly the results of operations of the Subsidiaries
for the periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.12(a) have been reviewed by Arthur Andersen
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal
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representatives and shall benefit and be enforceable by the underwriters in the
Initial Public Offering. In furtherance of the foregoing, the Purchaser and its
transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act; (ii) such compliance by the Seller
and the Company shall be deemed a condition precedent in addition to the
conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement; and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made. If filings under the Hart-Scott
Act are required, the costs and expenses thereof (including filing fees) shall
be borne by Purchaser. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott Act, if applicable.
5.16. Transaction Bonuses. At the Closing, the Purchaser will pay
those certain bonuses aggregating $62,800 (the "Transaction Bonuses") to the
persons and in the amounts specified on Schedule 5.16.
5.17. Lease. At the Closing, the Seller and Purchaser will execute
the Lease.
5.18. Insurance Policy. At or prior to closing, the Company shall
assign the universal life insurance policy on the Seller held by the Company to
the Seller, including the accrued cash value therein.
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser's Obligations. The
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and the Seller shall
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Company's and the Seller's representations and warranties contained
in this Agreement are true and correct on and as of the Closing Date as though
such representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and
the Seller shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and the Seller, as the case may be, at or
prior to the Closing Date. The Company and the Seller shall deliver to the
Purchaser a certificate, dated the Closing Date, certifying that the Company and
the Seller have fully performed and complied with all the duties, obligations
and conditions required by this Agreement to be performed and complied in all
material respects with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and the Seller shall
have delivered to the Purchaser all documents, certificates, instruments and
items (including, without limitation, certificates representing the Shares)
required to be delivered by him or it at or prior to the Closing Date pursuant
to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except for:
(i) Debt for which an adjustment to the Base Purchase Price has been made under
Section 2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Shares or of any securities of
the Company or any of the Company's Subsidiaries; (ii) imposing or seeking to
impose limitations on the ability of the Purchaser to combine and operate the
business, operations and assets of the Company or any of the Company's
Subsidiaries with the Purchaser's business, operations and assets; (iii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Purchaser or any
of the Purchaser's directors, officers or employees; (iv) requiring or seeking
to require divestiture by the Purchaser of all or any material portion of the
business, assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (I)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the sale of the Shares, including as applicable, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the
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Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the Company
is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a Material Adverse Effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of existence certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Jablinski, Rolino, Roberts &
Martin, counsel for the Company and the Seller, shall have delivered to the
Purchaser their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.1(k). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
the Seller as to matters of fact, and as to any matter which involves other than
federal or Ohio law, such counsel may rely upon the opinion of local counsel
reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Company and the Seller, Affiliates of the Company or
Seller, other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment agreement (collectively,
the "Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the
Seller shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Seller or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. The Seller and the Company shall have
executed the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Seller of, prior to or at the Closing, each and every of the following
conditions precedent:
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(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and warranties
had been made on and as of the Closing Date, except for those representations
and warranties that by their terms relate to an earlier date, which
representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser shall deliver to the
Seller a certificate of the Purchaser, executed by a duly authorized officer of
the Purchaser and dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by the Purchaser at or prior to the Closing Date. The Purchaser shall
deliver to the Seller a certificate, dated the Closing Date, certifying the
Purchaser has fully performed and complied in all material respects with all the
duties, obligations and conditions required by this Agreement to be performed
and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Seller all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to sell any of the Shares; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
the Seller; or (iii) restraining, enjoining or prohibiting or seeking to
restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into the Employment Agreements with each of the persons listed on Schedule
6.1(m) substantially in the form of Exhibit C attached hereto.
(g) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (I)(A) the
copy of the Purchaser's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
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articles or certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy of
the Purchaser's bylaws as in effect on the date thereof and at all times since
the adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the Purchasers's board of directors
authorizing the actions taken in connection with the purchase of the Shares,
including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the Purchaser and including specimen signatures
on such certificate or certificates of such officers executing this Agreement on
behalf of the Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton &
Scheetz LLP, counsel for Purchaser, shall have delivered to the Company and
Seller their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(I). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
(j) Transaction Bonuses. The Purchaser shall have paid the
Transaction Bonuses to the persons and in the amounts specified on Schedule
5.16.
(k) Repayment of Debt. At Closing, Purchaser shall repay the
outstanding obligations of the Company to Huntington Bank (the "Huntington Bank
Debt") or secure the release of Sellers from their personal guarantees of the
Company's obligations under the Huntington Bank Debt.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to effect the sale of the Shares
referred to herein, provided, that such actions shall not include the actual
completion of the sale and purchase of the Shares and the delivery of the shares
of DocuNet Common Stock and the check(s) (or wire transfers) referred to in
Section 2 hereof and payment of consideration for the Shares, each of which
actions shall only be taken upon the Closing Date as herein provided. In the
event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Company advise Purchaser are required by
applicable laws of the State of Ohio in order to rescind any actions taken in
furtherance of the sale of the Shares as described in this Section. The taking
of the actions described above shall take place on the Pricing Date at the
offices of Pepper, Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch
Streets, Philadelphia, PA 19103. On the Closing Date (i) certificates,
registered in the name of the Seller, properly endorsed and with all required
transfer stamps, representing all of the Shares being purchased by the Purchaser
under this Agreement shall be delivered to the Purchaser, (ii) all transactions
contemplated by this Agreement, including the delivery of shares of DocuNet
Common Stock to the Seller, the delivery of the shares of DocuNet Common Stock
to the Escrow Agent on account of the Escrow Agreement, the delivery of a
certified check or checks or a wire transfer in an amount equal to the cash
portion of the consideration which the Seller shall be entitled to receive
pursuant to Section 2 hereof, and the delivery of the documents contemplated to
be delivered by purchaser and Seller pursuant to Section 6 hereof, and (iii) the
closing with respect to the Initial Public Offering shall occur and be deemed to
be completed. The date on which the actions described in the preceding clauses
(I), (ii) and (iii) occurs shall be referred to as the "Closing Date". Except as
otherwise provided in Section 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written consent of the
party about whom such Confidential Information pertains, except (i) to any
party's directors, officers, employees, agents, advisors and representatives who
have a need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any Regulatory
Approvals, that may be required or advisable to consummate the transactions
contemplated by this Agreement, (iii) to enforce such party's rights and
remedies under this Agreement, (iv) with respect to disclosures that are
compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the
Purchaser, the Company and the Seller dated April 21, 1997, and (ii) survive the
termination of this Agreement, or the Closing, as applicable, for a period of
two years after the date of such termination or the Closing Date, respectively;
provided, that, if the Closing shall occur, then the Purchaser's obligation of
confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with the Purchaser or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Company to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's purchase of the Shares, the Seller shall not, during the Restricted
Period, do any of the following, directly or indirectly, without the prior
written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or the
Company or any of their respective Affiliates or Subsidiaries, or any of their
respective successors or assigns, whether now existing or hereafter created or
acquired (collectively, the "Related Companies"), or otherwise engage or
participate, directly or indirectly, in any business conducted by Purchaser or a
Subsidiary (the "Restricted Business") within any geographic area located within
the United States of America, its possessions or territories (the "Restricted
Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's, the Company's or any of their respective
Related Companies' (A) customers or distributors or prospective customers or
distributors (wherever located) with respect to goods or services that are
competitive with those of the Purchaser, the Company, or any of their respective
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract, arrangement or relationship with the Purchaser, the Company
or any of their respective Related Companies or (D) employees (other than family
members) to leave the employ of the Purchaser, the Company or any of their
respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened
breach by him of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Company and their respective Related
Companies for which monetary damages
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would not be an adequate remedy. Accordingly, the Purchaser, the Company and any
of their respective Related Companies shall be entitled to injunctive relief
from a court of competent jurisdiction, including specific performance, with
respect to any such breach or threatened breach. In connection therewith, the
Seller shall, in any action or proceeding to so enforce any provision of this
Article 8, assert the claim or defense that an adequate remedy at law exists or
that injunctive relief is not appropriate under the circumstances. The rights
and remedies of the Purchaser, the Company and any of their respective Related
Companies set forth in this Section 8.3 are in addition to any other rights or
remedies to which the Purchaser, the Company or any of their respective Related
Companies may be entitled, whether existing under this Agreement, at law or in
equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser
and the Seller that the provisions of this Article 8 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if any provision of this Article 8 shall be determined to be invalid,
unenforceable or illegal for any reason, then the validity and enforceability of
all of the remaining provisions of this Article 8 shall not be affected thereby.
If any particular provision of this Article 8 shall be adjudicated to be invalid
or unenforceable, then such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
amendment to apply only to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided that, if any provision
contained in this Article 8 shall be adjudicated to be invalid or unenforceable
because such provision is held to be excessively broad as to duration,
geographic scope, activity or subject, then such provision shall be deemed
amended by limiting and reducing it so as to be valid and enforceable to the
maximum extent compatible with the applicable laws and public policy of such
jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he has
carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, the Company or any of their respective Related Companies, but he
nevertheless believes that he has received and will receive sufficient
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consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Company's and their respective Related Companies'
interests, and Seller does not believe that such restrictions will prevent him
from earning a living in businesses that are not competitive with those of the
Purchaser, the Company or any of their respective Related Companies during the
term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller, the Company and the Purchaser
contained in this Agreement shall survive until the second anniversary of the
Closing Date, except that the representations and warranties set forth in each
of Section 3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive until
the expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Seller, the Company
and of the Purchaser contained in this Agreement will survive the Closing until,
by their own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Seller's and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who
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controls any such Underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder shall be (i) an intended beneficiary of this Agreement
and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller's Indemnification. From and after the Closing Date, the
Seller shall, jointly and severally, indemnify and hold harmless the Purchaser
and the Company and any of their respective Subsidiaries, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or the Seller
under this Agreement or any document, instrument, certificate or other item
required to be furnished to the Purchaser pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any untrue
statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by the Company or the Seller pursuant to this Agreement or upon any untrue
statement or omission contained in any written information furnished or caused
to be furnished by the Seller to the Purchaser (provided that the Seller hereby
acknowledges that the information concerning the Seller and the Company in the
Registration Statement shall be deemed to be provided to the Purchaser for the
purposes hereof); (iii) any liability or obligation of the Seller, the Company
or any of its Subsidiaries other than Debt for which an adjustment to the Base
Purchase Price has been made under Section 2.2(b) and Debt which does not
constitute an Adjusted Current Liability; (iv) any liability for payment of
Taxes that accrued or relate to the period of time prior to the Closing Date;
(v) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) without regard to any knowledge acquired by Purchaser, any loss
or liability arising from the complaint filed against the Company by Michael
Rutherford or any related matters (including attorney's fees) (regardless of
disclosure of such complaint on the Disclosure Schedule); (viii) any
non-compliance with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101,
et. seq., as amended, and the rules and regulations promulgated thereunder and
any similar Requirement of Law; and (ix) any Legal Proceeding or
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Order arising out of any of the foregoing even though such Legal Proceeding or
Order may not be filed, become final, or come to light until after the Closing
Date.
10.1A. No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser shall indemnify and hold harmless the Seller and each of their
respective legal representatives, successors and assigns from and against all
Indemnifiable Losses imposed upon, incurred by or asserted against, the Seller
resulting from, related to, or arising out of: (i) any misrepresentation, breach
of any warranty or non-fulfillment of any covenant to be performed by the
Purchaser under this Agreement or any document, instrument, certificate or other
item furnished or to be furnished to the Seller pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any Debt
for which an adjustment to the Base Purchase Price has been made under Section
2.2(b) and any Adjusted Current Liabilities; (iii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Purchaser pursuant to
this Agreement or upon any untrue statement or omission contained in any
information furnished or caused to be furnished by the Purchaser; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to
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such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall, within sixty (60) days after obtaining sufficient
information to articulate such grounds, give written notice to the applicable
Indemnifying Party thereof, together with such information as is reasonably
sufficient to describe the potential or contingent claim to the extent then
feasible (an "Unliquidated Indemnity Notice"). The failure of an Indemnified
Party to give the Indemnifying Party the Unliquidated Indemnity Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however that the Indemnifying Party shall not be liable for Indemnifiable Losses
incurred by the Indemnified Party that would not have been incurred but for the
delay in the delivery of, or the failure to deliver, the Unliquidated Indemnity
Notice. Within sixty (60) days after the amount of such claim shall be
finalized, resolved, or liquidated, the Indemnified Party shall give the
Indemnifying Party an Indemnity Notice, and the Indemnifying Party's obligations
under this Article 10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense
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of such claim, demand or Legal Proceeding, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled to
defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement satisfactory to the Indemnified Party;
otherwise, the Indemnified Party shall have the right to control the defense of
the claim or the litigation. Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the claim or the litigation
shall not settle any such claim or litigation without the written consent of the
other party; provided, that if the Indemnified Party is controlling the defense
of the claim or the litigation and shall have, in good faith, negotiated a
settlement thereof, which proposed settlement contains terms that are reasonable
under the circumstances, then the Indemnifying Party shall not withhold or delay
the giving of such consent (and in the event the Indemnifying Party and
Indemnified Party are unable to agree as to whether the proposed settlement
terms are reasonable, the Indemnifying Party and Indemnified Party will request
that the disagreement be resolved by a neutral third party designated by the
President of the Philadelphia office of the American Arbitration Association).
In the event that the Indemnifying Party is controlling the defense of the claim
or the litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser, the Company, or any controlling Person of
the Purchaser or the Company (within the meaning of the Securities Act) makes a
claim for indemnification pursuant to Section 10.1(ii) but it is
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judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 10.1(ii) provides for indemnification in
such case, then, the Purchaser, the Company, each controlling Person and the
Seller will contribute to the aggregate Indemnifiable Losses to which the
Purchaser, the Company or any such controlling Person may be subject (after
contribution from others) as is appropriate to reflect the relative fault of the
Purchaser, the Company, such controlling Person and the Seller in connection
with the statements or omissions which resulted in such Indemnifiable Losses, as
well as the relative benefit received by the Purchaser, the Company, such
controlling Person and the Seller as a result of the issuance of the securities
to which such Indemnifiable Losses relate, it being understood that the parties
acknowledge that the overriding equitable consideration to be given effect in
connection with this provision is the ability of one party or the other to
correct the statement or omission which resulted in such Indemnifiable Losses,
and that it would not be just and equitable if contribution pursuant hereto were
to be determined by pro rata allocation or by any other method of allocation
which does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, and
the other Persons or entities indemnified pursuant to Section 10.1 shall not
assert any claim for indemnification hereunder against the Seller until such
time as, the aggregate of all claims which such persons may have against the
Seller shall exceed $32,000 (the "Indemnification Threshold"), whereupon such
claims shall be indemnified in full, except as to claims under Section 10.1(vii)
for which Purchaser shall be indemnified for claims exceeding the
Indemnification Threshold. Seller shall not assert any claim for indemnification
hereunder against Purchaser or the Company until such time as the aggregate of
all claims which Seller may have against Purchaser or the Company shall exceed
$32,000, whereupon such claims shall be indemnified in full. The limitation on
assertion of claims for indemnification contained in this paragraph shall apply
only to claims based upon inaccuracies in, or breaches of, representations and
warranties contained in this Agreement or any document, instrument, certificate
or other item required to be furnished pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller shall not be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by the
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Seller in connection with the transactions contemplated herein. For purposes of
the foregoing limitation, the DocuNet Common Stock shall be valued at the
Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common
Stock used to satisfy an Indemnity Claim shall be valued at the lower of the
Initial Public Offering Price and the Value as of the date such shares are so
used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Company, the Seller and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Company's or the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller, on the one
hand, or by the Purchaser, on the other hand, upon any material breach by such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non-breaching party to the
breaching party; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller, on the one hand, or by the Purchaser on
the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
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11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Company, the Seller or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3)
years after the Closing Date, the Purchaser shall, or shall cause the Company
and each of its Subsidiaries to, maintain all books and records maintained by
the Company or any such Subsidiary on or prior to the Closing Date and shall
permit the Seller or his representatives and agents access to all such books and
records, and to the Company's and its Subsidiaries' employees and auditors for
the purpose of obtaining information relating to periods on or prior to the
Closing Date, upon reasonable notice by the Seller and on terms not disruptive
to the business, operation or employees of the Purchaser, the Company or any of
their respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
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12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Seller becomes
aware of any fact or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of Company or Seller in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Seller shall promptly give notice of such
fact or circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the
Seller makes a payment after the Closing Date to Purchaser in full satisfaction
of an uncollected Receivable, Purchaser will assign its rights to such
Receivable to the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Seller or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, the Seller shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Seller pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Seller pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
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WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to
be delivered to the Seller pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and
represents that none of the shares of DocuNet Common Stock issued to the Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND
SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY
TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller is or his respective purchaser representatives
have had an adequate opportunity to ask questions and receive answers from the
officers of the Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed
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officers and directors of the Purchaser, the plans for the operations of the
business of the Purchaser, the business, operations and financial condition of
the Founding Companies, and any plans for additional acquisitions and the like.
The Seller and the Company acknowledge receipt and review of the draft
Registration Statement attached hereto as Schedule 14.2 for informational
purposes and subject to the limitations of Section 5.12(b). The Seller and the
Company acknowledge that such draft is subject to completion and subject to
change, and Seller and the Company acknowledge that they or their respective
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. At any time following the
Closing, whenever the Purchaser proposes to register any DocuNet Common Stock
for its own or others' account under the Securities Act for a public offering,
other than (i) any shelf registration of the DocuNet Common Stock; (ii)
registrations of shares to be used solely as consideration for acquisitions of
additional businesses by the Purchaser and (iii) registrations relating to
employee benefit plans, the Purchaser shall give the Seller prompt written
notice of its intent to do so. Upon the written request of the Seller given
within 30 days after receipt of such notice, Purchaser shall cause to be
included in such registration all of the DocuNet Common Stock which the Seller
requests. However, if the Purchaser is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 15.1 that the number
of shares to be sold by persons other than the Purchaser is greater than the
number of such shares which can be offered without adversely affecting the
offering, the Purchaser may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such persons)
to a number deemed satisfactory by such managing underwriter or such managing
underwriter can eliminate the participation of all such persons in the offering,
provided that, for each such offering made by the Purchaser after the Initial
Public Offering, a reduction shall be made first by reducing the number of
shares to be sold by persons other than the Purchaser, the Seller, the Founding
Companies and the stockholders of the Founding Companies and other stockholders
("Other Stockholders") of the Company immediately prior to the Initial Public
Offering, and thereafter, if a further reduction is required, by reducing the
number of shares to be sold by the Seller, the Founding Companies, the
stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 15 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to
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the DocuNet Common Stock and use its best efforts to cause such registration to
promptly become and remain effective for a period of at least 90 days (or such
shorter period during which holders shall have sold all DocuNet Common Stock
which they requested to be registered); (ii) use its best efforts to register
and qualify the DocuNet Common Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution for the DocuNet Common Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
Securities Act and the regulations thereunder.
15.3. Underwriting Agreement. In connection with each registration
pursuant to Section 15.1 covering an underwritten registration public offering,
the Purchaser and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of the Purchaser's size and
investment stature, including indemnification and the prohibition of sales or
transfers of such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated
to register shares of DocuNet Common Stock held by the Seller at any time when
the resale provisions of Rule 144(k) (or any similar or successor Seller
provision) promulgated under the Securities Act are available to the Seller.
15.5. Survival. The provisions of this Article 15 shall survive the
Closing until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Company (prior to the Closing Date):
Ovidio Pugnale
Image Memory Systems, Inc.
6000 Webster Street
Dayton, OH 45414
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with a copy to:
Thomas P. Martin
Jablinski, Rolino, Roberts & Martin
214 West Monument
Dayton, OH 45402
(b) If to Seller:
Ovidio Pugnale
Image Memory Systems, Inc.
6000 Webster Street
Dayton, OH 45414
with a copy to:
Thomas P. Martin
Jablinski, Rolino, Roberts & Martin
214 West Monument
Dayton, OH 45402
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Attn: Bruce M. Gillis
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of
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notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided
herein, this Agreement is not intended to, and does not, create any rights in or
confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Arthur Andersen LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Seller shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Seller and the Purchaser shall, at
his, her or its own expense, from time to time upon the request of the other,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by the Purchaser or the Seller, such other documents,
certificates and instruments and take such actions as the Purchaser or the
Seller deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Seller shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, any
Underwriter or any auditor reasonably deems necessary or desirable to complete
any audit of the Company's financial statements or in connection with any
Purchaser Financing Transaction; provided, that the Seller shall be required to
execute any guaranty of any indebtedness or instrument of indebtedness obtained
by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
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16.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Company, the Seller nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser; provided that the DocuNet
Common Stock to be issued in payment of a portion of the purchase price shall be
registered under Section 12 of the Securities Exchange Act of 1934 at the time
it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Seller, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
IMAGE MEMORY SYSTEMS, INC.
By: /s/ Ovidio Pugnale
_______________________________
Ovidio Pugnale
President
Witness: /s/ Ovidio Pugnale
_______________________ _______________________________
Ovidio Pugnale, Individually
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Ovidio Pugnale ("Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Seller and the Escrow Agent are sometimes collectively referred to herein as the
"Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
Ovidio Pugnale
Image Memory Systems, Inc.
6000 Webster Street
Dayton, OH 45414
With a copy to:
Jablinski, Folino, Roberts & Martin
P.O. Box 1266
Dayton, OH 45402-9766
Attention: Thomas P. Martin, Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Ovidio Pugnale
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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PEPPER, HAMILTON & SCHEETZ DRAFT
9/3/97
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INTERNATIONAL DATA SERVICES OF NEW YORK, INC.
DOCUNET INC.
AND
IDS ACQUISITION CORP.
Dated September 9, 1997
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TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger........................................................10
2.2. Effective Time of the Merger.....................................................................10
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation....................................................................................10
2.4. Certain Information with Respect to the Capital Stock of the Company, Purchaser
and Newco......................................................................................11
2.5. Effect of Merger.................................................................................11
2.6. Manner of Conversion.............................................................................12
2.7. Delivery of Shares...............................................................................12
2.8. Merger Consideration.............................................................................13
2.9. Delivery of Merger Consideration.................................................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................16
3.1. Organization; Qualification; Good Standing.......................................................16
3.2. Authorization for Agreement......................................................................17
3.3. Capitalization; Subsidiaries and Affiliates......................................................17
3.4. Enforceability...................................................................................18
3.5. Matters Affecting Shares; Title to Shares........................................................18
3.6. Predecessor Status; etc..........................................................................18
3.7. Spin-off by the Company..........................................................................19
3.8. Legal Proceedings................................................................................19
3.9. Compliance with Laws.............................................................................19
3.10. Labor Matters....................................................................................20
3.11. Employee Benefit Plans...........................................................................21
3.12. Financial Statements.............................................................................23
3.13. Distributions....................................................................................24
3.14. Absence of Undisclosed Liabilities...............................................................24
3.15. Real Property....................................................................................24
3.16. Tangible Personal Property.......................................................................25
3.17. Contracts........................................................................................26
3.18. Insurance........................................................................................28
3.19. Proprietary Rights...............................................................................29
3.20. Environmental Matters............................................................................30
3.21. Permits..........................................................................................30
3.22. Regulatory Filings...............................................................................31
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3.23. Taxes and Tax Returns............................................................................31
3.24. Investment Portfolio.............................................................................33
3.25. Affiliate Transactions...........................................................................33
3.26. Accounts, Power of Attorney......................................................................33
3.27. Receivables......................................................................................33
3.28. Officers and Directors...........................................................................34
3.29. Corporate Records................................................................................35
3.30. Broker's or Finders..............................................................................35
3.31. Customers........................................................................................35
3.32. Investment Company...............................................................................35
3.33. Absence of Changes...............................................................................35
3.34. Accuracy and Completeness of Information.........................................................37
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO......................................................................................37
4.1. Organization......................................................................................37
4.2. Authorization for Agreement.......................................................................37
4.3. Enforceability....................................................................................37
4.4. Litigation........................................................................................38
4.5. Registration Statement............................................................................38
4.6. Brokers or Finders................................................................................38
4.7. DocuNet Common Stock..............................................................................38
ARTICLE 5 - COVENANTS.............................................................................................38
5.1. Good Faith........................................................................................38
5.2. Approvals.........................................................................................38
5.3. Cooperation; Access to Books and Records..........................................................39
5.4. Duty to Supplement................................................................................40
5.5. Information Required For Purchaser Financing Transactions.........................................40
5.6. Performance of Conditions.........................................................................41
5.7. Conduct of Business...............................................................................41
5.8. Negative Covenants................................................................................42
5.9. Exclusive Negotiation.............................................................................44
5.10. Public Announcements..............................................................................45
5.11. Amendment of Schedules............................................................................45
5.12. Cooperation in Preparation of Registration Statement..............................................45
5.13. Examination of Final Financial Statement..........................................................47
5.13A. Audit Opinion.....................................................................................47
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5.14. Lock-Up Agreements...............................................................................47
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"Hart-Scott Act")..............................................................................48
5.16. Reorganization Status............................................................................48
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................48
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................48
6.2. Conditions Precedent to Company's and Seller's Obligations........................................51
ARTICLE 7 - CLOSING..............................................................................................53
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................53
8.1. Confidentiality...................................................................................53
8.2. Covenant Not To Compete...........................................................................54
8.3. Specific Enforcement; Extension of Period.........................................................55
8.4. Disclosure........................................................................................56
8.5. Interpretation....................................................................................56
8.6. Seller's Acknowledgment...........................................................................56
ARTICLE 9 - SURVIVAL.............................................................................................57
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................57
9.2. [Intentionally omitted]...........................................................................57
9.3. Underwriter's Benefit.............................................................................57
ARTICLE 10 - INDEMNIFICATION.....................................................................................58
10.1. Sellers' Indemnification.........................................................................58
10.1A. No Indemnification of Projected Information......................................................58
10.2. Purchaser's Indemnification......................................................................59
10.3. Payment; Procedure for Indemnification...........................................................59
10.4. Equitable Contribution Under the Securities Act..................................................61
10.5. Exclusiveness of Indemnification.................................................................62
10.6. Limitations on Indemnification...................................................................62
10.7. Value of DocuNet Common Stock....................................................................63
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................63
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11.1. Termination......................................................................................63
11.2. Effect of Termination............................................................................63
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................64
12.1. Maintenance and Access to Records................................................................64
12.2. Disclosure.......................................................................................64
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................65
13.1. Transfer Restrictions............................................................................65
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................65
14.1. Compliance with Law..............................................................................66
14.2. Economic Risk; Sophistication....................................................................66
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................67
15.1. Piggyback Registration Rights....................................................................67
15.2. Registration Procedures..........................................................................67
15.3. Underwriting Agreement...........................................................................67
15.4. Availability of Rule 144.........................................................................68
15.5. Survival.........................................................................................68
ARTICLE 16 - MISCELLANEOUS.......................................................................................68
16.1. Notices..........................................................................................68
16.2. No Third Party Beneficiaries.....................................................................69
16.3. Schedules........................................................................................69
16.4. Expenses.........................................................................................69
16.5. Further Assurances...............................................................................70
16.6. Entire Agreement; Amendment......................................................................70
16.7. Section and Paragraph Titles.....................................................................70
16.8. Binding Effect...................................................................................70
16.9. Counterparts.....................................................................................70
16.10. Severability.....................................................................................71
16.11. Governing Law....................................................................................71
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of the 9th day of September, 1997, by and among DocuNet INC., a
Pennsylvania corporation ("Purchaser"), IDS ACQUISITION CORP., a Pennsylvania
corporation ("Newco"), INTERNATIONAL DATA SERVICES OF NEW YORK, INC., a New York
corporation (the "Company"), and MITCHELL J. TAUBE AND ELLEN F. ROTHSCHILD-TAUBE
(individually, a "Seller", and together, the "Sellers"). The Sellers are the
only stockholders of the Company.
WHEREAS, Newco is a corporation duly organized and
existing under the laws of the Commonwealth of Pennsylvania,
having been incorporated on solely for the purpose of
completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized
and existing under the laws of the Commonwealth of
Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco
and the Company (which together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable
and in the best interests of the Constituent Corporations and
their respective stockholders that the Company merge with and
into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and
the State of New York;
WHEREAS, Purchaser is entering into other separate
agreements substantially similar to this Agreement (the "Other
Agreements"), with each of the other Founding Companies (as
defined herein) and their respective stockholders in order to
acquire additional document management and related services
companies;
WHEREAS, this Agreement, the Other Agreements and the
Initial Public Offering of DocuNet Common Stock (as defined
herein) constitute the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the
Potential Founding Companies (as defined herein) pursuant to
the Other Agreements, the Board of Directors of the Company
has approved this Agreement as part of the DocuNet Plan of
Reorganization in order to transfer the capital stock of the
Company to Purchaser;
WHEREAS, the parties hereto intend for the merger
transaction contemplated herein to qualify as a reorganization
under Section 368(a)(1)(A) of the Code and Section
368(a)(2)(D).
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IN CONSIDERATION of the foregoing and the mutual promises,
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section
3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.2A. Adjusted Current Liabilities shall have the meaning set
forth in Section 2.8(b).
1.3. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.4. [Intentionally omitted.]
1.5. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.6. Articles of Merger shall mean those Articles or
Certificates of Merger with respect to the Merger substantially in the forms
attached as Annex I hereto or with such other changes therein as may be required
by applicable state laws.
1.7. Balance Sheet Date shall mean June 30, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in
Section 2.8.
1.8. Business shall mean the business of the Company or any of
its Subsidiaries as conducted as of the date hereof.
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1.9. Capitalization Table shall mean the capitalization
table set forth in Section 2.7.
1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing
actually takes place.
1.15. Closing Balance Sheet shall mean the balance sheet
delivered by the Company to the Purchaser as of the date immediately prior to
the Closing Date in accordance with Section 3.12(d).
1.16. [Intentionally omitted.]
1.17. Code shall mean the Internal Revenue Code of 1986 and
the rules and regulations promulgated thereunder, as amended and supplemented
from time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value
per share, of the Company.
1.19. Confidential Information shall mean (i) with respect to
any party to this Agreement or any Affiliate of such party or any Potential
Founding Company, all financial, technical, commercial or other information,
including but not limited to information, materials, documents, financial
reports, business plans and marketing data that relate to the business,
strategies or operations of the parties hereto or a Potential Founding Company,
disclosed or otherwise made available by such party, such Affiliate or Potential
Founding Company (the "Discloser") to another party, affiliate or Potential
Founding Company (the "Recipient") in connection with the transactions
contemplated by this Agreement and (ii) each of the terms, conditions and other
provisions contained in this Agreement and in the agreements or documents to be
delivered pursuant to this Agreement. Notwithstanding the preceding sentence,
the definition of Confidential Information shall not include any information
that (i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof,
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public domain shall not include disclosure of information to a Potential
Founding Company or (except as otherwise provided herein) to any other person in
connection with the transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in
the second recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection
Practices Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16
U.S.C. ss.1681 et. seq., and any other provision of the Consumer Credit
Protection Act, in each case, together with the rules and regulations
promulgated thereunder, (ii) the Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, 15 U.S.C. ss.6101 et. seq., together with the rules and
regulations promulgated thereunder, (iii) the Telephone Consumer Protection Act
of 1991, together with the rules and regulations promulgated thereunder, and
(iv) any Requirement of Law of any jurisdiction relating to the subject matter
covered by any of the foregoing, all as amended and supplemented from time to
time, or any successors thereto.
1.23A. Debt shall have the meaning set forth in Section
2.8(b).
1.24. DocuNet Common Stock shall mean the common stock, no par
value per share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of
which the Merger becomes effective, which shall, in any case, occur on the
Closing Date.
1.26. Employee Benefit Plan shall mean any deferred
compensation, pension, profit sharing, stock option, stock purchase, savings,
group insurance or retirement plan, and all vacation pay, severance pay,
incentive compensation, consulting, bonus and other employee benefit or fringe
benefit plans or arrangements maintained by the Company or any ERISA Affiliate
(including, without limitation, health insurance, life insurance and other
benefit plans maintained for retirees) within the previous six plan years or
with respect to which contributions are or were (within such six year period)
made or required to be made by the Company or any ERISA Affiliate or with
respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law
relating to pollution or protection of the environment (including, without
limitation, ambient air, surface
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water, groundwater, land, or surface or subsurface strata) including, without
limitation, Requirements of Law relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment and Requirements of Law
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any of the foregoing including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et. seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et. seq., and the rules and regulations
promulgated thereunder, all as amended and supplemented from time to time, and
together with any successors thereto. As used in this Agreement, the term
"hazardous substances" shall have the meaning assigned to that term in CERCLA,
and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.28. Escrow Agent shall mean the individual or entity named
as the Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between
the Sellers, the Purchaser and the Escrow Agent to hold the Escrow Amount
pursuant to the terms and conditions therein as referred to in Section 2.9,
substantially in the form attached hereto as Exhibit A.
1.30. Escrow Amount shall have the meaning set forth in
Section 2.9(c).
1.31. ERISA shall mean the Employment Retirement Income
Security Act of 1974 and the rules and regulations promulgated thereunder, as
amended and supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included
with the Company in a controlled group or affiliated service group under
Sections 414(b), (c), (m) or (o) of the Code.
1.33. [Intentionally omitted.]
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition or merger agreements or asset
purchase agreements with the Purchaser in anticipation of a simultaneous
acquisition by Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles
in the United States set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and in
statements by the Financial Accounting Standards Board or in such other
statement by such other entity as may be generally recognized as the successors
for the aforementioned; and shall also mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in a preceding period unless
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specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any
court, tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities,
obligations, claims, demands, damages, penalties, settlements, causes of action,
costs and expenses. Indemnifiable Losses shall include, without limitation, the
actual costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs, including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in
Section 10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in
Section 10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in
Section 10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's
initial public offering of the Purchaser's common stock registered under the
Securities Act.
1.43. Initial Public Offering Price shall mean the price to
the public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent
rights, patent applications, registered trademarks and service marks, trademark
rights, trademark applications, service mark rights, service mark applications,
trade names, registered copyrights, copyright rights and all intellectual,
industrial or proprietary rights and trade secrets, technology and know-how
relating to the Business, in each case together with any amendments,
modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set
forth in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or
relating to, or used in connection with the Business including, without
limitation, all supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
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1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of any of the Sellers, that
knowledge that such Seller should have if such Seller made reasonable and
diligent inquiry and exercised due diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit,
arbitration, claim or investigation by or before any Governmental or Regulatory
Authority, any arbitration or alternative dispute resolution panel, or any other
legal, administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or
would be materially adverse to the Business and Properties (including
Intellectual Property), the prospects for the Business, or the condition
(financial or otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into
Newco pursuant to this Agreement and the applicable provisions of the laws of
the Commonwealth of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value
per share, of Newco.
1.54. Order shall mean any judgment, order, writ, decree,
injunction or other determination whatsoever of any Governmental or Regulatory
Authority or any other entity or body whose finding, ruling or holding is
legally binding or is enforceable as a matter of right (in any case, whether
preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or
any successor organization thereto.
1.56. Permits shall mean all licenses, permits, certificates
of authority, authorizations, approvals, registrations, franchises, rights,
orders, qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation,
general partnership, limited partnership, limited liability company,
proprietorship, joint venture, trust, association, union, entity, or other form
of business organization or any Governmental or Regulatory Authority whatsoever.
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1.58. Potential Founding Company shall mean any person or
entity entering into a letter of intent with the Purchaser, or its Affiliates,
to participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.59. Pricing shall mean the determination by Purchaser and
the Underwriters of the public offering price of the shares of DocuNet Common
Stock in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing
takes place.
1.60. Property shall mean the Real Property, Intellectual
Property and Tangible Personal Property of the Company.
1.61. Purchaser Financing Transaction shall mean the Initial
Public Offering, any other offering by the Purchaser or any of its Subsidiaries
of any securities, whether debt or equity, or any other financing or credit
arrangement sought by the Purchaser or any of its Subsidiaries.
1.62. Purchaser's CAWCA Response Notice shall have the meaning
set forth in Section 2.8.
1.63. Real Property shall mean all real property leased to the
Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section
3.27.
1.65. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in
Section 8.2(a).
1.67. Requirement of Law shall mean, with respect to any
Person, such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
or any Order, to which, in each case, such Person or any of such Person's
properties, operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in
Section 8.2(a).
1.69. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.70. Restricted Period shall mean, with respect to each
Seller, the period commencing on the Closing Date and ending on the later of (i)
the first anniversary of the date on which such Seller's employment with the
Purchaser, if any, expires, is not renewed, or is otherwise terminated, and (ii)
the fifth anniversary of the Closing Date, as such period may be extended
pursuant to Section 8.3(b); provided that the reference to "fifth anniversary"
in this
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clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and
the rules and regulations promulgated thereunder, as amended and supplemented
from time to time, or any successors thereto.
1.72. [Intentionally omitted].
1.73. [Intentionally omitted].
1.74. Shares shall mean shares of Common Stock of the Company.
1.75. Stock Purchase Price shall have the meaning set forth in
Section 2.9.
1.76. Surviving Corporation shall mean Newco as the surviving
party in the Merger.
1.77. Subsidiary shall mean, with respect to any Person, any
Person of which securities or other ownership interests having ordinary voting
power to select a majority of the board of directors or other persons serving
similar functions are at the time directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set
forth in Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.81. Trade Accounts Receivable shall mean, as of the
applicable date, the Company's trade accounts receivable associated with the
Business.
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1.82. Underwriter shall have the meaning set forth for that
term in Section 2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set
forth in Section 10.3(b).
1.84. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of New York and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger,
the Company shall be merged with and into Newco in accordance with the Articles
of Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective Time of
the Merger, such By-laws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation
shall consist of the following persons: Bruce Gillis, Andy Bacas and David Utz.
The Board of Directors of the Surviving Corporation shall hold office subject to
the provisions of the laws of the Commonwealth of Pennsylvania and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the
persons set forth on Schedule 2.3 hereto, each of such officers to serve,
subject to the provisions of the Certificate of
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Incorporation and By-laws of the Surviving Corporation, until his or her
successor is duly elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the
Company, Purchaser and Newco. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of the Company, Purchaser and Newco as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized
capital stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set forth in
the Registration Statement, and10 million shares of preferred stock, no par
value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital
stock of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the
Pennsylvania Business Corporation Law and the law of the State of New York.
Except as herein specifically set forth, the identity, existence, purposes,
powers, objects, franchises, privileges, rights and immunities of the Company
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Company shall be merged with and into
the Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in the Company and Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against
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the Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of DocuNet
Common Stock provided in Section 2.9 hereof with respect to such holder and (2)
the right to receive the amount of cash provided in Section 2.9 hereof with
respect to such holder (collectively, the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company
as treasury stock shall be canceled and retired and no shares of DocuNet Common
Stock or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of the
Merger and without any action on the part of Purchaser, automatically be
converted into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 13 and 14 hereof, have the same rights as all the other shares of
outstanding DocuNet Common Stock. All voting rights of such DocuNet Common Stock
received by the Sellers shall be fully exercisable by the Sellers and the
Sellers shall not be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
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2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration, consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined) and the Cash Adjustment (as
hereinafter defined), on the terms and conditions set forth below:
(a) Base Purchase Price. The Base Purchase Price shall
be Three Million Nine Hundred Thousand Dollars ($3,900,000) (the "Base Purchase
Price"), subject to adjustments as set forth herein.
(b) Debt Adjustment. The Base Purchase Price shall be reduced,
at Closing, by $1.00 for each $1.00 of Debt reflected on the Company's Closing
Balance Sheet (the "Closing Debt Amount"). The Company's Debt shall mean all of
the Company's liabilities, contingent or otherwise, except Adjusted Current
Liabilities, in accordance with GAAP. The Company's Adjusted Current Liabilities
shall mean all of the Company's liabilities which would be classified as current
liabilities in accordance with GAAP, except current amounts of principal,
interest or penalties due and owing: (i) under promissory notes or lines of
credit to lending institutions, (ii) to an employee or an Affiliate of the
Company, or the Sellers, (iii) to a lessor under a capital lease, or (iv) on
account of Taxes or earned insurance premiums. Promptly following the Closing
and in order to verify the accuracy of the adjustment made at the Closing, the
Purchaser agrees to cause the internal accounting staff and the independent
certified public accountant of the Purchaser (the "Accountants") to verify the
Closing Debt Amount. The Accountants shall issue a report as to their
determination of the Closing Debt Amount (the "Accountants' CDA Report")
promptly after their determination of such amount and the Purchaser shall
deliver the Accountants' CDA Report to the Sellers no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless the
Sellers shall object to the Accountants' CDA Report within fifteen (15) days
following their receipt of the Accountants' CDA Report. The Sellers' objection,
if any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall set
forth in reasonable detail the Sellers' objection(s) to the Accountants' CDA
Report and the Sellers' calculation of the Closing Debt Amount. Within ten (10)
days after receipt of the Sellers' CDA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, which
notification shall set forth in reasonable detail the adjustments, if any, made
by the Sellers which the Purchaser continues to dispute (the "Purchaser's CDA
Response Notice"). If the Sellers do not object to the Accountants' CDA Report,
or if the Purchaser agrees to accept the Sellers' adjustments to the
Accountants' CDA Report, then the adjustment based on the then final Closing
Debt Amount (the "Final Debt Amount"), if any, shall be paid by Sellers to the
Purchaser in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value (as
defined below) equal to such amount. The term "Value" in respect of a share of
DocuNet Common Stock shall mean the lower of the Initial
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Public Offering Price and the average closing price of the DocuNet Common Stock
during the 20 trading- day period ending immediately prior to the applicable
payment date. If the Sellers object to the Accountants' CDA Report as set forth
above and the Purchaser does not accept the Sellers' proposed adjustments, then
an independent accounting firm mutually satisfactory to the Sellers and the
Purchaser shall be engaged to determine the amount of the Closing Debt Amount
and the Final Debt Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the amount
determined as provided above shall be paid to the Purchaser in immediately
available funds within five (5) business days of the determination of such
amount by such accounting firm. If such amount is not received by Purchaser
within such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Sellers shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. The parties hereto agree to cooperate
fully with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Sellers shall each bear one-half of all of the
costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Sellers and
the Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(c) Cash Adjustment. The Base Purchase Price shall be further
reduced, at Closing, by $1.00 for each $1.00 that the Company's Cash (as
hereinafter defined) is less than $35,000 on the Closing Date (the "Cash
Amount"). The Company's Cash shall mean the Company's cash and cash equivalents.
Promptly following the Closing, the Purchaser agrees to cause the Accountants to
verify the amount of the Company's Cash as of the Closing Date (the "Closing
Cash Amount"). The Accountants shall issue a report as to their determination of
the Closing Cash Amount (the "Accountants' Cash Report") promptly after their
determination of such amount and the Purchaser shall deliver the Accountants'
Cash Report to the Sellers no later than sixty (60) days following the Closing
Date. The determination of the Closing Cash Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall object
to the Accountants' Cash Report within fifteen (15) days following the receipt
of the Accountants' Cash Report. The Sellers' objection, if any, to the
Accountants' Cash Report (the "Sellers' Cash Objection") shall set forth in
reasonable detail the Seller's objection(s) to the Accountants' Cash Report and
the Sellers' calculation of the Closing Cash Amount. Within ten (10) days after
receipt of the Sellers' Cash Objection, the Purchaser will notify the Sellers
whether it accepts or disputes the Sellers' adjustments, which notification
shall set forth in reasonable detail the adjustments, if any, made by the
Sellers which the Purchaser continues to dispute (the "Purchaser's Cash Response
Notice"). If the Sellers do not object to the Accountants' Cash Report, or if
the Purchaser agrees to accept the Sellers' adjustments to the Accountants' Cash
Report, then the adjustment based on the then final Closing Cash Amount (the
"Final Cash Amount"), if any, shall be paid by Sellers to the Purchaser in
immediately available funds within five (5) business days of such acceptance. If
such amount is not received by Purchaser within such time period, such amount
shall be paid from the Escrow Amount pursuant to the Escrow Agreement and
Sellers shall be obligated to replenish the Escrow Amount
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by depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate Value
equal to such amount. If the Sellers object to the Accountants' Cash Report as
set forth above and the Purchaser does not accept the Sellers' proposed
adjustments, then an independent accounting firm mutually satisfactory to the
Sellers and the Purchaser shall be engaged to determine the Closing Cash Amount
and the Final Cash Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the amount
discussed above shall be paid to the Purchaser in immediately available funds
within five (5) business days of the determination of such amount by such
accounting firm. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value equal to
such amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all books
and records that they shall reasonably request. The Purchaser and the Sellers
shall each bear one-half of all of the costs and expenses of such independent
accounting firm, and if the parties hereto are unable to agree upon an
independent accounting firm, the Sellers and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(d) [Intentionally omitted.]
(e) [Intentionally omitted.]
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers,
who are the holders of all outstanding certificates representing shares of
Company Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Cash Purchase Price. An aggregate amount equal to the Base
Purchase Price less (i) the Stock Purchase Price and (ii) the reductions, if
any, to be made at Closing pursuant to Sections 2.8(b) and 2.8(c), shall be
payable at the Closing in cash to the Sellers ("Cash Purchase Price"). The
specific amount of the Cash Purchase Price shall be payable to each of the
Sellers by a check payable to the order of the applicable Seller, or a wire
transfer to an account to be designated by such Seller in writing not less than
three (3) business days prior to the Closing, such method of payment to be
determined in the sole discretion of Purchaser, in the individual amount for
each Seller as indicated on Schedule 2.4 attached hereto.
(b) Stock Purchase Price. In addition, and subject to Section
2.9(c), a number of shares of DocuNet Common Stock equal to (i) $2,145,000 (the
"Stock Purchase Price") divided by (ii) the Initial Public Offering Price shall
be issued at Closing to Sellers in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock equal to (i) $195,000 divided by (ii)
the Initial Public Offering Price,
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shall be delivered at Closing to the Escrow Agent pursuant to the Escrow
Agreement (the "Escrow Amount"), in the individual amount for each Seller as
indicated on Schedule 2.4 attached hereto. The Escrow Amount shall be available
to fund (but shall not be the sole source of funding) any obligations of Sellers
under this Agreement pursuant to the terms of the Escrow Agreement; provided,
however, if the amount of cash plus the value of the shares of DocuNet Common
Stock (valued at the Initial Public Offering Price) in the Escrow Amount falls
below $195,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.8 hereof, the Sellers shall contribute additional cash or
shares of DocuNet Common Stock to the Escrow Amount in an amount necessary so
that the amount of cash plus the value of the shares of Common Stock (valued at
the Initial Public Offering Price) in the Escrow Amount would equal the
Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by
the Company and Sellers to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Sellers hereby, jointly and severally, represent and warrant to the Purchaser
and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i)
are corporations duly incorporated, validly existing and in good standing under
the laws of the state of their respective incorporation or organization, (ii)
have the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order
pending or, to the
knowledge of the Company or any of the Sellers, threatened against or affecting
the Company or any of its Subsidiaries revoking, limiting or curtailing, or
seeking to revoke, limit or curtail the Company's or any of its Subsidiaries'
power, authority or qualification to own, lease or operate their respective
properties or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's
and each of its Subsidiaries' articles or certificate of incorporation, bylaws
and other constitutive documents are attached as part of the Disclosure
Schedule. Except as set forth in the Disclosure Schedule, the
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minute books of the Company and each of its Subsidiaries, as heretofore made
available to the Purchaser and Newco, are correct and complete in all material
respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by the Company: (i) are within the Company's
corporate powers and duly authorized by all necessary corporate and shareholder
action on the part of the Company and (ii) do not (A) require any action by or
in respect of, or filing with, any Governmental or Regulatory Authority, (B)
contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable to the Company or any of its properties or any Contract to which the
Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) Individual Sellers. Each Seller's execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by each of the Sellers (i) are within the
powers and authority of each of the Sellers and (ii) do not (A) require any
action by or in respect of, or filing with, any Governmental or Regulatory
Authority, (B) except as set forth in the Disclosure Schedule, contravene,
violate or constitute, with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable any
of them or any of their respective properties or any Contract to which any of
them or any of their respective properties is bound or subject or (C) result in
the creation of any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the
Company consists of 200 shares of a single class of common stock, having a par
value of no per share, of which 100 are issued and outstanding. All of the
Shares are collectively owned by the Sellers as set forth in the Capitalization
Table. The Company does not have any other authorized class or classes of
securities of any kind, whether debt or equity. All of the Shares are validly
issued, fully paid and non-assessable and have not been issued in violation of
applicable securities laws or of any preemptive rights or other rights to
subscribe for, purchase or otherwise acquire securities. The Company does not
hold any shares of its capital stock in its treasury or otherwise, and no shares
of the Company's capital stock are reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure
Schedule is a complete and accurate list of all the Company's Subsidiaries,
showing the percentage of Company's ownership or control of, as well as the
identity of any other owners and the percentage of each such other owner's
ownership of, the outstanding capital stock of, or other ownership interest in,
each Subsidiary. The authorized capital stock of each Subsidiary currently
consists of a single class of common stock, the number of authorized shares and
par value of which are set forth opposite each such Subsidiary's name in the
Disclosure Schedule. No Subsidiary has any other authorized class or classes of
securities of any kind, whether debt or
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equity. All of the outstanding capital stock of each Subsidiary has been validly
issued, is fully paid and nonassessable, is free of any Adverse Claims, and has
not been issued in violation of applicable securities laws or of any preemptive
rights or other rights to subscribe for, purchase or otherwise acquire
securities. No Subsidiary holds any shares of its capital stock in its treasury
or otherwise, and no shares of any Subsidiary's capital stock are reserved by
such Subsidiary for issuance. Except as set forth in the Disclosure Schedule,
neither the Company nor any Subsidiary owns or controls, directly or indirectly,
any debt, equity or other financial or ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule
is a complete and accurate list of all Persons (other than the Sellers or any of
the Persons described in the first sentence of Section 1.3, subpart (iii)) that
are Affiliates of the Company, detailing the nature of the relationship between
the Company and each such Person that causes such Person to be an Affiliate of
the Company.
(d) No Acquisitions. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has acquired, or agreed to
acquire, whether by merger or consolidation, by purchase of equity interests or
assets, or otherwise, any business or any other Person, or otherwise acquired,
or agreed to acquire, any assets that are material, either individually or in
the aggregate, to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and each of the Sellers and constitutes the legal,
valid and binding obligation of the Company and each of the Sellers, enforceable
against each of them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller
has full legal and beneficial title to his or her Shares and has full power,
right and authority to sell and deliver such Shares in accordance with this
Agreement, free of any Adverse Claims. There are no existing agreements,
subscriptions, options, warrants, calls, commitments, conversion rights or other
rights of any character to purchase or otherwise acquire from any Seller at any
time, or upon the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure
Schedule is a listing of all names of all predecessor companies for the past
five years of the Company, including the names of any entities from whom the
Company previously acquired material assets outside the ordinary
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course of business. Except as disclosed in the Disclosure Schedule, the Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the
Disclosure Schedule, there has not been any sale, spin-off or split-up of
material assets or subsidiaries of the Company or any other Affiliate, other
than in the ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order
pending against, or to the knowledge of any Seller, threatened against or
affecting, any Seller or any of his or her properties or otherwise, that could
adversely affect or restrict the ability of any Seller to consummate fully the
transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. None of the Sellers has knowledge
of any fact, event, condition or circumstance that could reasonably be expected
to give rise to the commencement of any Legal Proceeding or the entering of any
Order against any of the Sellers that could adversely affect or restrict the
ability of any Seller to consummate fully the transactions contemplated by this
Agreement or that in any manner could draw into question the validity of this
Agreement.
(b) The Company and Subsidiaries. The Disclosure
Schedule completely and accurately lists and fully describes all Orders
outstanding against the Company or any of its Subsidiaries. In addition, the
Disclosure Schedule completely and accurately lists and fully describes each
pending, and, to the Company's or any of the Seller's knowledge, each
threatened, Legal Proceeding that has been commenced, brought or asserted by (i)
the Company or any of its Subsidiaries, as the case may be, against any Person
or (ii) any Person against the Company or any of its Subsidiaries, as the case
may be. Neither the Company nor any of the Sellers have knowledge of the
existence of any fact, event, condition or circumstance that could reasonably be
expected to give rise to the commencement of any Legal Proceeding or the
entering of any Order against either the Company or any of its Subsidiaries by
any Person.
3.9. Compliance with Laws. Each of the Company and its
Subsidiaries is operating in compliance with all Requirements of Law applicable
to it or any of its respective properties or to which the Company or any of its
Subsidiaries or any of their respective properties is bound or subject
including, without limitation, the Credit Acts. Except as set forth in the
Disclosure Schedule, since January 1, 1992, neither the Company or any of its
Subsidiaries nor any of the Sellers has received any notice from any Person
concerning alleged violations of, or the occurrence of any events or conditions
resulting in alleged noncompliance with, any Requirement of Law applicable to
the Company or any of its Subsidiaries or any of their respective properties or
to which the Company or any of its Subsidiaries or any of their respective
properties is bound or subject including, without limitation, any of the Credit
Acts. None of the Company, any of the Sellers, any of their respective
Affiliates (other than a Person who is an Affiliate solely by virtue of clause
(iii) of the definition thereof), or any of such
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Affiliates' respective Affiliates (other than a Person who is an Affiliate
solely by virtue of clause (iii) of the definition thereof) has made any illegal
kickback, bribe, gift or political contribution to or on behalf of any customer,
or to any officer, director, employee of any customer, or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete
and accurate list of all consulting or similar Contracts to which the Company or
any of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete
and accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the
Sellers have delivered or caused to be delivered to the Purchaser and Newco true
and complete copies of such Contracts, all of which are attached to the
Disclosure Schedule.
(c) To the knowledge of the Company or any of the
Sellers, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to or
bound by any collective bargaining agreement and no collective bargaining
agreement covering any of such employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has
been no, work stoppage, strike, slowdown, picketing or other labor disturbance
or controversy by or with respect to any of the employees of the Company or any
of its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
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wages and hours, is outstanding or, to either of the Company or the Sellers'
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and
accurate list and description of each Employee Benefit Plan. With respect to
each Employee Benefit Plan, the Company and the Sellers have delivered or caused
to be delivered to the Purchaser and Newco true and complete copies of (i) the
plan document, trust agreement and any other document governing such Employee
Benefit Plan, (ii) the summary plan description, (iii) all Form 5500 annual
reports and attachments, and (iv) the most recent IRS determination letter, if
any, for such plan.
(b) Each of the Employee Benefit Plans has been
operated and administered in compliance with their respective terms and all
applicable Requirements of Law including, without limitation, ERISA and the
Code. The Company has not incurred any "accumulated funding deficiency" within
the meaning of ERISA or incurred any liability to the PBGC in connection with
any Employee Benefit Plan (or other class of benefits that the PBGC has elected
to insure).
(c) Each Employee Benefit Plan that is intended to be
tax qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined
benefit plan" covering employees of the Company or any of its Subsidiaries
within the meaning of Section 3(35) of ERISA subject to Title IV of ERISA or any
"Multiemployer Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance
premiums required to be made with respect to the Employee Benefit Plans
including, without limitation, the payment of the applicable premiums on any
insurance Contract funding an Employee Benefit Plan, have been fully paid in
such a manner as not to cause any interest, penalties or other amounts that have
not been satisfied or discharged to be assessed against the Company or any of
its Subsidiaries with respect thereto.
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(f) The Company has complied with the reporting and
disclosure requirements of ERISA applicable to the Employee Benefit Plans and
the continuation coverage requirements of the Code and ERISA applicable to any
of the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or
"reportable event" within the meaning of the Code or ERISA within the last sixty
(60) months, or breach of fiduciary duty with respect to any of the Employee
Benefit Plans that could subject the Purchaser, the Surviving Corporation, the
Company or any of their respective Subsidiaries to any tax, penalty or other
liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated
within the past sixty (60) months. There are no Legal Proceedings or claims with
respect to any of the Employee Benefit Plans (other than routine claims for
benefits from eligible participants or beneficiaries in the normal and ordinary
course of business) pending or, to the knowledge of the Company or any of the
Sellers threatened, and to the knowledge of the Company or any of the Sellers,
there are no facts, events, conditions or circumstances that could give rise to
any such Legal Proceeding or claim (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has
ever sponsored, maintained or contributed to, or been obligated to contribute
to, any employee benefit plan subject to Title IV of ERISA or the minimum
funding requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement
medical benefits, post retirement death benefits or any post retirement welfare
benefits of any fund whatsoever.
(k) There are no current or former employees of the
Company or any of its Subsidiaries who are on leave of absence under either of
the Uniformed Services Employment or Reemployment Rights Act or the Family
Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or
any of their respective officers, directors or significant employees (as such
term is defined in Regulation S-K of the Securities Act), or any other Person
has made any statement or communication or provided any materials to any
employee or former employee of the Company of any of its Subsidiaries that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement will not
result in any increase in or acceleration of any obligation or liability under
any Employee Benefit Plan or to any employee or former employee of the Company
or any of its Subsidiaries.
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3.12. Financial Statements.
(a) The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco a copy of the Company's
consolidated balance sheets as of August 31, 1995 and 1996 and the related
statements of operations, shareholders' equity and cash flows for the years then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved and fairly represent the financial position of
the Company and its Subsidiaries as of the date of such Financial Statements and
the results of operations and changes in shareholders' equity and cash flows for
the periods covered thereby.
(b) The Company and the Sellers have also delivered
or caused to be delivered to the Purchaser and Newco a true and complete copy of
the Company's unaudited interim financial statements consisting of a
consolidated balance sheet as of May 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the nine-month period then
ended (collectively, the "Interim Financial Statements"). A true and complete
copy of Interim Financial Statements is attached to the Disclosure Schedule. The
Interim Financial Statements are in accordance with the books and records of the
Company and its Subsidiaries, all of which have been maintained in accordance
with good business practice and in the normal and ordinary course of business,
were prepared in accordance with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments), and
fairly present the financial position of the Company and its Subsidiaries as of
the date thereof and the results of its operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and
each of its Subsidiaries have operated, and each of the Sellers has caused the
Company and each of its Subsidiaries to operate, their respective Businesses in
the normal and ordinary course in a manner consistent with past practices, (ii)
there has been no development, event, condition, or circumstance that has had,
or could reasonably be expected to have, a Material Adverse Effect upon Company
or any of its Subsidiaries, except as disclosed in the Disclosure Schedule, (iv)
neither the Company nor any of its Subsidiaries has made or committed to make
any capital expenditure or capital addition or betterments in excess of an
aggregate of $10,000; and (v) neither the Company nor any of its Subsidiaries
has made any gift or contribution (charitable or otherwise) to any Person (other
than gifts made since the Balance Sheet Date which, in the aggregate, do not
exceed $5,000).
(d) On the Closing Date, the Company and the Sellers
will also deliver or caused to be delivered to the Purchaser and Newco a true
and complete copy of the Closing Balance Sheet. The Closing Balance Sheet will
be in accordance with the books and records of the Company and its Subsidiaries,
all of which have been maintained in accordance with good business practice and
in the normal and ordinary course of business, and will be prepared in
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accordance with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at May 31, 1997 including, without limitation, all
notes thereto, prepared in accordance with GAAP (the "Company Balance Sheet"),
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since May 31, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries
owns any real property. The Disclosure Schedule contains a complete and accurate
list of all the locations of all Real Property leased by the Company or any of
the Subsidiaries and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Company and the Sellers
have delivered or caused to be delivered to the Purchaser and Newco true and
complete copies of all Contracts (including, without limitation, all leases and
all management, service, supply, security, maintenance and similar Contracts,
and all attornment Contracts, subordination Contracts or similar Contracts, and
all other Contracts affecting or relating to the use and quiet and peaceful
enjoyment of the Real Property) to which the Company or any of its Subsidiaries
is a party or is otherwise bound or subject, and, in each case, all amendments
thereof, which relate to or affect any of the Real Property. Except for the
leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real
Property (i) is in full force and effect, (ii) affords the Company or such
Subsidiary, as the case may be, peaceful, undisturbed and exclusive possession
of the applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
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(c) The Company and each of its Subsidiaries has
performed the obligations required to be performed by it to date under all
Contracts relating to or affecting the Real Property and is not in default or
breach thereof. In addition, no party to any such Contract (i) has provided any
notice to the Company or any of its Subsidiaries of its intent to terminate or
not renew any such Contract, (ii) to the knowledge of the Company and the
Sellers, has threatened to terminate or not renew any such Contract or (iii) is,
to the knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and
repair and there has been no damage, destruction or loss to any of the Real
Property that remains unremedied to date (ordinary wear and tear excepted) and
(ii) suitable to carry out each of the Company's and its Subsidiaries'
respective Business as conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or any of the Sellers, threatened, against any of the
Real Property.
(f) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Real Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
(g) The Disclosure Schedule indicates a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any Real Property,
the lease of Real Property or acquisition of new businesses, with respect to
which the Company or any Subsidiary has made any expenditure in the two-years
prior to the date of this Agreement in excess of $10,000, or which if pursued by
the Company would require additional expenditures of capital in excess of
$10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or
leases all such properties as are presently used in the conduct of their
respective Businesses and operations. The Company and the Sellers have delivered
or caused to be delivered to the Purchaser and Newco true and complete copies of
all material Contracts (including, without limitation, leases and service,
supply, maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all
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such Contracts is set forth in, and true and complete copies of such Contracts
are attached to, the Disclosure Schedule. Except (i) for those assets disposed
of in the normal and ordinary course of business since the Balance Sheet Date,
(ii) with respect to Tangible Personal Property that is leased or rented by the
Company or any of its Subsidiaries, and (iii) as otherwise set forth on the
Disclosure Schedule, the Company and each such Subsidiary, as the case may be,
has good and valid title to all of its Tangible Personal Property, including all
items of Tangible Personal Property reflected on the Company Balance Sheet, free
of all Adverse Claims.
(b) Since the Balance Sheet Date, neither the Company
nor any of its Subsidiaries has incurred or suffered any material physical
damage, destruction, theft or loss of their respective tangible items of
material personal property, whether owned or leased. All material Tangible
Personal Property including, without limitation, all computer hardware and
software (including all operating and application systems), is in good working
order, condition and repair and suitable to carry out each of the Company's and
its Subsidiaries' respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the
Tangible Personal Property (i) is in full force and effect, (ii) affords the
Company or such Subsidiary, as the case may be, peaceful, undisturbed and
exclusive possession of the applicable Tangible Personal Property, (iii) is free
of all Adverse Claims and (iv) constitutes a valid and binding obligation of,
and is enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Company and each of its Subsidiaries has
performed the obligations required to be performed by it to date under all
Contracts relating to or affecting the Tangible Personal Property and is not in
default or breach thereof. In addition, no party to any such Contract (i) has
provided any notice to the Company or any of its Subsidiaries of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Company
and the Sellers, has threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(e) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Tangible Personal Property, (ii) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed rent or payments under any such Contract
or (iii) result in the creation or imposition of any Adverse Claim upon the
Company or any of its Subsidiaries or any of their respective assets under the
terms of any such Contract.
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3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete
and accurate list of each Contract described below to which either the Company
or any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a
joint venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect
of limiting either the Company's or any such Subsidiaries' right to engage in,
or compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering
of either Company's or any of its Subsidiaries' assets or the incurrence by
either Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either
the Company or any of its Subsidiaries has created, incurred, assumed or
guaranteed any indebtedness other than for trade indebtedness incurred in the
normal and ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit
within one of the foregoing categories described in (i) through (vi) above or
(z) is not otherwise identified in the Disclosure Schedule and that would be
required by Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act to be attached as an exhibit to any registration statement on Form S-1 filed
by either the Company or any of its Subsidiaries under the Act if the Company
were to file such a registration statement under the Act on the date on which
this representation and warranty is made.
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(b) Each material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) is valid and binding on each of the parties
thereto in accordance with its terms, (ii) was made in the normal and ordinary
course of the Business, and (iii) except as set forth in the Disclosure
Schedule, contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the
Company or any of its Subsidiaries or any of their respective properties is a
party or is otherwise bound or subject (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or withdraw its
participation in any such Contract, (ii) has, to the knowledge of the Company
and the Sellers, threatened to terminate or withdraw from participation in any
such Contract or (iii) is, to the knowledge of the Company and the Sellers, in
breach or default under any provision thereof, and, to the knowledge of the
Company and the Sellers, no event or condition has occurred, whether with or
without the passage of time or the giving of notice, or both, that would
constitute such a breach or default.
(d) Except as set forth in the Disclosure Schedule,
no Consent of any party to any material Contract to which the Company or any of
its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject is required in connection with the transactions
contemplated by this Agreement.
(e) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
material Contract to which the Company or any of its Subsidiaries or any of
their respective properties is a party or is otherwise bound or subject, (ii)
result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under any such
Contract or (iii) result in the creation or imposition of any Adverse Claim upon
the Company or any of its Subsidiaries or any of their respective assets under
the terms of any such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a
complete and accurate list of all insurance policies held by the Company and by
each of its Subsidiaries identifying all of the following for each such policy:
(i) the type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation
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of rights clause. Each of the Company and its Subsidiaries has notified its
insurance carriers of all litigation and claims and facts which could reasonably
be expected to give rise to a claim, all of which are disclosed in the
Disclosure Schedule (including worker's compensation claims). The liability
insurance maintained by the Company is and has at all times prior to the date of
this Agreement been on an "occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete
and accurate list and full description of each item of the Company's and each of
its Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Company, such representation and warranty is
given solely to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or
any of the Seller's knowledge, threatened, any Legal Proceeding against the
Company or any of its Subsidiaries contesting the validity or right of the
Company or any such Subsidiary to use any of the Intellectual Property, and
neither the Company nor any such Subsidiary has received any notice of
infringement upon or conflict with any asserted right of others nor, to the
Company's and the Seller's knowledge, is there a basis for such a notice. To the
Company's and the Seller's knowledge, no Person, is infringing the Company's or
any of its Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any obligation to
compensate others for the use of any Intellectual Property. In addition, except
as otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, withdrawal, acceleration or modification in or with respect to any
Contract relating to or affecting the Intellectual Property, (ii) result in or
give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
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3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Sellers, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers,
there is no asbestos contained in or forming a part of any building, structure
or improvement comprising a part of any of the Real Property. To the knowledge
of the Company and the Sellers, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Sellers, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each
of their respective employees, independent contractors and agents has obtained
and holds in full force, and the Disclosure Schedule sets forth a complete and
accurate list of, all Permits that are necessary or advisable for the operation
of their respective Businesses. Neither the Company, any of its Subsidiaries nor
any such employee, independent contractor or agent is in noncompliance with the
terms of any such Permit.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) result in or give to any Person any right of termination, non-renewal,
cancellation, acceleration or modification in or with respect to any such
Permit, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Permit or (iii) result in the creation or imposition of any Adverse
Claim upon the Company or any of its Subsidiaries or any of their respective
assets under the terms of any Permit.
(c) Except as set forth in the Disclosure Schedule,
there is no Order outstanding against the Company or any of its Subsidiaries,
nor is there now pending, or to the Company's or any of the Sellers' knowledge,
threatened, any Legal Proceeding, which could
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adversely affect any Permit required to be obtained and maintained by the
Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its
Subsidiaries has filed all registrations, filings, reports, or submissions that
are required by any Requirement of Law. All such filings were made in compliance
with applicable Requirements of Law when filed and no deficiencies have been
asserted by any Governmental or Regulatory Authority with respect to such
filings and submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly
and timely filed all Tax Returns. Each such Tax Return is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Return. All Taxes not yet due and payable
have been withheld or reserved for or, to the extent that they relate to periods
on or prior to the date of the Company Balance Sheet, are reflected as a
liability thereon.
(b) The Company and each of its Subsidiaries has
complied with all applicable Requirements of Law relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Section 1441 and 1442 of the Code, or similar provisions under any
foreign Requirements of Law) and have, within the time and in the manner
prescribed by applicable Requirements of Law, withheld from employee wages and
paid over, in a timely manner, to the proper Taxing Authorities all amounts
required to be so withheld and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or
assessed against the Company or any of its Subsidiaries that has not been
resolved and paid in full or fully reserved for and identified on the Company
Balance Sheet and, to the knowledge of the Company and the Sellers, no
deficiency for any Taxes has been proposed that has not been fully reserved for
and identified on the Company Balance Sheet. Neither the Company nor any of its
Subsidiaries has received any outstanding and unresolved notices from the IRS or
any other Taxing Authority of any proposed examination or of any proposed change
in reported information relating to the Company or any such Subsidiary. Except
as set forth in the Disclosure Schedule (which sets forth the nature of the
proceeding, the type of Tax Return, the deficiencies proposed or assessed and
the amount thereof, and the taxable year in question), no Legal Proceeding or
audit or similar foreign proceedings is pending with regard to any of the
Company's or any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the
Company or any of its Subsidiaries regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns is outstanding, nor, to the
knowledge of the Company and the Sellers, is any request for any such waiver or
consent pending.
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(e) There are no liens or encumbrances of any kind
for Taxes upon any assets or properties of the Company or any of its
Subsidiaries other than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries
has requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries
is a party to any Contract providing for the allocation or sharing of Taxes.
Neither of the Company nor any of its Subsidiaries has made any election under
Section 341(f) of the Code.
(h) Neither the Company nor any of its Subsidiaries
has agreed to make, nor is any of them required to make, any adjustment under
Section 481(a) of the Code for any period ending after the Closing Date by
reason of a change in accounting method or otherwise and neither the Company nor
any of its Subsidiaries has any knowledge that the IRS has proposed such
adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries
is a party to any venture, partnership, Contract or arrangement under which it
could be treated as a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries
has a permanent establishment located in any tax jurisdiction other than the
United States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Other than in respect of a period for which a Tax
is not yet due, no state of facts exists or has existed that would constitute
grounds for the assessment of any Tax liability with respect to a period that
has not been audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the
Company or any of its Subsidiaries with respect to any matter relating to Taxes
that is currently in force.
(n) Neither the Company nor any of its Subsidiaries
is or has been a United States real property holding company (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries
is a party to any Contract or arrangement that would result in the payment of
any "excess parachute payment" within the meaning of Section 280G of the Code.
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(p) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6662 of the
Code or any predecessor provision thereof) have been adequately disclosed on the
Tax Returns required in accordance with Section 6662(d)(2)(B) of the Code or any
predecessor provision thereto.
(q) No election under Code ss.338 (or any
predecessory provisions) has been made by or with respect to the Company or any
of its Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its
Subsidiary is "corporate acquisition indebtedness" within the meaning of Code
ss.279(b).
3.24. Investment Portfolio. Except as set forth in the
Disclosure Schedule attached to this Agreement, the Company's and each of its
Subsidiaries investment portfolio consists solely of investments in one or more
of the following: (i) interest bearing deposit accounts (including certificates
of deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists
and fully describes each Contract, transaction or series of transactions,
whether written or oral (other than for the compensation arrangements described
in the Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant
to which the Company or any of its Subsidiaries is, or, at any time during the
previous five (5) years has been, a party or otherwise bound with any Affiliate
of any Seller, the Company, any Subsidiary of the Company (an "Affiliate
Transaction"). Each Affiliate Transaction has been entered into the normal and
ordinary course of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure
Schedule, since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has written-off, nor under GAAP is it appropriate to write off, any
accounts receivable, notes receivable or other miscellaneous receivables owing
to the Company or any of its Subsidiaries (the "Receivables").
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All Receivables currently owing to the Company or any of its Subsidiaries are
completely and accurately listed and aged in the Disclosure Schedule attached to
this Agreement. The Receivables arose from bona fide transactions in the normal
and ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely
lists the names of the Company's and each of its Subsidiaries' respective
directors, executive officers, and any of their respective significant employees
(as such term is defined in Regulation S-K under the Securities Act) and the
compensation payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule
attached to this Agreement, none of the Sellers or any of the current directors,
current executive officers or current significant employees (as such term is
defined in Section 3.28(a)) of either the Company or any of its Subsidiaries
has, within the past five (5) years:
(i) (x) filed or had filed against him or her a
petition under the Federal bankruptcy laws or any state insolvency or similar
law, or (y) had a receiver, conservator, fiscal agent or similar officer
appointed by a court for the business, property or assets of such individual, or
any partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest
to, any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction
relating to an alleged violation of, or otherwise found by any Governmental or
Regulatory Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person, (z)
any Requirement of Law prohibiting fraud (including, without limitation, mail
fraud or wire fraud);
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(v) been the subject of any Order enjoining or
otherwise prohibiting him or her from engaging in any type of business activity;
or
(vi) been the subject of any Order or sanction by (x)
a self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its
Subsidiaries' corporate books and records, minutes of the meetings of the
stockholders or directors, stock books, corporate seal (if any) and any other
similar books and records are complete and accurate.
3.30. Brokers or Finders. Except as set forth in the
Disclosure Schedule, neither the Company, any of its Subsidiaries nor any of the
Sellers has engaged the services of any broker or finder with respect to the
transactions contemplated by this Agreement, and no Person has or will have, as
a result of the consummation of the transaction contemplated by this Agreement,
any right, interest or valid claim against or upon the Purchaser, Newco or the
Surviving Corporation for any commission, fee or other compensation as a finder
or broker thereof on account of any action on the part of the Company, its
Subsidiaries or the Sellers. Without degradation to any of the foregoing, the
Company, its Subsidiaries and the Sellers are solely responsible for the payment
of the commissions, fees and other compensation payable to the Person having any
such right, interest or claim on account of any action on the part of the
Company, its Subsidiaries or the Sellers, including, without limitation, the
Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and
completely lists the names of the twenty-five largest customers (in terms of
dollar value of purchases) of the Company and each of its Subsidiaries and
details the Company's and each such Subsidiary's total revenue attributable to
each such customer for the 1994, 1995 and 1996 fiscal years and the current
fiscal year to date. Except as set forth in the Disclosure Schedule, there has
been no adverse change in the Company's or any of its Subsidiaries' business
relationship with any such customer that, in the aggregate, would have a
Material Adverse Effect upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except
as set forth in the Disclosure Schedule there has not been with respect to the
Company and any Subsidiary:
(i) any event or circumstance (either
singly or in the aggregate) which would constitute a
Material Adverse Effect;
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(ii) any change in its authorized capital,
or securities outstanding, or ownership interests or
any grant of any options, warrants, calls, conversion
rights or commitments;
(iii) any declaration or payment of any
dividend or distribution in respect of its capital
stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock,
except any declaration of dividends payable by any
Subsidiary to the Company;
(iv) any increase in the compensation,
bonus, sales commissions or fee arrangement payable
or to become payable by it to any of its respective
officers, directors, stockholders, employees,
consultants or agents, except for ordinary and
customary bonuses and salary increases for employees
in accordance with past practice;
(v) any work interruptions, labor grievances
or claims filed, or any similar event or condition of
any character that would have a Material Adverse
Effect;
(vi) any distribution, sale or transfer, or
any agreement to sell or transfer, any material
assets, property or rights of any of its respective
business to any person, including, without
limitation, the Sellers and their affiliates, other
than distributions, sales or transfers in the
ordinary course of business to persons other than the
Sellers and their affiliates;
(vii) any cancellation, or agreement to
cancel, any material indebtedness or other material
obligation owing to it, including without limitation
any indebtedness or obligation of any Sellers or any
affiliate thereof, other than the negotiation and
adjustment of bills in the course of good faith
disputes with customers in a manner consistent with
past practice;
(viii) any plan, agreement or arrangement
granting any preferential rights to purchase or
acquire any interest in any of its assets, property
or rights or requiring consent of any party to the
transfer and assignment of any such assets, property
or rights;
(ix) any purchase or acquisition of, or
agreement, plan or arrangement to purchase or
acquire, any property, rights or assets outside of
the ordinary course of business;
(x) any waiver of any of its material rights
or claims;
(xi) any transaction by them outside the
ordinary course of their respective businesses; or
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(xii) any cancellation or termination of a
material Contract.
3.34. Accuracy and Completeness of Information. To the
knowledge of the Company and the Sellers, all information furnished, to be
furnished or caused to be furnished to the Purchaser and Newco by the Company or
any of the Sellers with respect to the Sellers, the Company or any of its
Subsidiaries for the purposes of or in connection with this Agreement, or any
transaction contemplated by this Agreement is or, if furnished after the date of
this Agreement, shall be true and complete in all material respects and does
not, and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation, (ii) has the power and authority to own
and operate its properties and assets and to transact its business as currently
conducted and (iii) is duly qualified and authorized to do business and is in
good standing in all jurisdictions where the failure to be duly qualified,
authorized and in good standing would have a material adverse effect upon the
Purchaser's or Newco's, as the case may be, businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). True and complete copies of the articles of incorporation and bylaws
of Purchaser and Newco have been delivered to the Company and Sellers.
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser and Newco (i) are within the Purchaser's
and Newco's corporate powers and duly authorized by all necessary corporate
action on the part of the Purchaser and Newco and (ii) do not (A) require any
action by or in respect of, or filing with, any governmental body, agency or
official, except as set forth in this Agreement, (B) contravene, violate or
constitute, whether with or without the passage of time or the giving of notice
or both, a breach or a default under, any Requirement of Law applicable to the
Purchaser, Newco or any of their properties or any Contract to which they or any
of their properties are bound, except filings and approvals in connection with
the Initial Public Offering or (C) result in the creation of any Adverse Claim
on any of the DocuNet Common Stock issuable as part of the Merger Consideration
except as contemplated by Section 2.9(c).
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Newco and Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser and Newco, enforceable against the Purchaser
and Newco in accordance with its terms.
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4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser or Newco, threatened against or
affecting, the Purchaser, Newco or any of their properties or otherwise that
could adversely affect or restrict the ability of the Purchaser or Newco to
consummate fully the transactions contemplated by this Agreement or that in any
manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on
Form S-1 and any amendment thereto which is filed with the Securities and
Exchange Commission in connection with the Initial Public Offering will have
been prepared in all material respects in compliance with the requirements of
the Securities Act and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein; provided,
however, that insofar as the foregoing relates to information in the
Registration Statement that relates to the Company, the Sellers or any of the
other Founding Companies, such representation and warranty shall be deemed based
on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the
services of any broker or finder with respect to the transactions contemplated
by this Agreement, and no Person has or will have, as a result of the
consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Sellers for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Purchaser. Without degradation to any of the foregoing, the
Purchaser is solely responsible for the payment of the commissions, fees and
other compensation payable to any Person having any such right, interest or
claim on account of any action on the part of the Purchaser.
4.7. DocuNet Common Stock. The shares of DocuNet Common Stock
issuable as part of the Merger Consideration will, when issued, be validly
issued, fully paid and non-assessable.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and
the Purchaser shall perform each and every of their respective obligations under
this Agreement and shall perform the transactions contemplated by this Agreement
in good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and
the Purchaser shall use their respective commercially reasonable best efforts to
obtain all Regulatory Approvals and Consents from such other third parties
including, without limitation, Consents required under any Contract or any
Requirement of Law, that are necessary or advisable in connection with the
consummation of the transactions contemplated by this Agreement. Each of the
Sellers shall use his or its commercially reasonable best efforts to cause the
Company and all of its Subsidiaries to cooperate with the Purchaser to the
fullest extent practicable in seeking to obtain all such Regulatory Approvals
and Consents, and shall provide, and shall cause the Company and all
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Subsidiaries to provide, such information and communications to all Governmental
or Regulatory Authorities as they or the Purchaser may request from time to time
in connection therewith. Nothing contained herein shall require either of the
Company, Newco or the Purchaser to amend the provisions of this Agreement, to
pay or cause any of their respective Affiliates to pay any money, or to provide
or cause any of their respective Affiliates to provide any guaranty to obtain
any such Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will
and will cause the Company and each of its Subsidiaries to, cooperate with the
Newco and the Purchaser in connection with the transactions contemplated by this
Agreement and any Purchaser Financing Transaction, including, without
limitation, cooperating in the determination of which Regulatory Approvals and
Consents are required or advisable to be obtained prior to the Closing Date.
Until the Closing Date, the Company will, and each of the Sellers will and will
cause the Company and each of its Subsidiaries to, afford to the Purchaser,
Newco and their agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Company or any of its Subsidiaries (including those in the possession or control
or their accountants, attorneys and any other third party), as the case may be,
for the purpose of permitting the Purchaser and Newco to make such investigation
and examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser or Newco, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
will, and each of the Sellers will cause the Company and each of its
Subsidiaries to, cause each of their respective directors, officers, employees
and representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser and Newco, in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and
Sellers in connection with the transactions contemplated by this Agreement and
any Purchaser Financing Transaction, including, without limitation, cooperating
in the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, Sellers and their agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Company and Sellers to make such investigation and
examination of the business and properties of the Purchaser and any
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of its Subsidiaries as the Company and Sellers, in its discretion, shall deem
necessary, appropriate, or desirable. Without limiting the foregoing, any such
access will include the right of the Company and Sellers to review each
agreement entered into by the Purchaser with the other Founding Companies and
their shareholders. Any such investigation, access and examination shall be
conducted upon reasonable prior notice under the circumstances. Purchaser will
cause each of its directors, officers, employees and representatives, including,
without limitation, its counsel and accountants, to cooperate fully with the
Company and Sellers, in connection with such investigation, access and
examination. The results of such investigation and examination is for the
Company's and Sellers' sole benefit, and shall not (i) impair or reduce any
representation or warranty made by the Purchaser in this Agreement, (ii) relieve
the Purchaser from its obligations with respect to such representations and
warranties (including, without limitation, the Purchaser's obligations under
Article 10), or (iii) mitigate the Purchaser's obligations to otherwise disclose
all material facts to the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's
discovery of the occurrence of any development, event, circumstance or condition
that, individually or in the aggregate, may have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or any
of its Subsidiaries, the Sellers shall, and shall cause the Company or the
applicable Subsidiary to, as the case may be, notify the Purchaser and Newco of
such development, event, circumstance or condition. In the event that the
Purchaser or Newco receives such notice or otherwise discovers the fact of any
such development, event, circumstance or condition, the Purchaser or Newco shall
be entitled, in its sole discretion, to terminate this Agreement within ten (10)
days after so discovering without further obligation or liability upon the
delivery of written notice to the Sellers to that effect; provided, however,
that before Purchaser or Newco may exercise its termination right, it must
afford the Company and Sellers the opportunity to cure the matter giving rise to
the termination right (but for no longer than five days following the date
Purchaser notifies the Company or Seller of its intent to terminate) unless, in
the judgement of the managing underwriter of the Initial Public Offering, any
such cure period might adversely affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's
discovery of any fact, event, condition or circumstance that causes any
representation or warranty made by the Company or the Sellers to the Purchaser
and Newco in this Agreement to become untrue or inaccurate at any time after the
date of this Agreement, the Sellers shall, and shall cause the Company and its
Subsidiaries to, notify the Purchaser of such fact, event, condition or
circumstance.
5.5. Information Required For Purchaser Financing
Transactions. The Company shall and shall cause its Subsidiaries to, and each of
the Sellers shall and shall cause the Company and its respective Subsidiaries
to, furnish the Purchaser and Newco with the following information:
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(a) the Company's audited consolidated balance sheet
as of August 31, 1997 and the related statements of operations, shareholders'
equity and cash flows for the year then ended, together with all proper
exhibits, schedules and notes thereto, audited by Arthur Andersen LLP, all of
which shall be prepared in accordance with GAAP consistently applied with prior
periods and shall present fairly the financial position of the Company and its
Subsidiaries for the year then ended and the results of operations and changes
in shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements
requested by the Purchaser, Newco or any Underwriter to be included in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, relating to any Purchaser Financing Transaction, all of
which shall (i) be in accordance with the books and records of the Company
maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP applied on
a consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of the
Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to
themselves as the Purchaser, Newco or any Underwriter may reasonably deem
necessary, desirable or appropriate in connection with any Purchaser Financing
Transaction or the preparation of any registration statement, prospectus,
document or other item relating thereto.
5.6. Performance of Conditions. The Company, each of the
Sellers, Newco and the Purchaser shall, and each of the Sellers shall cause the
Company and each of its Subsidiaries to, take all reasonable steps necessary or
appropriate and use all commercially reasonable efforts to effect as promptly as
practicable the fulfillment of the conditions required to be obtained that are
necessary or advisable for the Sellers, Newco and the Purchaser to consummate
the transactions contemplated by this Agreement including, without limitation,
all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and
after the date of this Agreement to the Closing Date, the Company shall, and
each of the Sellers shall cause the Company and each of its Subsidiaries to,
operate their respective Businesses in the normal and ordinary course in a
manner consistent with past practice including, without limitation, to do the
following:
(a) to carry on the Company's and each such
Subsidiary's Business in substantially the same manner as it has heretofore and
not introduce any material new method of management, operation or accounting;
(b) to maintain the Company's and each such
Subsidiary's corporate existence and all Permits, bonds, franchises and
qualifications to do business;
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(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts
to preserve intact the Company's and each such Subsidiary's business
relationships with its agents, customers, employees, creditors and others with
whom the Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such
Subsidiary's assets, properties and rights (including, without limitation, those
held under leases, the Intellectual Property and Accounts) necessary or
advisable to the profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or
assessed against the Company or any such Subsidiary, as the case may be, before
any penalty or interest accrues on any unpaid portion thereof and to file all
Tax Returns when due (including after applicable extensions); provided that no
such payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by GAAP
have been established;
(g) to maintain in full force and effect all policies
of insurance adequate (both in terms of coverage and amount of coverage) to
insure against risks as are customarily and prudently insured against by
companies of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all
Contracts to which the Company or any such Subsidiary is a party or by which it
or its properties are bound or subject;
(i) to maintain present debt and lease instruments
and not enter into new or amended debt or lease instruments over Ten Thousand
Dollars ($10,000), without the knowledge and consent of the Purchaser, which
consent shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner
consistent with past practices.
5.8. Negative Covenants. During the period from and after the
date of this Agreement until the Closing Date, the Company shall not, and each
of the Sellers shall not cause the Company or any of its Subsidiaries to do, and
shall not permit the Company or any such Subsidiary to do, directly or
indirectly, any of the following without the express prior written consent of
the Purchaser, which consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter
the Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
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(b) purchase or enter into any Contract or commitment
to purchase or lease any real property;
(c) grant any salary increase or permit any advance
to any director, officer or employee or enter into any new, or amend or
otherwise alter, any Employee Benefit Plan, or any employment or consulting
Contract, or any Contract providing for the payment of severance;
(d) other than in the ordinary course of business,
make any borrowings or otherwise create, incur, assume or guaranty any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business), issue any commercial paper or refinance any existing borrowings or
indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal
and ordinary course of business;
(f) enter into any Contract, other than in the
ordinary course of the Business; provided that any Contract permitted to be
entered into pursuant to this Section 5.8(f) shall not (i) involve a pledge of
or encumbrance on any of the Company's or any of its Subsidiaries' assets or the
incurrence by the Company or any of its Subsidiaries of liabilities (other than
in the performance of services for customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of Ten
Thousand Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell,
redeem, subdivide, combine, change or purchase any of the Company's or any of
its Subsidiary's shares, notes or other securities, whether debt or equity, or
make any Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of
any Seller, the Company or any of its Subsidiaries including, without limitation
the purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate (provided that the
foregoing will not restrict the Company's ability to pay bonuses to employees or
to pay dividends on its Common Stock);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option
or other right to acquire any of the Company's or any of its Subsidiaries'
securities, whether debt or equity, and whether by conversion or otherwise, or
make any commitment to do so;
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(l) merge or consolidate, or agree to merge or
consolidate, with or into any other Person or acquire or agree to acquire or be
acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, hypothecate, transfer or otherwise dispose of, any
of the Company's or any of such Subsidiaries assets having an aggregate fair
market value in excess of $10,000 or more, except for the disposition of
obsolete or worn-out assets in the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in
effect as at the Balance Sheet Date, or (ii) make or rescind any express or
deemed election relating to Taxes, or change any of its methods of reporting
income or deductions for income tax purposes from those employed in the
preparation of income Tax Returns for the taxable year ended August 31, 1996,
except, in either case, as may be required by any applicable Requirement of Law,
the IRS or GAAP;
(o) enter into any Contract or make any commitment to
make any capital expenditures or capital additions or betterments in excess of
an aggregate of $10,000;
(p) cause or permit the Company or any such
Subsidiary to (i) terminate any Employee Benefit Plan, (ii) permit any
"prohibited transaction" involving any Employee Benefit Plan, (iii) fail to pay
to any Employee Benefit Plan any contribution which it is obligated to pay under
the terms of such Employee Benefit Plan, whether or not such failure to pay
would result in an "accumulated funding deficiency" or (iv) allow or suffer to
exist any occurrence of a "reportable event" or any other event or condition,
which presents a material risk of termination by the PBGC of any Employee
Benefit Plan. As used in this Agreement, the terms "accumulated funding
deficiency" and "reportable event" shall have the respective meanings assigned
to them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in the Code and ERISA;
(q) enter into any transaction or conduct any
operations not in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to
do any of the foregoing; or
(s) waive any material rights or claims of the
Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the
Sellers shall: (i) provide any information about the Company or any of its
Subsidiaries or any of their respective Businesses to any Person (other than the
Purchaser, Newco, a Potential Founding Company or their representatives) with a
view to sell, exchange or dispose or solicit an offer for the acquisition of any
of the Shares or any material interest in the Company, any of its Subsidiaries
or their respective Businesses; (ii) solicit or accept any other offers for the
sale, exchange or other disposition of the Shares or any material interest in
the Company, its
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Subsidiaries or their respective Businesses; (iii) negotiate or discuss with any
Person (other than the Purchaser or any of its representatives) the possible
sale, exchange or other disposition of the Shares or any material interest in
the Company, any of its Subsidiaries or their respective Businesses; or (iv)
sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Sellers shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Sellers (other than
in the Registration Statement) Purchaser will endeavor to consult with Sellers
to the extent time permits. Nothing contained herein shall restrict the ability
of the Company or Sellers from contacting a third party in order to obtain a
Consent to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly the Disclosure Schedule or any other
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to
be furnished to the Purchaser, Newco and the underwriters of the Initial Public
Offering (the "Underwriters") all of the information concerning the Company or
the Sellers reasonably requested by the Purchaser, Newco and the Underwriters,
and will cooperate with the Purchaser, Newco and the Underwriters in the
preparation of, any registration statement (or similar document) relating to the
Purchaser Financing Transaction and the prospectus (or similar document)
included therein
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(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Sellers with a copy thereof and each amendment thereto in substantially the form
in which it is to be filed as promptly as practicable prior to such filing (it
being understood that neither the Sellers nor the Company has any obligation to
review the same other than with respect to information regarding the Company or
the Sellers) and to diligently seek to cause the Registration Statement to be
declared effective and the Initial Public Offering to be completed. The
Purchaser agrees that neither the Sellers nor the Company shall have any
responsibility for pro forma adjustments that may be made to the Financial
Statements.
(b) The Company and each of the Sellers acknowledge
and agree (i) that, prior to the execution and delivery of a definitive
underwriting agreement, the Underwriters have made no firm commitment, binding
agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, that the Registration Statement will become effective
or that the Initial Public Offering pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all, (ii) that none of
the prospective Underwriters of the Purchaser's common stock, in the Initial
Public Offering nor any officers, directors, agents or representatives of such
Underwriters shall have any liability to the Sellers, the Company or any other
person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the Initial Public Offering to occur
at a particular price or within a particular range of prices or occur at all,
and (iii) the decision of the Sellers to enter into this Agreement and, if
applicable, to vote in favor of or consent to the transactions contemplated
hereby, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications of, or due diligence investigation
which have been or will be made or performed by any prospective Underwriter,
relative to the Purchaser or the prospective Initial Public Offering. The
Sellers acknowledge that shares of DocuNet Common Stock received as a part of
the Purchase Price, if any, will not be issued pursuant to the Registration
Statement; and, therefore, the Underwriters shall have no obligation to the
Sellers with respect to any disclosure contained in the Registration Statement
and no Seller may assert any claim against the Underwriters relating to the
Registration Statement on account thereof.
5.13. Examination of Final Financial Statement. The Company
shall provide to Purchaser prior to the Closing Date unaudited consolidated
balance sheets of the Company for each month and fiscal quarter end between the
date of this Agreement and the Closing Date, and unaudited consolidated
statements of income, cash flows and retained earnings of the Company for such
subsequent months and fiscal quarters. In addition, the Company shall prepare
and deliver to Purchaser at Closing the Closing Balance Sheet. Such financial
statements, which shall be deemed to be Financial Statements (as defined
herein), shall have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis
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throughout the periods indicated (except for the absence of notes and subject to
normal year-end adjustments). Such financial statements shall present fairly the
results of operations of the Subsidiaries for the periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the
Financial Statements identified in Section 3.12(a) have been reviewed by Arthur
Andersen LLP in anticipation of rendering its unqualified opinion thereon prior
to consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial
Public Offering, for good and valuable consideration, the Company and each
Seller hereby irrevocably agree that for a period of 180 days after the date of
the effectiveness (the "Effective Date") of the Registration Statement, as the
same may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement
hereby recognize that one or more filings under the Hart-Scott Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Hart-Scott
Act are required, then: (i) each of the parties hereto agrees to cooperate and
use its best efforts to comply with the Hart-Scott Act; (ii) such compliance by
the Sellers and the Company shall be deemed a condition precedent in addition to
the conditions precedent set forth in Section 6 of this Agreement, and such
compliance by Purchaser and Newco shall be deemed a condition precedent in
addition to the conditions precedent set forth in Article 6 of this Agreement;
and (iii) the parties agree to cooperate and use their best efforts to cause all
filings required under the Hart-Scott Act to be made. If filings under the
Hart-Scott Act are required, the costs and expenses thereof (including filing
fees) shall be borne by Purchaser or Newco. The obligation of each party to
consummate the transactions contemplated by this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
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5.16. Reorganization Status. No party to this Agreement shall
undertake any actions not contemplated by this Agreement that would cause the
merger to fail to qualify as a reorganization as defined under Section
368(a)(1)(A) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's
Obligations. The Purchaser and Newco's obligation to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of, or waiver in
writing by the Purchaser or Newco of, prior to or at the Closing, each and every
of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Sellers contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and each of the Sellers
shall deliver to the Purchaser and Newco a certificate dated the Closing Date,
certifying that all of the Company's and the Sellers' representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The
Company and each of the Sellers shall have performed and complied in all
material respects with each and every covenant, agreement and condition required
by this Agreement to be performed or satisfied by the Company and each of the
Sellers, as the case may be, at or prior to the Closing Date. The Company and
each of the Sellers shall deliver to the Purchaser and Newco a certificate,
dated the Closing Date, certifying that the Company and the Sellers have fully
performed and complied in all material respects with all the duties, obligations
and conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and each of
the Sellers shall have delivered to the Purchaser and Newco all documents,
certificates, instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him, her or it at or prior
to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been
taken and all Consents including, without limitation, all Regulatory Approvals,
necessary or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
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(e) Financing. The Registration Statement on Form S-1
relating to the Initial Public Offering shall have been declared effective by
the Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each
of its Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been made
under Section 2.8(b) and (ii) Debt which constitutes an Adjusted Current
Liability.
(g) Closing Balance Sheet The Company shall have
delivered to the Purchaser a true and complete copy of the Closing Balance
Sheet, together with a certificate dated the Closing Date, signed by the
Company's chief financial officer that the Closing Balance Sheet is in
accordance with the Books and Records and with GAAP applied on a consistent
basis (except for the absence of notes and subject to normal year-end audit
adjustments) and presents fairly the financial position of the Company as of the
Closing Date.
(h) No Material Adverse Change. From and after the
date of this Agreement, there shall not have occurred or be threatened any
development, event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There
shall not have been instituted and there shall not be pending or threatened any
Legal Proceeding, and no Order shall have been entered (i) imposing or seeking
to impose limitations on the ability of the Purchaser or Newco to consummate the
Merger; (ii) imposing or seeking to impose limitations on the ability of the
Purchaser to combine and operate the business, operations and assets of the
Company or any of the Company's Subsidiaries with the Purchaser and Newco's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser, Newco or any of the Purchaser or Newco's
directors, officers or employees; (iv) requiring or seeking to require
divestiture by the Newco or Purchaser of all or any material portion of the
business, assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have
delivered to the Purchaser a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such articles or
certificate of incorporation has occurred since the date of the last amendment
annexed (such date to be specified), (C) a true and correct copy of the
Company's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed
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to such certificate, (D) the resolutions by the Company's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of this
Agreement were duly adopted and continue in force and effect (a copy of such
resolutions to be annexed to such certificate); (ii) setting forth the Company's
incumbent officers and including specimen signatures on such certificate or
certificates as their genuine signatures; and (iii) the Company is in good
standing in all jurisdictions where the ownership or lease of property or the
conduct of its business requires it to qualify to do business, except for those
jurisdictions where the failure to be duly qualified, authorized and in good
standing would not have a material adverse effect upon the business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) on the Company. The certification referred to above in (iii) shall
attach certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more than a
five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Sierchio & Albert,
P.C., counsel for the Company and the Sellers, shall have delivered to the
Purchaser and Newco their favorable opinion, dated the Closing Date, as to the
matters covered in Schedule 6.1(k). In rendering such opinion, counsel may rely
to the extent recited therein on certificates of public officials and of
officers of Seller as to matters of fact, and as to any matter which involves
other than federal or New York law, such counsel may rely upon the opinion of
local counsel reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All
existing agreements between the Company and the Sellers, Affiliates of the
Company or Sellers, other than those, if any, set forth on Schedule 6.1(l),
shall have been canceled.
(m) Employment Agreements. Each of the persons listed
on Schedule 6.1(m) shall have entered into an employment agreement
(collectively, the "Employment Agreements") with the Company substantially in
the form of Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing
Date, the Sellers shall have repaid the Company (including the Subsidiaries) in
full all amounts owing by the Sellers or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. Each Seller shall have
delivered to the Purchaser a certificate to the effect that he or she is not a
foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named
as an additional named insured on all of the Company's insurance policies as of
the Closing Date.
(q) Escrow Agreement. Each Seller and the Company
shall have executed the Escrow Agreement substantially in the form of Exhibit A
attached hereto.
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6.2. Conditions Precedent to Company's and Seller's
Obligations. The Company's and Seller's obligations to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of,
or waiver in writing by the Sellers of, prior to or at the Closing, each and
every of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser and Newco contained in this
Agreement shall be true and correct in all material respects on and as of the
date of the Closing Date, with the same force as though such representations and
warranties had been made on and as of the Closing Date except for those
representations and warranties that by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser and Newco shall each
deliver to the Sellers a certificate, executed by a duly authorized officer of
the Purchaser and Newco, respectively, dated as of the Closing Date, certifying
that all of its representations and warranties contained in this Agreement are
true and correct on and as of the Closing Date as though such representations
and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The
Purchaser and Newco shall each have performed and complied in all material
respects with each and every covenant, agreement and condition required by this
Agreement to be performed or satisfied by them at or prior to the Closing Date.
The Purchaser and Newco shall each deliver to the Sellers a certificate, dated
the Closing Date, certifying that each of them has fully performed and complied
in all material respects with all the duties, obligations and conditions
required by this Agreement to be performed and complied with by it at or prior
to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco
shall have delivered to the Sellers all documents, certificates, instruments and
items required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There
shall not have been instituted and there shall not be pending or threatened any
Legal Proceeding, and no Order shall have been entered (i) imposing or seeking
to impose limitations on the ability of the Sellers to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Company or
any of its Subsidiaries or any of their respective directors, officers or
employees or on any of the Sellers; or (iii) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall
have executed the Escrow Agreement substantially in the form of Exhibit A
attached hereto.
(f) Employment Agreements. The Purchaser shall have
entered into the Employment Agreements with each of the persons listed on
Schedule 6.1(m).
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(g) Secretary's Certificate. The Purchaser and Newco
shall each have delivered to the Sellers a certificate or certificates dated as
of the Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's, as the case may be, articles or
certificate of incorporation attached to the certificate is true, correct and
complete, (B) no amendment to such articles or certificate of incorporation has
occurred since the date of the last amendment annexed (such date to be
specified), (C) a true and correct copy of the such entity's bylaws as in effect
on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
entity's board of directors authorizing the actions taken in connection with the
Merger, including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the entity and including specimen signatures on
such certificate or certificates of such officers executing this Agreement on
behalf of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1
relating to the Initial Public Offering shall have been declared effective by
the Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton
& Scheetz LLP, counsel for Purchaser, shall have delivered to the Company and
Sellers their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to (i) effect the Merger (including,
if permitted by applicable state law, the filing with the appropriate state
authorities of the Articles of Merger which shall become effective at the
Effective Time of the Merger) and (ii) effect the conversion and delivery of
Shares referred to in Section 2.9 hereof and payment of consideration for the
Shares; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 2 hereof, each of which actions shall only be taken upon
the Closing Date as herein provided. In the event that there is no Closing Date
and this Agreement terminates, Purchaser hereby covenants and agrees to do all
things required by Pennsylvania law and all things which counsel for the Company
advise Purchaser are required by applicable laws of the State of New York in
order to rescind the merger effected by the filing of the Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above shall take place on the Pricing Date at the offices of Pepper,
Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets,
Philadelphia, PA 19103. On the
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Closing Date (x) the Articles of Merger shall be or shall have been filed with
the appropriate state authorities so that they shall be or, as of 8:00 a.m.
EASTERN STANDARD TIME on the Closing Date, shall become effective and the Merger
shall thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of a certified
check or checks in an amount equal to the cash portion of the consideration
which the Sellers shall be entitled to receive pursuant to the Merger referred
to in Section 2 hereof and (z) the closing with respect to the Initial Public
Offering shall occur and be deemed to be completed. The date on which the
actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." Except as otherwise provided in Section 11
hereof, during the period from the Pricing Date to the Closing Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the Initial Public Offering is terminated pursuant to the terms
thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use
Confidential Information only in connection with the transactions contemplated
hereby (including the Initial Public Offering) and shall not disclose any
Confidential Information about any other party to any Person unless the party
desiring to disclose such Confidential Information receives the prior written
consent of the party about whom such Confidential Information pertains, except
(i) to any party's directors, officers, employees, agents, advisors and
representatives who have a need to know such Confidential Information for the
performance of their duties as employees, agents or representatives, (ii) to the
extent strictly necessary to obtain any Consents including, without limitation,
any Regulatory Approvals, that may be required or advisable to consummate the
transactions contemplated by this Agreement, (iii) to enforce such party's
rights and remedies under this Agreement, (iv) with respect to disclosures that
are compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel or independent
auditors or investment bankers or financial advisors if such investment bankers
or financial advisors are subject to a written agreement imposing upon them an
obligation of confidentiality; (vi) to other Founding Companies or Potential
Founding Companies; or (vii) as otherwise permitted by Section 5.10 of this
Agreement.
(b) In the event that the transactions contemplated
by this Agreement are not consummated in accordance with the terms of this
Agreement, each party shall, upon the request of the other party, return to the
other party or destroy all Confidential Information and any copies thereof
previously delivered by such requesting party, except to the extent that such
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party deems such Confidential Information necessary or desirable to enforce his
or its rights under this Agreement.
(c) The obligation of confidentiality contained in
this Section 8.1 shall, (i) from and after the date of this Agreement, supersede
all of the obligations contained in that certain letter agreement among the
Purchaser, the Company and the Sellers dated August 5, 1997, and (ii) survive
the termination of this Agreement, or the Closing, as applicable, for a period
of two years after the date of such termination or the Closing Date,
respectively; provided, that, if the Closing shall occur, then the Purchaser's
obligation of confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that
they may become aware of potential acquisition targets of the Purchaser,
including but not limited to the Potential Founding Companies (collectively, the
"Purchaser Targets"), in the course of discussions with the Purchaser or a
Potential Founding Company. Accordingly, the parties hereto each agree not to
directly or indirectly seek to acquire or merge with, or pursue or respond to,
with an intent to acquire or merge with, any Purchaser Targets until the later
of 300 days after the date of this Agreement or 180 days after termination of
this Agreement.
(e) The Purchaser will cause each of the Founding
Companies other than the Company to enter into a provision similar to this
Section 8.1 requiring each such Founding Company to keep confidential any
information obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser and Newco's consummation of the Merger, each of the Sellers shall not,
during the Restricted Period, do any of the following, directly or indirectly,
without the prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the
Purchaser, the Surviving Corporation or the Company or any of their respective
Affiliates or Subsidiaries, or any of their respective successors or assigns,
whether now existing or hereafter created or acquired (collectively, the
"Related Companies"), or otherwise engage or participate, directly or
indirectly, in any business conducted by Purchaser or a Subsidiary (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit any Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
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(c) solicit, call on, divert, take away, influence,
induce or attempt to do any of the foregoing, in each case within the Restricted
Area, with respect to the Purchaser's, the Surviving Corporation's, the
Company's or any of their respective Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Purchaser,
the Surviving Corporation, the Company, or any of their respective Related
Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies, (C) distributors, consultants, agents, or independent
contractors to terminate or modify any contract, arrangement or relationship
with the Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies or (D) employees (other than family members) to
leave the employ of the Purchaser, the Surviving Corporation, the Company or any
of their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach
or threatened breach by him or her of any provision of Sections 8.1 or 8.2 will
cause continuing and irreparable injury to the Purchaser, the Surviving
Corporation, the Company and their respective Related Companies for which
monetary damages would not be an adequate remedy. Accordingly, the Purchaser,
the Surviving Corporation, the Company and any of their respective Related
Companies shall be entitled to injunctive relief from a court of competent
jurisdiction, including specific performance, with respect to any such breach or
threatened breach. In connection therewith, none of the Sellers shall, in any
action or proceeding to so enforce any provision of this Article 8, assert the
claim or defense that an adequate remedy at law exists or that injunctive relief
is not appropriate under the circumstances. The rights and remedies of the
Purchaser, the Surviving Corporation, the Company and any of their respective
Related Companies set forth in this Section 8.3 are in addition to any other
rights or remedies to which the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies may be entitled, whether
existing under this Agreement, at law or in equity, all of which shall be
cumulative.
(b) The periods of time set forth in this Article 8
shall not include, and
shall be deemed extended during, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the
Purchaser, Newco, the Company or any of their respective Related Companies may
provide a copy of this Agreement or any portion of this Agreement to any Person
with, through or on behalf of which any of the Sellers may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
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8.5. Interpretation. It is the desire and intent of the
Purchaser, Newco and the Sellers that the provisions of this Article 8 shall be
enforceable to the fullest extent permissible under applicable law and public
policy. Accordingly, if any provision of this Article 8 shall be determined to
be invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such jurisdiction, such amendment only to apply with respect to the operation of
such provision in the applicable jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. Each of the Sellers acknowledges
that he or she has carefully read and considered the provisions of this Article
8. Each of the Sellers acknowledges and understands that the restrictions
contained in this Article 8 may limit his ability to earn a livelihood in a
business similar to that of the Purchaser, Newco, the Company or any of their
respective Related Companies, but he nevertheless believes that he has received
and will receive sufficient consideration and other benefits to justify such
restrictions. Each of the Sellers also acknowledges and understands that these
restrictions are reasonably necessary to protect the Purchaser's, the Surviving
Corporation's, the Company's and their respective Related Companies' interests,
and each Seller does not believe that such restrictions will prevent him from
earning a living in businesses that are not competitive with those of the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies during the term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Sellers, the Company, Newco and the
Purchaser contained in this Agreement shall survive until the second anniversary
of the Closing Date, except that the representations and warranties set forth in
each of Section 3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive
until the expiration of the statute of limitations applicable to the subject
matter addressed thereunder. The covenants and agreements of the Sellers, the
Company, Newco and of the Purchaser contained in this Agreement will survive the
Closing until, by their own respective terms, they have been fully performed.
Any breach of a representation, warranty, covenant or agreement that would
otherwise terminate in accordance with this Article 9 will continue to survive
if an Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under
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Article 10 on or prior to the date on which such representation, warranty,
covenant or agreement would have otherwise terminated, until the related claim
for indemnification has been satisfied or otherwise resolved as provided in
Article 10. Any representation or warranty contained in this Agreement made by
any party or any written information furnished by any party that was made by
such party fraudulently or with intent to defraud or mislead or with gross
negligence shall indefinitely survive the Closing. Any representation or
warranty made by the Sellers or the Company in this Agreement or any written
information furnished or caused to be furnished by any of the Sellers or the
Company to the Purchaser that is incorporated in, or is the basis for omitting
information from, the Registration Statement, prospectus or other document, or
any amendment or supplement thereof in connection with any Purchaser Financing
Transaction shall survive until the expiration of all applicable statutes of
limitations regarding claims brought by investors in such Purchaser Financing
Transaction alleging material misstatements or omissions in such documents.
9.2. [Intentionally omitted].
9.3. Underwriter's Benefit. The Sellers' and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing
Date, each of the Sellers shall, jointly and severally, indemnify and hold
harmless the Purchaser, Newco, the Surviving Corporation and the Company and any
of their respective Subsidiaries, and each Person who controls (within the
meaning of the Securities Act) the Purchaser, Newco, the Surviving Corporation
or, after the Closing Date, the Company or any of its Subsidiaries, and each of
their respective directors, officers, employees, agents, successors and assigns
and legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or any of the
Sellers under this Agreement or any document, instrument, certificate or other
item required to be furnished to the Purchaser or Newco pursuant hereto or
thereto or in connection with the transactions contemplated by this Agreement;
(ii) any untrue statement of any material fact contained in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, prepared, filed, distributed or executed in connection with
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any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or Newco (provided that the Sellers and the Company hereby acknowledge
that the information concerning the Sellers and the Company provided by them for
use in the Registration Statement shall be deemed to be provided to the
Purchaser for the purposes hereof); (iii) any liability or obligation of any of
the Sellers, the Company or any of its Subsidiaries other than Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and
Debt which does not constitute an Adjusted Current Liability; (iv) whether or
not known by the Purchaser, any liability for payment of Taxes that accrued or
relate to the period of time prior to the Closing Date; (v) any non-compliance
with applicable Requirements of Law relating to bulk sales, bulk transfers and
the like or to fraudulent conveyances, fraudulent transfers, preferential
transfers and the like; (vi) any action, claim or demand by any holder of the
Company's securities, whether debt or equity, in such holder's capacity as such,
whether now existing or hereafter arising or incurred; (vii) any non-compliance
with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as
amended, and the rules and regulations promulgated thereunder and any similar
Requirement of Law; and (viii) any Legal Proceeding or Order arising out of any
of the foregoing even though such Legal Proceeding or Order may not be filed,
become final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information.
Notwithstanding any possible interpretation of Paragraph 10.1 or any other
provision of this Agreement, the failure of the Purchaser or any successor to
achieve after the Closing Date any projected financial information, including,
without limitation, sales of software and costs of software development, in and
of itself shall not result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing
Date, the Purchaser, Newco and the Surviving Corporation shall indemnify and
hold harmless the Sellers and each of their respective legal representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.8(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
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Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; (iv) any
liability or obligation of DocuNet arising from and after the Closing Date
(other than any liabilities or obligations that are the subject of the indemnity
obligations of the Sellers contained herein); and (v) any Legal Proceeding or
Order arising out of any of the foregoing even though such Legal Proceeding or
Order may not be filed, become final, or come to light until after the Closing
Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking
indemnification under this Article 10 (the "Indemnified Party") shall suffer an
Indemnifiable Loss, he, she or it shall, within fourteen (14) days after
obtaining Knowledge of the incurrence of any such Indemnifiable Loss, give
written notice to the party from whom indemnification under this Article 10 is
sought (the "Indemnifying Party") of the amount of the Indemnifiable Loss,
together with reasonably sufficient information to enable the Indemnifying Party
to determine the accuracy and nature of the claimed Indemnifiable Loss (the
"Indemnity Notice"). The failure of any Indemnified Party to give the
Indemnifying Party the Indemnity Notice shall not release the Indemnifying Party
of liability under this Article 10; provided, however that the Indemnifying
Party shall not be liable for Indemnifiable Losses incurred by the Indemnified
Party that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Indemnity Notice. Within thirty (30) days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
Indemnifiable Loss or (ii) object to such claim, in which case the Indemnifying
Party shall give written notice to the Indemnified Party of such objection
together with the reasons therefor, it being understood that the failure of the
Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss. The Indemnifying Party's
objection shall not, in and of itself, relieve the Indemnifying Party from its
obligations under this Article 10. In the event that the parties are unable to
resolve the subject of the Indemnity Notice, the issue shall be submitted for
determination to a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall
have reasonable grounds to believe that an Indemnifiable Loss may be incurred,
such Indemnified Party shall, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Within sixty (60) days after the amount of such
claim shall be finalized, resolved, or liquidated, the Indemnified Party shall
give the Indemnifying Party an Indemnity Notice, and the
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Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim
for indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense of such claim, demand or Legal
Proceeding, with the reasonable fees, expenses and disbursements of such counsel
to be reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Purchaser shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are
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reasonable, the Indemnifying Party and Indemnified Party will request that the
disagreement be resolved by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association). In the event
that the Indemnifying Party is controlling the defense of the claim or the
litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying Party
shall continue to be liable to the full extent of such litigation or claim and
provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To
provide for just and equitable contribution to joint liability under the
Securities Act in any case in which the Purchaser, Newco, the Surviving
Corporation, the Company, or any controlling Person of the Purchaser or the
Company (within the meaning of the Securities Act) makes a claim for
indemnification pursuant to Section 10.1(ii) but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that Section 10.1(ii) provides for indemnification in such case, then, the
Purchaser, Newco, the Surviving Corporation, the Company, each controlling
Person and each of the Sellers will contribute to the aggregate Indemnifiable
Losses to which the Purchaser, Newco, the Surviving Corporation, the Company or
any such controlling Person may be subject (after contribution from others) as
is appropriate to reflect the relative fault of the Purchaser, Newco, the
Surviving Corporation, the Company, such controlling Person and such Seller in
connection with the statements or omissions which resulted in such Indemnifiable
Losses, as well as the relative benefit received by the Purchaser, Newco, the
Surviving Corporation, the Company, such controlling Person and such Seller as a
result of the issuance of the securities to which such Indemnifiable Losses
relate, it being understood that the parties acknowledge that the overriding
equitable consideration to be given effect in connection with this provision is
the ability of one party or the other to correct the statement or omission which
resulted in such Indemnifiable Losses, and that it would not be just and
equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; provided, however, that,
in any such case, no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
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10.5. Exclusiveness of Indemnification. The indemnification
rights of the parties under this Article 10 are the exclusive remedy of the
parties for matters arising under this Agreement.
10.6. Limitations on Indemnification. Purchaser, the Company,
Newco, the Surviving Corporation and the other Persons or entities indemnified
pursuant to Section 10.1 shall not assert any claim for indemnification
hereunder against the Sellers until such time as, the aggregate of all claims
which such persons may have against the Sellers shall exceed $39,000 (the
"Indemnification Threshold"), whereupon such claims shall be indemnified in
full. Sellers shall not assert any claim for indemnification hereunder against
Purchaser, the Company, Newco or the Surviving Corporation until such time as,
the aggregate of all claims which Sellers may have against Purchaser, the
Company, Newco or the Surviving Corporation shall exceed $39,000, whereupon such
claims shall be indemnified in full. The limitation on assertion of claims for
indemnification contained in this paragraph shall apply only to claims based
upon inaccuracies in, or breaches of, representations and warranties contained
in this Agreement or any document, instrument, certificate or other item
required to be furnished pursuant to this Agreement or in connection with the
transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has
been given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet
Common Stock used to satisfy an Indemnity Claim shall be valued at the lower of
the Initial Public Offering Price and the Value as of the date such shares are
so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual
written agreement among the Company, the Sellers, Newco and the Purchaser;
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(b) at any time before the Closing, by the Purchaser
pursuant to Section 5.4(a), or if any of the Company's or any of the Seller's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Sellers
holding a majority of the Shares if any of the Purchaser's or Newco's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Sellers
holding a majority of the Shares, on the one hand, or by the Purchaser, on the
other hand, upon any material breach by such other party's covenants or
agreements contained in this Agreement and the failure of such other party to
cure such breach, if curable, within ten (10) days after written notice thereof
is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days
after the date of this Agreement, by the Sellers holding a majority of the
Shares, on the one hand, or by the Purchaser on the other hand, upon
notification to the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if
this Agreement is validly terminated pursuant to Section 11.1, then this
Agreement shall forthwith become void, and, subject to such Section 11.2(b),
there shall be no liability under this Agreement on the part of the Company, any
of the Sellers, Newco or the Purchaser and all rights and obligations of each
party to this Agreement shall cease; provided, that (i) the provisions with
respect to expenses in Section 16.4 shall indefinitely survive any such
termination, (ii) the provisions with respect to confidentiality of Section 8.1
shall survive any such termination until it, by its own terms, is no longer
operative; (iii) the provisions with respect to exclusivity of negotiations of
Section 5.9 shall survive for 180 days after such termination, but only if the
termination is made by Purchaser pursuant to Section 11.1(b) or Section 11.1(d);
and (iv) this Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a
result of a misrepresentation or a breach of any warranty made by any party to
this Agreement or as a result of a material breach by a party of any of such
party's covenants or agreements contained in this Agreement, or, if all
conditions to the obligations of a party at Closing contained in Article 6 of
this Agreement have been satisfied (or waived by the party entitled to waive
such conditions) and such party does not proceed with the Closing, then any and
all rights and remedies available to the non-breaching parties, whether under
this Agreement, at law or in equity or otherwise shall be preserved and shall
survive the termination of this Agreement; provided, however, that the maximum
liability of the Company and the Sellers to Purchaser shall not exceed $500,000.
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ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three
(3) years after the Closing Date, the Purchaser shall, or shall cause the
Surviving Corporation and each of its Subsidiaries to, maintain all books and
records maintained by the Company or any such Subsidiary on or prior to the
Closing Date and shall permit the Sellers or their respective representatives
and agents access to all such books and records, and to the Surviving
Corporation's and its Subsidiaries' employees and auditors for the purpose of
obtaining information relating to periods on or prior to the Closing Date, upon
reasonable notice by the Sellers and on terms not disruptive to the business,
operation or employees of the Purchaser, the Surviving Corporation, the Company
or any of their respective Subsidiaries, to assist the Sellers in (i) completing
any tax or regulatory filings or financial statements required or appropriate to
be made by the Sellers after the Closing Date or in completing any other
reasonable and customary business objective, (ii) prosecuting or defending on
behalf of the Sellers, the Company or any of its Subsidiaries any litigation
controlled by the Sellers or (iii) complying with requests made of any of the
Sellers by any Taxing Authority or any Governmental or Regulatory Authority
conducting an audit, investigation or inquiry relating to the Company's or any
of its Subsidiaries' activities during periods prior to the Closing Date. Each
of the Sellers will hold all information provided to them pursuant to this
Section 12.1 (and any information derived therefrom) in confidence to the same
extent as required by Section 8.1 of this Agreement with respect to Confidential
Information.
12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Sellers become
aware of any fact or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of Company or Sellers in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Sellers shall promptly give notice of such
fact or circumstance to Purchaser.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Sellers or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, none of the Sellers shall (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of (a) any shares of DocuNet Common Stock received by the Sellers pursuant to
this Agreement, or (b) any interest (including, without limitation, an option to
buy or sell) in any such shares of DocuNet Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(ii) engage in any transaction, whether or not with respect to any shares of
DocuNet Common
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Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common
Stock to be delivered to the Sellers pursuant to this Agreement have not been
and will not be registered under the Securities Act or any other state
securities laws, and therefore may not be resold without compliance with the
Securities Act. The DocuNet Common Stock to be acquired by such Sellers pursuant
to this Agreement is being acquired solely for their own respective accounts,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and
represent that none of the shares of DocuNet Common Stock issued to such Sellers
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT") OR ANY STATE
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SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE
SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH
SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto
are able to bear the economic risk of an investment in the DocuNet Common Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that they
or their respective purchaser representatives have had an adequate opportunity
to ask questions and receive answers from the officers of the Purchaser
pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14
and 15.5, at any time following the Closing, whenever the Purchaser proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
the DocuNet Common Stock; (ii) registrations of shares to be used solely as
consideration for acquisitions of additional businesses by the Purchaser; and
(iii) registrations relating to employee benefit plans, the Purchaser shall give
each of the Sellers prompt written notice of its intent to do so. Upon the
written request of any of the Sellers given within 30 days after receipt of such
notice, Purchaser shall cause to be included in such registration all of the
DocuNet Common Stock which any such Seller requests. However, if the Purchaser
is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 15.1 that the number of shares to be
sold by persons other than the Purchaser is greater than the
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number of such shares which can be offered without adversely affecting the
offering, the Purchaser may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such persons)
to a number deemed satisfactory by such managing underwriter or such managing
underwriter can eliminate the participation of all such persons in the offering,
provided that, for each such offering made by the Purchaser after the Initial
Public Offering, a reduction shall be made first by reducing the number of
shares to be sold by persons other than the Purchaser, the Sellers, the Founding
Companies, the stockholders of the Founding Companies and other stockholders
(the "Other Stockholders") of the Company immediately prior to the Initial
Public Offering, and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Sellers, the Founding Companies, the
stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in
connection with the registrations under this Article 15 (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts and fees, if any, of separate
counsel engaged by the Sellers) shall be borne by the Purchaser. In connection
with registrations under Section 15.1, the Purchaser shall (i) prepare and file
with the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each
registration pursuant to Section 15.1 covering an underwritten registration
public offering, the Purchaser and each participating holder agree to enter into
a written agreement with the managing underwriters in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such managing underwriters and companies of the Purchaser's
size and investment stature, including indemnification and the prohibition of
sales or transfers of such holders' common stock for an applicable lock-up
period.
15.4. Availability of Rule 144. The Purchaser shall not be
obligated to register shares of DocuNet Common Stock held by any Seller at any
time when the resale provisions of Rule 144(k) (or any similar or successor
Seller provision) promulgated under the Securities Act are available to such
Seller.
15.5. Survival. The provisions of this Article 15 shall
survive the Closing until December 31, 1999.
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ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Company (prior to the Closing
Date):
International Data Services of New York, Inc.
5 Schuman Road
Millwood, NY 10546
Attention: Mitchell J. Taube
with a copy to:
Sierchio & Albert, P.C.
41 East 57th Street
New York, NY 10022
Attention: Steve Albert, Esquire
(b) If to any of the following Sellers:
If to Mitchell J. Taube and Ellen F. Rothschild:
c/o International Data Services of New York, Inc.
5 Schuman Road
Millwood, NY 10546
with a copy to:
Sierchio & Albert, P.C.
41 East 57th Street
New York, NY 10022
Attention: Steve Albert, Esquire
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(c) If to the Purchaser or Newco:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise
provided herein, this Agreement is not intended to, and does not, create any
rights in or confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement
are incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their
own expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Arthur Andersen LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Sellers shall be responsible to pay $10,000 of such fees and
expenses.
16.5. Further Assurances. The Sellers, the Surviving
Corporation and the Purchaser shall, at his, her or its own expense, from time
to time upon the request of the other, execute and deliver, or cause to be
executed and delivered, at such times as may reasonably be requested by the
Purchaser, the Surviving Corporation or the Sellers, such other documents,
certificates and instruments and take such actions as the Purchaser, the
Surviving Corporation or the Sellers deem reasonably necessary to consummate
more fully the transactions contemplated by this Agreement. In addition, the
Sellers shall (i) provide or cause to be provided such written information with
respect to themselves or the Company, (ii) execute and deliver or cause to be
executed and delivered such other documents, certificates or instruments, and
(iii) take or cause
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to be taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any
other documents, instruments or other writings delivered or to be delivered
pursuant to this Agreement constitute the entire agreement among the parties
with respect to the subject matter of this Agreement and supersede all prior
agreements, understandings, and negotiations, whether written or oral, with
respect to the subject matter of this Agreement. None of the terms and
provisions contained in this Agreement can be changed without a writing signed
by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph
titles used in this Agreement are for convenience only and are not intended to
define or limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each of the parties to this Agreement and their
respective heirs, personal representatives, and successors and permitted
assigns. Neither the Company, any of the Sellers nor the Purchaser shall have
the right to assign this Agreement without the prior written consent of the
others, except that Purchaser or Newco may assign its rights and obligations
under this Agreement prior to the Closing to any wholly-owned Subsidiary of the
Purchaser or Newco; provided that the DocuNet Common Stock to be issued in
payment of a portion of the purchase price shall be registered under Section 12
of the Securities Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute one and
the same instrument.
16.10. Severability. Any provision of this Agreement (other
than those contained in Article 8 of this Agreement, in which case, Section 8.5
of this Agreement shall govern with respect to the invalidity, unenforceability,
or illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and
construed as to its validity, interpretation and effect by the laws of the
Commonwealth of Pennsylvania notwithstanding the choice of law rules of
Pennsylvania or any other jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Sellers, the Purchaser, Newco
and the Company have caused this Agreement to be duly executed as of the date
first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
-------------------------------------
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
IDS ACQUISITION CORP.
By: /s/ S. David Model
-------------------------------------
Name:
Title:
INTERNATIONAL DATA SERVICES OF
NEW YORK, INC.
By: /s/Mitchell J. Taube
-------------------------------------
Mitchell J. Taube
President
Witness: _______________________ /s/Mitchell J. Taube
-----------------------------------------
Mitchell J. Taube, Individually
Witness: _______________________ /s/ Ellen Rothschild-Taube
-----------------------------------------
Ellen F. Rothschild-Taube, Individually
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Schedule 2.3
Officers of Surviving Corporation
IDS Acquisition Corp.
S. David Model President
Andrew R. Bacas Secretary
James Brown Treasurer
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Schedule 2.4
Capitalization
Mitchell Taube 51 shares
Ellen Rothschild-Taube 49 shares
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Schedule 2.7
Capitalization Table
See Schedule 2.4
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Schedule 2.9
Distribution of Merger Consideration
Aggregate Stock Stock
Purchase Price Cash Paid At Escrow
Shareholder (Paid at Closing) Closing Amount
----------- ----------------- ------- ------
Mitchell Taube $1,093,950 See Section 2.9 $99,450
Ellen Rothschilde- $1,051,050 See Section 2.9 $95,550
Taube
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Schedule 6.1(k)
__________ __, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to __________________, a
_____________ corporation (the "Company"), in connection with the transactions
contemplated by that certain [Purchase Agreement] dated as of ______________,
1997 (the "Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and _______________ ("Stockholders"). This
opinion is furnished to you pursuant to Section _______ of the Purchase
Agreement.
In connection with rendering this opinion, we have examined
the Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the [Certificate] [Articles] of Incorporation
and Bylaws of the Company. We have also made such examinations of laws,
certificates of public officials, instruments, documents, and corporate records
and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth. In such examination we have
assumed (i) the genuineness of all signatures on certificates and documents
other than those signed by the Company and the Stockholders, (ii) the accuracy,
completeness and authenticity of all records and documents submitted to us as
originals, (iii) the conformity to the original of all documents submitted to us
as certified, conformed or photostatic copies, and (iv) the legal capacity of
all natural persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein
have the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of
____________ and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
-76-
<PAGE>
We note that the Transaction Documents contain clauses
selecting Pennsylvania law as governing law. For purposes of this opinion, we
have assumed, with your permission, that such clauses selected _________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of ________________.
Based on the foregoing and subject to the qualifications set
forth herein, it is our opinion that:
16.11.1.The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of ______________ and
has all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
16.11.2.The execution, delivery and performance of the
Transaction Documents have been duly authorized by all requisite corporate
action on the part of the Company.
16.11.3.The Transaction Documents have been duly and validly
executed by the Company and the Stockholders and constitute the legal, valid and
binding obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
16.11.4.Neither the execution and the delivery of the
Transaction Documents, nor the consummation of the transactions contemplated
thereby, violate the [Certificates][Articles] of Incorporation or Bylaws of the
Company.
All of the opinions set forth in this letter are further
subject to: (i) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting or
relating to creditors' rights, (ii) as to any covenants not to compete, the
unenforceability of, or limitation on, certain provisions when such provisions
are found unreasonable in scope, (iii) the requirement that, to the extent that
provisions of the Transaction Documents and any other documents delivered in
connection therewith permit the parties to make certain determinations, such
determinations may be subject to a requirement that they be made on a reasonable
basis and in good faith, (iv) the effect of general principles of equity,
equitable defenses and the discretion of the court regarding the enforcement of
remedies (regardless of whether considered in a proceeding in equity or at law),
and (v) the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume
no obligation to modify, update or supplement this opinion to reflect any facts
or circumstances which may hereafter come to our attention, or any changes in
laws which may hereafter occur.
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<PAGE>
Our opinion, as expressed herein, is solely for the benefit of
the addressees, their successors and assigns, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or be relied upon by any other person.
-78-
<PAGE>
Schedule 6.1(l)
Related Party Agreements
To be delivered at a later date.
-79-
<PAGE>
Schedule 6.2(i)
[____________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), in connection with the transactions contemplated
by that certain [Purchase Agreement] dated as of ______________, 1997 (the
"Purchase Agreement"), among the Purchaser, _________, a _________ corporation
(the "Seller"), and ___________________ ("Stockholders"). This opinion is
furnished to you pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined
the Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the Articles of Incorporation and Bylaws of
the Purchaser. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Purchaser, (ii) the accuracy, completeness and authenticity of all
records and documents submitted to us as originals, (iii) the conformity to the
original of all documents submitted to us as certified, conformed or photostatic
copies, and (iv) the legal capacity of all natural persons who are parties to
the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein
have the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
-80-
<PAGE>
16.11.5.The Purchaser is a corporation duly organized, validly
existing and presently subsisting under the laws of the Commonwealth of
Pennsylvania and has all necessary corporate power and authority to enter into
the Transaction Documents and to consummate the transactions contemplated
thereby.
16.11.6.The execution, delivery and performance of the
Transaction Documents have been duly authorized by all requisite corporate
action on the part of the Purchaser.
16.11.7.The Transaction Documents have been duly and validly
executed by the Purchaser and constitute the legal, valid and binding
obligations of the Purchaser enforceable against it in accordance with their
respective terms.
16.11.8.Neither the execution and the delivery of the
Transaction Documents, nor the consummation of the transactions contemplated
thereby, violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further
subject to: (i) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting or
relating to creditors' rights, (ii) as to any covenants not to compete, the
unenforceability of, or limitation on, certain provisions when such provisions
are found unreasonable in scope, (iii) the requirement that, to the extent that
provisions of the Transaction Documents and any other documents delivered in
connection therewith permit the parties to make certain determinations, such
determinations may be subject to a requirement that they be made on a reasonable
basis and in good faith, (iv) the effect of general principles of equity,
equitable defenses and the discretion of the court regarding the enforcement of
remedies (regardless of whether considered in a proceeding in equity or at law),
and (v) the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume
no obligation to modify, update or supplement this opinion to reflect any facts
or circumstances which may hereafter come to our attention, or any changes in
laws which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of
the addressees, their successors and assigns, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
----------------------------------
A Partner
-81-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Mitchell J. Taube and Ellen F. Rothschild-Taube (collectively
"Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______
(the "Escrow Agent"). The Purchaser, the Seller and the Escrow Agent are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock (valued at the Initial Public Offering Price) or cash, as
the case may be, to the Escrow Account in an amount such that the Combined Value
in the Escrow Account equals the Threshold Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgments, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
<PAGE>
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
Mitchell J. Taube
Ellen F. Rothschild-Taube
5 Schuman Road
Millwood, NY 10546
With a copy to:
Sierchio & Albert, P.C.
41 East 57th Street
New York, NY 10022
Attention: Steve Albert, Esquire
-5-
<PAGE>
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Mitchell J. Taube
-----------------------------------
Ellen F. Rothschild-Taube
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
-7-
<PAGE>
EXECUTION
DOCUNET INC.
STOCK PURCHASE AGREEMENT
FOR THE STOCK OF
TPS MICROGRAPHICS, INC.
<PAGE>
TABLE OF CONTENTS
Page
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PRELIMINARY STATEMENTS.......................................................1
ARTICLE 1 - CERTAIN DEFINITIONS..............................................1
ARTICLE 2 - SALE AND DELIVERY OF SHARES.....................................10
2.1. Agreement to Sell and Purchase Shares...........................10
2.2. Purchase Price..................................................10
2.3. Payment of Purchase Price.......................................14
2.4. Delivery of Shares..............................................14
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER........................16
3.1. Organization; Qualification; Good Standing......................16
3.2. Authorization for Agreement.....................................16
3.3. Capitalization; Subsidiaries and Affiliates.....................17
3.4. Enforceability..................................................18
3.5. Matters Affecting Shares; Title to Shares.......................18
3.6. Predecessor Status; etc.........................................18
3.7. Spin-off by the Company.........................................18
3.8. Legal Proceedings...............................................19
3.9. Compliance with Laws............................................19
3.10. Labor Matters..................................................20
3.11. Employee Benefit Plans.........................................21
3.12. Financial Statements...........................................23
3.13. Distributions..................................................24
3.14. Absence of Undisclosed Liabilities.............................24
3.15. Real Property..................................................24
3.16. Tangible Personal Property.....................................25
3.17. Contracts......................................................27
3.18. Insurance......................................................28
3.19. Proprietary Rights.............................................29
3.20. Environmental Matters..........................................30
3.21. Permits........................................................30
3.22. Regulatory Filings.............................................31
3.23. Taxes and Tax Returns..........................................31
3.24. Investment Portfolio...........................................33
3.25. Affiliate Transactions.........................................33
3.26. Accounts, Power of Attorney....................................33
3.27. Receivables....................................................34
3.28. Officers and Directors.........................................34
-i-
<PAGE>
Page
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3.29. Corporate Records..............................................35
3.30. Broker's or Finders............................................35
3.31. Customers......................................................35
3.32. Investment Company.............................................35
3.33. Absence of Changes.............................................35
3.34. Accuracy and Completeness of Information.......................37
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................38
4.1. Organization....................................................38
4.2. Authorization for Agreement.....................................38
4.3. Enforceability..................................................38
4.4. Litigation......................................................38
4.5. Registration Statement..........................................38
4.6. Broker's or Finders.............................................38
ARTICLE 5 - COVENANTS.......................................................40
5.1. Good Faith......................................................40
5.2. Approvals.......................................................40
5.3. Cooperation; Access to Books and Records........................40
5.4. Duty to Supplement..............................................41
5.5. Information Required For Purchase Financing Transactions........42
5.6. Performance of Conditions.......................................42
5.7. Conduct of Business.............................................42
5.8. Negative Covenants..............................................44
5.9. Exclusive Negotiation...........................................46
5.10. Public Announcements...........................................46
5.11. Amendment of Schedules.........................................46
5.12. Cooperation in Preparation of Registration Statement...........47
5.13. Examination of Final Financial Statement.......................48
5.14. Lock-Up Agreements.............................................48
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").............................49
5.16. Repay Affiliate Loan...........................................49
5.17. ................................................................49
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................50
6.1. Conditions Precedent to the Purchaser's Obligations.............50
6.2. Conditions Precedent to Company's and Seller's Obligations......52
-ii-
<PAGE>
Page
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ARTICLE 7 - CLOSING.........................................................55
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE.....................56
8.1. Confidentiality.................................................56
8.2. Covenant Not To Compete.........................................57
8.3. Specific Enforcement; Extension of Period.......................58
8.4. Disclosure......................................................58
8.5. Interpretation..................................................58
8.6. Seller's Acknowledgment.........................................59
ARTICLE 9 - SURVIVAL........................................................59
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................59
9.2. Intentionally Omitted...........................................59
9.3. Underwriter's Benefit...........................................60
ARTICLE 10 - INDEMNIFICATION................................................60
10.1. Seller's Indemnification.......................................60
10.2. Purchaser's Indemnification....................................61
10.3. Payment; Procedure for Indemnification.........................61
10.4. Equitable Contribution Under the Securities Act................64
10.5. Exclusiveness of Indemnification...............................64
10.6. Limitations on Indemnification.................................64
10.7. Value of DocuNet Common Stock..................................65
ARTICLE 11 - TERMINATION AND REMEDIES.......................................65
11.1. Termination....................................................65
11.2. Effect of Termination..........................................66
ARTICLE 12 - POST-CLOSING COVENANTS.........................................66
12.1. Maintenance and Access to Records..............................66
12.2. Disclosure.....................................................67
12.3. Accounts Receivable............................................67
ARTICLE 13 - TRANSFER RESTRICTIONS..........................................67
13.1. Transfer Restrictions..........................................67
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS................................68
14.1. Compliance with Law............................................68
14.2. Economic Risk; Sophistication..................................69
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ARTICLE 15 - REGISTRATION RIGHTS............................................69
15.1. Piggyback Registration Rights..................................69
15.2. Registration Procedures........................................69
15.3. Underwriting Agreement.........................................70
15.4. Availability of Rule 144.......................................70
15.5. Survival.......................................................70
ARTICLE 16 - MISCELLANEOUS..................................................70
16.1. Notices........................................................70
16.2. No Third Party Beneficiaries...................................72
16.3. Schedules......................................................72
16.4. Expenses.......................................................72
16.5. Further Assurances.............................................72
16.6. Entire Agreement; Amendment....................................72
16.7. Section and Paragraph Titles...................................73
16.8. Binding Effect.................................................73
16.9. Counterparts...................................................73
16.10. Severability..................................................73
16.11. Governing Law.................................................73
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (as amended or supplemented from time
to time, this "Agreement") is hereby made this 9th day of September, 1997 by
and among David Crowder (the "Seller"), TPS Micrographics, Inc. a Virginia
corporation (the "Company"), and DocuNet Inc., a Pennsylvania corporation (the
"Purchaser").
PRELIMINARY STATEMENTS
The Company is engaged in the business of providing document
management services. The Seller owns one hundred percent (100%) of the issued
and outstanding shares of the common stock, par value $10 per share, of the
Company (collectively, the "Shares"). The Seller desires to sell to the
Purchaser and the Purchaser desires to purchase from the Seller all of the
Shares in accordance with the provisions set forth in this Agreement.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accountants' CAWCA Report shall have the meaning set forth in
Section 2.2.
1.2. Accountants' CDA Report shall have the meaning set forth in
Section 2.2.
1.3. Accounts shall have the meaning set forth in Section 3.26.
1.4. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.4A. Adjusted Current Liabilities shall have the meaning set forth
in Section 2.2.
1.5. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
<PAGE>
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.6. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.7. Balance Sheet Date shall mean March 31, 1997.
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. Capitalization Table shall mean the capitalization table set
forth in Section 2.1.
1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.3.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. Closing Adjusted Working Capital Amount shall have the meaning
set forth in Section 2.2.
1.14. Closing Date shall mean the date on which the Closing actually
takes place.
1.15. Closing Debt Amount shall have the meaning set forth in
Section 2.2.
1.16. Closing Balance Sheet shall mean the balance sheet delivered
by the Company to the Purchaser as of the date immediately prior to the Closing
Date in accordance with Section 3.12(d).
1.17. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, par value [$ ]
per share, of the Company.
1.19. Company Balance Sheet shall have the meaning set forth in
Section 3.14.
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1.20. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials, documents, financial reports,
business plans and marketing data that relate to the business, strategies or
operations of the parties hereto or a Potential Founding Company, disclosed or
otherwise made available by such party, such Affiliate or Potential Founding
Company (the "Discloser") to another party, affiliate or Potential Founding
Company (the "Recipient") in connection with the transactions contemplated by
this Agreement, and (ii) each of the terms, conditions and other provisions
contained in this Agreement and in the agreements or documents to be delivered
pursuant to this Agreement. Notwithstanding the preceding sentence, the
definition of Confidential Information shall not include any information that
(i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
1.21. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et. seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.2.
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1.24. DocuNet Common Stock shall mean the common stock, no par value
per share, of DocuNet Inc.
1.25. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.26. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.27. Escrow Amount shall mean the amount of cash and/or the Value
of the DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.28. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.3, substantially in
the form attached hereto as Exhibit A.
1.30. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.31. ERISA Affiliate shall mean any Person that is included with
the Company in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
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1.32. Final Adjusted Working Capital Amount shall have the meaning
set forth in Section 2.2.
1.33. Final Debt Amount shall have the meaning set forth in Section
2.2.
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for the
aforementioned; and shall also mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period unless specific exemption is noted in the financial statements
where a change of accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.42. Initial Public Offering shall mean the initial public offering
of the DocuNet Common Stock registered under Section 5 of the Securities Act.
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1.43. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to the
Business, in each case together with any amendments, modifications and
supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth
in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of the Seller, that knowledge that
the Seller should have if the Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Net Book Value of Assets and Liabilities Adjustment shall have
the meaning set forth in Section 2.2.
1.52. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or
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body whose finding, ruling or holding is legally binding or is enforceable as a
matter of right (in any case, whether preliminary or final).
1.53. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.54. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.55. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.56. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser, or its Affiliates, to
participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.57. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.58A. Pricing Date shall mean the date on which the Pricing takes
place.
1.58. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.59. Purchase Price shall have the meaning set forth in Section
2.2.
1.60. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.61. Purchaser's CAWCA Response Notice shall have the meaning set
forth in Section 2.2.
1.62. Purchaser's CDA Response Notice shall have the meaning set
forth in Section 2.2.
1.63. Real Property shall mean all real property leased to the
Company or any of its Subsidiaries.
1.64. Receivables shall have the meaning set forth in Section 3.27.
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1.65. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.66. Related Companies shall have the meaning set forth in Section
8.2(a).
1.67. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement having the effect of law,
or any Order, to which, in each case, such Person or any of such Person's
properties, operations, business or assets is bound or subject.
1.68. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.69. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.70. Restricted Period shall mean, with respect to the Seller, the
period commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which Seller's employment with the Purchaser, if any,
expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which Seller's
employment with the Purchaser terminates is less than 50% of the Initial Public
Offering Price (as adjusted proportionately for any stock splits, stock
dividends or reverse stock splits).
1.71. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.72. [Intentionally Omitted.]
1.73. Seller's CAWCA Objection shall have the meaning set forth in
Section 2.2.
1.74. Seller's CDA Objection shall have the meaning set forth in
Section 2.2.
1.75. Shares shall have the meaning set forth in the Preliminary
Statements of this Agreement.
1.76. Stock Purchase Price shall have the meaning set forth in
Section 2.3.
1.77. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the
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board of directors or other persons serving similar functions are at the time
directly or indirectly owned by such Person.
1.78. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.79. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.80. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority.
1.81. Transfer Taxes shall mean any applicable documentary, sales,
use, filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.82. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.83. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.84. Working Capital Adjustment shall have the meaning set forth in
Section 2.2.
1.85A. Value shall have the meaning set forth in Section 2.2.
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ARTICLE 2
SALE AND DELIVERY OF SHARES
2.1. Agreement to Sell and Purchase Shares. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Company and the Seller to the
Purchaser in this Agreement, the Seller shall sell to the Purchaser and the
Purchaser shall purchase and receive from the Seller, a total of 25 Shares.
2.2. Purchase Price. As full consideration for the Shares, the
Purchaser shall pay, deliver or cause to be delivered to the Seller, in the
manner set forth in Section 2.3 of this Agreement, the Base Purchase Price (as
hereinafter defined), less the Debt Adjustment (as hereinafter defined), the
Working Capital Adjustment (as hereinafter defined) and the Net Book Value of
Assets and Liabilities Adjustment (as hereinafter defined), on the terms and
conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.3(c) below, the
Purchaser shall pay to the Seller at the Closing Three Million Dollars
($3,000,000), subject to adjustments as set forth herein (the "Base
Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's
Closing Balance Sheet that the Company's Debt (as hereinafter defined)
exceeds $200,000 on the Closing Date (the "Closing Debt Amount"). The
Company's Debt shall mean all of the Company's liabilities, contingent or
otherwise, except Adjusted Current Liabilities, in accordance with GAAP.
The Company's Adjusted Current Liabilities shall mean all of the Company's
liabilities which would be classified as current liabilities in accordance
with GAAP, except current amounts owing: (i) under promissory notes or
lines of credit to lending institutions, (ii) to an employee or an
Affiliate of the Company, or the Seller, (iii) to a lessor under a capital
lease, or (iv) on account of Taxes or earned insurance premiums. Promptly
following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount
by the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CDA Report and the Seller's
calculation of the Closing Debt Amount. Within ten (10) days after receipt
of the Seller's CDA Objection, the Purchaser will notify
the Seller
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whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any,
made by the Seller which the Purchaser continues to dispute (the
"Purchaser's CDA Response Notice"). If the Seller does not object to the
Accountants' CDA Report, or if the Purchaser agrees to accept the Seller's
adjustments to the Accountants' CDA Report, then the adjustment based on
the then final Closing Debt Amount (the "Final Debt Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amounts shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value (as defined below) equal
to such amount. The term "Value" in respect of a share of DocuNet Common
Stock shall mean the lower of the Initial Public Offering Price and the
average closing price of the DocuNet Common Stock during the 20 trading-
day period ending immediately prior to the applicable payment date. If the
Seller objects to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Debt
Amount and the Final Debt Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based
on the amount determined as provided above shall be paid to the Purchaser
in immediately available funds within five (5) business days of the
determination of such amount by such accounting firm. If such amount is
not received by Purchaser within such time period, such amounts shall be
paid from the Escrow Amount pursuant to the Escrow Agreement and Seller
shall be obligated to replenish the Escrow Amount by depositing with the
Escrow Agent upon such payment either cash in a like amount or a number of
shares of DocuNet Common Stock having an aggregate Value equal to such
amount. The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of
such independent accounting firm, and if the parties hereto are unable to
agree upon an independent accounting firm, the Seller and the Purchaser
will request that one be designated by the President of the Philadelphia
office of the American Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be further
reduced, at Closing, by $1.00 for each $1.00 that the Company's Adjusted Working
Capital (as hereinafter defined) is less than $500,000 on the Closing Date (the
"Closing Adjusted Working Capital Amount"). The Company's Adjusted Working
Capital shall mean the Company's current assets, less (i) the portion of trade
receivables that are more than 100 days past the original invoice date, (ii) an
aggregate amount of Inventory exceeding $150,000, (iii) amounts owing under
promissory notes or other amounts due from employees or Affiliates of the
Company, and (iv) the Adjusted Current Liabilities, calculated pursuant to GAAP.
Promptly following the Closing, the Purchaser agrees to cause the Accountants to
verify the amount of the Closing Adjusted Working Capital
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Amount. The Accountants shall issue a report as to their determination of the
Closing Adjusted Working Capital Amount (the "Accountants' CAWCA Report")
promptly after their determination of such amount and the Purchaser shall
deliver the Accountants' CAWCA Report to the Seller no later than sixty (60)
days following the Closing Date. The determination of the Closing Adjusted
Working Capital Amount by the Accountants shall be conclusive and binding upon
the parties hereto unless the Seller shall object to the Accountants' CAWCA
Report within fifteen (15) days following their receipt of the Accountants'
CAWCA Report. The Seller's objection, if any, to the Accountants' CAWCA Report
(the "Seller's CAWCA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CAWCA Report and the Seller's
calculation of the Closing Adjusted Working Capital Amount. Within ten (10) days
after receipt of the Seller's CAWCA Objection, the Purchaser will notify the
Seller whether it accepts or disputes the Seller's adjustments, which
notification shall set forth in reasonable detail the adjustments, if any, made
by the Seller which the Purchaser continues to dispute (the "Purchaser's CAWCA
Response Notice"). If the Seller does not object to the Accountants' CAWCA
Report, or if the Purchaser agrees to accept the Seller's adjustments to the
Accountants' CAWCA Report, then the adjustment based on the then final Closing
Adjusted Working Capital Amount (the "Final Adjusted Working Capital Amount"),
if any, shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not received
by Purchaser within such time period, such amounts shall be paid from the Escrow
Amount pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet Common
Stock having an aggregate Value equal to such amount. If the Seller objects to
the Accountants' CAWCA Report as set forth above and the Purchaser does not
accept the Seller's proposed adjustments, then an independent accounting firm
mutually satisfactory to the Seller and the Purchaser shall be engaged to
determine the amount of the Closing Adjusted Working Capital Amount and the
Final Adjusted Working Capital Amount, based upon the calculations of the
independent accountants, and any adjustments of Base Purchase Price based on the
amount determined as provided above shall be paid to the Purchaser in
immediately available funds within five (5) business days of the determination
of such amount by such accounting firm. If such amount is not received by Seller
within such time period, such amounts shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to replenish the
Escrow Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. The parties hereto agree to cooperate
fully with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Seller shall each bear one-half of all of the
costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Seller and
Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book
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Value of the Company's Assets and Liabilities, as reflected on the Closing
Balance Sheet, is less than $800,000 on the Closing Date (the "Closing Net
Book Value Amount"). The Net Book Value of the Company's Assets and
Liabilities shall mean the tangible assets of the Company less the
Adjusted Current Liabilities, calculated pursuant to GAAP. Promptly
following the Closing, the Purchaser agrees to cause the Accountants to
verify the amount of the Closing Net Book Value Amount. The Accountants
shall issue a report as to their determination of the Closing Net Book
Value Amount (the "Accountants' CNBVA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CNBVA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Net Book
Value Amount by the Accountants shall be conclusive and binding upon the
parties hereto unless the Seller shall object to the Accountants' CNBVA
Report within fifteen (15) days following their receipt of the
Accountants' CNBVA Report. The Seller's objection, if any, to the
Accountants' CNBVA Report (the "Seller's CNBVA Objection") shall set forth
in reasonable detail the Seller's objection(s) to the Accountants' CNBVA
Report and the Seller's calculation of the Closing Net Book Value Amount.
Within ten (10) days after receipt of the Seller's CNBVA Objection, the
Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, which notification shall set forth in reasonable
detail the adjustments, if any, made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CNBVA Response Notice"). If the
Seller does not object to the Accountants' CNBVA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants'
CNBVA Report, then the adjustment based on the then final Closing Net Book
Value Amount (the "Final Net Book Value Amount"), if any, shall be paid by
Seller to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, it shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. If the Seller
objects to the Accountants' CNBVA Report as set forth above and the
Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Net Book
Value Amount and the Final Net Book Value Amount, based upon the
calculations of the independent accountants, and any adjustments of Base
Purchase Price based on the amount determined as provided above shall be
paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, it
shall be paid from the Escrow Amount pursuant to the Escrow Agreement and
Seller shall be obligated to replenish the Escrow Amount by depositing
with the Escrow Agent upon such payment either cash in a like amount or a
number of shares of DocuNet Common Stock having an aggregate Value equal
to such amount. The parties hereto agree to cooperate fully with such
independent accountants at their own cost and expense, including, but not
limited to, providing such independent accountants with access to, and
copies of, all books and records that they shall reasonably request. The
Purchaser
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and the Seller shall each bear one-half of all of the costs and expenses
of such independent accounting firm, and if the parties hereto are unable
to agree upon an independent accounting firm, the Seller and Purchaser
will request that one be designated by the President of the Philadelphia
office of the American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Asset and Liabilities
Adjustment, Seller shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
2.3. Payment of Purchase Price.
(a) Stock Purchase Price. Subject to Section 2.3(c), a number
of shares of DocuNet Common Stock, equal to (i) $540,000 (the "Stock Purchase
Price") divided by (ii) the Initial Public Offering Price, shall be issued at
Closing to Seller.
(b) Cash Purchase Price. In addition an amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) the reductions,
if any, to be made at Closing pursuant to Sections 2.2(b), 2.2(c), 2.2(d) and
2.2(e), shall be payable at the Closing in cash to the Seller ("Cash Purchase
Price"). The specific amount of the Cash Purchase Price shall be payable to the
Seller by a check payable to the order of the Seller, or a wire transfer to an
account to be designated by Seller in writing not less than three (3) business
days prior to the Closing, such method of payment to be determined in the sole
discretion of Purchaser.
(c) Delivery into Escrow. Notwithstanding the foregoing, a
number of shares of DocuNet Common Stock equal to (i) $150,000 divided by (ii)
the Initial Public Offering Price, shall be delivered at Closing to the Escrow
Agent pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount
shall be available to fund (but shall not be the sole source of funding) any
obligations of Seller under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash plus the value of the shares
of DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount falls below $150,000 (the "Threshold Value") due to payment from
the Escrow Amount pursuant to Section 2.2 hereof, the Seller shall contribute
additional cash or shares of DocuNet Common Stock (valued at the Initial Public
Offering Price) to the Escrow Account in an amount necessary so that the amount
of cash plus the value of the shares of DocuNet Common Stock (valued at the
Initial Public Offering Price) in the Escrow Account would equal the Threshold
Value.
2.4. Delivery of Shares. At the Closing, the Seller shall deliver to
the Purchaser a certificate or certificates, registered in the name of the
Seller, properly endorsed and with all required transfer stamps, representing
the Shares being purchased by the Purchaser from the Seller. At the Closing, the
Purchaser shall deliver to the Seller a certificate or certificates, registered
in the name of the Seller, representing the Stock Purchase Price (less the
Escrow
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Amount) and shall deliver to the Escrow Agent, a certificate or certificates
registered in the name of the Seller, representing the Escrow Amount.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Schedule delivered by the
Company and Seller to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Seller hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are
corporations duly incorporated, validly existing and in good standing under the
laws of the state of their respective incorporation or organization, (ii) have
the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of the Company or the Seller, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or seeking
to revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule. Except
as set forth in the Disclosure Schedule, the minute books of the Company and
each of its Subsidiaries, as heretofore made available to the Purchaser, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company: (i) are within the Company's corporate
powers and duly authorized by all necessary corporate and shareholder action on
the part of the Company and (ii) do not (A) require any action by or in respect
of, or filing with, any Governmental or Regulatory Authority, (B) contravene,
violate or constitute, with or without the passage of time or the giving of
notice or both, a breach or default under, any Requirement of Law applicable to
the Company or any of its
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properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) Individual Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller (i) are within the powers and authority of the
Seller and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company
consists of 200 shares of a single class of common stock, having par value $10
per share, of which 25 shares are issued and outstanding. All of the Shares are
owned by the Seller. The Company does not have any other authorized class or
classes of securities of any kind, whether debt or equity. All of the Shares are
validly issued, fully paid and non-assessable and have not been issued in
violation of applicable securities laws or of any preemptive rights or other
rights to subscribe for, purchase or otherwise acquire securities. The Company
holds 75 shares of its capital stock in its treasury, and 100 shares of the
Company's capital stock are reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule
is a complete and accurate list of all the Company's Subsidiaries, showing the
percentage of Company's ownership or control of, as well as the identity of any
other owners and the percentage of each such other owner's ownership of, the
outstanding capital stock of, or other ownership interest in, each Subsidiary.
The authorized capital stock of each Subsidiary currently consists of a single
class of common stock, the number of authorized shares and par value of which
are set forth opposite each such Subsidiary's name in the Disclosure Schedule.
No Subsidiary has any other authorized class or classes of securities of any
kind, whether debt or equity. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable, is free of
any Adverse Claims, and has not been issued in violation of applicable
securities laws or of any preemptive rights or other rights to subscribe for,
purchase or otherwise acquire securities. No Subsidiary holds any shares of its
capital stock in its treasury or otherwise, and no shares of any Subsidiary's
capital stock are reserved by such Subsidiary for issuance. Except as set forth
in the Disclosure Schedule, neither the Company nor any Subsidiary owns or
controls, directly or indirectly, any debt, equity or other financial or
ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a
complete and accurate list of all Persons (other than the Seller or any of the
Persons described in the first
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sentence of Section 1.3, subpart (iii)) that are Affiliates of the Company,
detailing the nature of the relationship between the Company and each such
Person that causes such Person to be an Affiliate of the Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has acquired, or agreed to acquire, whether
by merger or consolidation, by purchase of equity interests or assets, or
otherwise, any business or any other Person, or otherwise acquired, or agreed to
acquire, any assets that are material, either individually or in the aggregate,
to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of the Company and the Seller, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. The Seller has full
legal and beneficial title to his Shares and has full power, right and authority
to sell and deliver such Shares in accordance with this Agreement, free of any
Adverse Claims. There are no existing agreements, subscriptions, options,
warrants, calls, commitments, conversion rights or other rights of any character
to purchase or otherwise acquire from the Seller at any time, or upon the
happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is
a listing of all names of all predecessor companies for the past five years of
the Company, including the names of any entities from whom the Company
previously acquired material assets outside the ordinary course of business.
Except as disclosed in the Disclosure Schedule, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
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<PAGE>
3.8. Legal Proceedings.
(a) Seller. There is no Legal Proceeding or Order pending
against, or to the knowledge of the Seller, threatened against or affecting, the
Seller or any of his properties or otherwise, that could adversely affect or
restrict the ability of the Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
the validity of this Agreement. The Seller has no knowledge of any fact, event,
condition or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against the
Seller that could adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule
completely and accurately lists and fully describes all Orders outstanding
against the Company or any of its Subsidiaries. In addition, the Disclosure
Schedule completely and accurately lists and fully describes each pending, and,
to the Company's or the Seller's knowledge, each threatened, Legal Proceeding
that has been commenced, brought or asserted by (i) the Company or any of its
Subsidiaries, as the case may be, against any Person or (ii) any Person against
the Company or any of its Subsidiaries, as the case may be. Neither the Company
nor the Seller has knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries
is operating in compliance with all Requirements of Law applicable to it or any
of its respective properties or to which the Company or any of its Subsidiaries
or any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, any of their respective Affiliates (other than a Person who
is an Affiliate solely by virtue of clause (iii) of the definition thereof), or
any of such Affiliates' respective Affiliates (other than a Person who is an
Affiliate solely by virtue of clause (iii) of the definition thereof) has made
any illegal kickback, bribe, gift or political contribution to or on behalf of
any customer, or to any officer, director, employee of any customer, or to any
other Person.
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3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Company or any
of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser true and complete copies of all such Contracts, each of which is
included in the Disclosure Schedule. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. To the
knowledge of the Company and the Seller, no individuals retained by the Company
or any of its Subsidiaries as an independent contractor or consultant would be
reclassified by the IRS, the U.S. Department of Labor or any other Governmental
or Regulatory Authority as an employee of the Company or of any of its
Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the Seller
have delivered or caused to be delivered to the Purchaser true and complete
copies of such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the employees of the Company or any of
its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment Opportunity
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Commission against the Company or any of its Subsidiaries with respect to any
labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Company and the Seller have delivered or caused to be
delivered to the Purchaser true and complete copies of (i) the plan document,
trust agreement and any other document governing such Employee Benefit Plan,
(ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Company has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan"
covering employees of the Company or any of its Subsidiaries within the meaning
of Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer
Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Company or any of its
Subsidiaries with respect thereto.
(f) The Company has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of fiduciary
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duty with respect to any of the Employee Benefit Plans that could subject the
Purchaser, the Company or any of their respective Subsidiaries to any tax,
penalty or other liability under the Code or ERISA.
(h) Except as set forth on the Disclosure Schedule, no
Employee Benefit Plan has been terminated within the past sixty (60) months. Any
plan that has been so terminated (the "Terminated Plan") was determined by the
IRS to be a "qualified" plan under Section 401(a) of the Code, and there have
been no events or conditions that would cause the Terminated Plan not to be a
qualified plan in form or operation. At all times, the liabilities of the
Terminated Plan have not exceeded the assets of the Terminated Plan. There have
been no claims made or threatened by any person against or with respect to the
Plan. All costs associated with termination of the Terminated Plan and
distribution of plan assets have been paid or disclosed in writing to Purchaser.
There are no Legal Proceedings or claims with respect to any of the Employee
Benefit Plans (other than routine claims for benefits from eligible participants
or beneficiaries in the normal and ordinary course of business) pending or, to
the knowledge of the Company or the Seller threatened, and to the knowledge of
the Company or the Seller, there are no facts, events, conditions or
circumstances that could give rise to any such Legal Proceeding or claim (other
than routine claims for benefits from eligible participants or beneficiaries in
the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Company or
any of its Subsidiaries who are on leave of absence under either of the
Uniformed Services Employment or Reemployment Rights Act or the Family Medical
Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of
their respective officers, directors or significant employees (as such term is
defined in Regulation S-K of the Securities Act), or any other Person has made
any statement or communication or provided any materials to any employee or
former employee of the Company of any of its Subsidiaries that provides for or
could be construed as a contract, agreement or commitment by the Purchaser or
any of its Affiliates to provide for any pension, welfare, or other employee
benefit or fringe benefit plan or arrangement to any such employee or former
employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in any increase
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in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be
delivered to the Purchaser a copy of the Company's consolidated balance sheets
as of March 31, 1996 and 1997 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Company and the Seller have also delivered or caused
to be delivered to the Purchaser a true and complete copy of the Company's
unaudited interim financial statements consisting of a consolidated balance
sheet as of June 30, 1997 and the related statements of operations,
shareholders' equity and cash flows for the three-month period then ended
(collectively, the "Interim Financial Statements"). A true and complete copy of
Interim Financial Statements is attached to the Disclosure Schedule. The Interim
Financial Statements are in accordance with the books and records of the Company
and its Subsidiaries, all of which have been maintained in accordance with good
business practice and in the normal and ordinary course of business, were
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments), and fairly
present the financial position of the Company and its Subsidiaries as of the
date thereof and the results of its operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(c) Since the Balance Sheet Date, (i) the Company and each of
its Subsidiaries have operated, and the Seller has caused the Company and each
of its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000, except as set forth in the Disclosure Schedule; and (v) neither the
Company nor any of its Subsidiaries has made any gift or contribution
(charitable or otherwise) to any Person (other than gifts made since the Balance
Sheet Date which, in the aggregate, do not exceed $5,000).
(d) On the Closing Date, the Company and the Seller will also
deliver or caused to be delivered to the Purchaser a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and
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its Subsidiaries, all of which have been maintained in accordance with good
business practice and in the normal and ordinary course of business, and will be
prepared in accordance with GAAP applied on a consistent basis (except for the
absence of notes and subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at March 31, 1997 including, without limitation,
all notes thereto, prepared in accordance with GAAP (the "Company Balance
Sheet"), neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise, except for liabilities or obligations that were incurred consistently
with past business practice in or as a result of the normal and ordinary course
of business since March 31, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any
real property. The Disclosure Schedule contains a complete and accurate list of
all the locations of all Real Property leased by the Company or any of the
Subsidiaries and the name and address of the lessor and, if a Person different
than such lessor, the manager thereof. The Company and the Seller have delivered
or caused to be delivered to the Purchaser true and complete copies of all
Contracts relating to Real Property (including, without limitation, all leases
and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Real Property, (iii) is free of all Adverse
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Claims, and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(c) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and
there has been no damage, destruction or loss to any of the Real Property that
remains unremedied to date (ordinary wear and tear excepted) and (ii) suitable
to carry out each of the Company's and its Subsidiaries' respective Business as
conducted thereon.
(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or the Seller, threatened, against any of the Real
Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any Real Property, the lease of Real
Property or acquisition of new businesses, with respect to which the Company or
any Subsidiary has made any expenditure in the two-years prior to the date of
this Agreement in excess of $10,000, or which if pursued by the Company would
require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases
all such properties as are presently used in the conduct of their respective
Businesses and operations. The Company and the Seller have delivered or caused
to be delivered to the Purchaser true and complete copies of all material
Contracts (including, without limitation, leases and service,
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supply, maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred or suffered any material physical damage,
destruction, theft or loss of their respective tangible items of material
personal property, whether owned or leased. All material Tangible Personal
Property including, without limitation, all computer hardware and software
(including all operating and application systems), is in good working order,
condition and repair and suitable to carry out each of the Company's and its
Subsidiaries' respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Company or
such Subsidiary, as the case may be, peaceful, undisturbed and exclusive
possession of the applicable Tangible Personal Property, (iii) is free of all
Adverse Claims and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Seller,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
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3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which either the Company or
any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of
limiting either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of
either Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the
Company or any of its Subsidiaries has created, incurred, assumed or guaranteed
any indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within
one of the foregoing categories described in (i) through (vi) above or (z) is
not otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act to be
attached as an exhibit to any registration statement on Form S-1 filed by either
the Company or any of its Subsidiaries under the Act if the Company were to file
such a registration statement under the Act on the date on which this
representation and warranty is made.
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(b) Each material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) is valid and binding on each of the parties thereto in
accordance with its terms, (ii) was made in the normal and ordinary course of
the Business and (iii) contains no provision or covenant prohibiting or limiting
the ability of the Company or any Subsidiary to operate their respective
Businesses.
(c) No party to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) has provided any notice to the Company or any of
its Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject is required in connection with the transactions contemplated by
this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete
and accurate list of all insurance policies held by the Company and by each of
its Subsidiaries identifying all of the following for each such policy: (i) the
type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the
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Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and
accurate list and full description of each item of the Company's and each of its
Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict with the rights of any
other Person; provided that to the extent the foregoing relates to Intellectual
Property used but not owned by the Company, such representation and warranty is
given solely to the knowledge of the Company and the Seller.
(b) There is neither pending, nor to the Company's or the
Seller's knowledge, threatened, any Legal Proceeding against the Company or any
of its Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's or the Seller's
knowledge, is there a basis for such a notice. To the Company's and the Seller's
knowledge, no Person is infringing the Company's or any of its Subsidiaries
rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any obligation to compensate
others for the use of any Intellectual Property. In addition, except as
otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
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3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Seller, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Seller, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Company and the Seller, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Seller, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their
respective employees, independent contractors and agents has obtained and holds
in full force, and the Disclosure Schedule sets forth a complete and accurate
list of, all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is
no Order outstanding against the Company or any of its Subsidiaries, nor is
there now pending, or to the
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Company's or the Seller's knowledge, threatened, any Legal Proceeding, which
could adversely affect any Permit required to be obtained and maintained by the
Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries
has filed all registrations, filings, reports, or submissions that are required
by any Requirement of Law. All such filings were made in compliance with
applicable Requirements of Law when filed and no deficiencies have been asserted
by any Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and
timely filed all Tax Returns. Each such Tax Return is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Return. All Taxes not yet due and payable
have been withheld or reserved for or, to the extent that they relate to periods
on or prior to the date of the Company Balance Sheet, are reflected as a
liability thereon.
(b) The Company and each of its Subsidiaries has complied with
all applicable Requirements of Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Requirements
of Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries that has not been resolved and
paid in full or fully reserved for and identified on the Company Balance Sheet
and, to the knowledge of the Company and the Seller, no deficiency for any Taxes
has been proposed that has not been fully reserved for and identified on the
Company Balance Sheet. Neither the Company nor any of its Subsidiaries has
received any outstanding and unresolved notices from the IRS or any other Taxing
Authority of any proposed examination or of any proposed change in reported
information relating to the Company or any such Subsidiary. Except as set forth
in the Disclosure Schedule (which sets forth the nature of the proceeding, the
type of Tax Return, the deficiencies proposed or assessed and the amount
thereof, and the taxable year in question), no Legal Proceeding or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or
any of its Subsidiaries regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge
of the Company and the Seller, is any request for any such waiver or consent
pending.
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(e) There are no liens or encumbrances of any kind for Taxes
upon any assets or properties of the Company or any of its Subsidiaries other
than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party
to any Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed
to make, nor is any of them required to make, any adjustment under Section
481(a) of the Code for any period ending after the Closing Date by reason of a
change in accounting method or otherwise and neither the Company nor any of its
Subsidiaries has any knowledge that the IRS has proposed such adjustment or
change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party
to any venture, partnership, Contract or arrangement under which it could be
treated as a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a
permanent establishment located in any tax jurisdiction other than the United
States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Other than in respect of a period for which a Tax is not
yet due, no state of facts exists or has existed that would constitute grounds
for the assessment of any Tax liability with respect to a period that has not
been audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or
any of its Subsidiaries with respect to any matter relating to Taxes that is
currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries is a party
to any Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
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(p) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code ss.338 (or any predecessory
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure
Schedule attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule,
since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other
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miscellaneous receivables owing to the Company or any of its Subsidiaries (the
"Receivables"). All Receivables currently owing to the Company or any of its
Subsidiaries are completely and accurately listed and aged in the Disclosure
Schedule attached to this Agreement. The Receivables arose from bona fide
transactions in the normal and ordinary course of business and reflect credit
terms consistent with past practice. Except as set forth in the Disclosure
Schedule, the Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Company's and each of its Subsidiaries' respective directors,
executive officers, and any of their respective significant employees (as such
term is defined in Regulation S-K under the Securities Act) and the compensation
payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to
this Agreement, the Seller or any of the current directors, current executive
officers or current significant employees (as such term is defined in Section
3.28(a)) of either the Company or any of its Subsidiaries has, within the past
five (5) years:
(i) (x) filed or had filed against him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar law, or (y)
had a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
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(v) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Broker's or Finders. Except as set forth in the Disclosure
Schedule, neither the Company, any of its Subsidiaries nor the Seller has
engaged the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser for any commission, fee or
other compensation as a finder or broker thereof on account of any action on the
part of the Company, its Subsidiaries or the Seller. Without degradation to any
of the foregoing, the Company, its Subsidiaries and the Seller are solely
responsible for the payment of the commissions, fees and other compensation
payable to the Person having any such right, interest or claim on account of any
action on the part of the Company, its Subsidiaries or the Seller, including,
without limitation, the Persons identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar value
of purchases) of the Company and each of its Subsidiaries and details the
Company's and each such Subsidiary's total revenue attributable to each such
customer for the 1994, 1995 and 1996 fiscal years and the current fiscal year to
date. Except as set forth in the Disclosure Schedule, there has been no adverse
change in the Company's or any of its Subsidiaries' business relationship with
any such customer that, in the aggregate, would have a Material Adverse Effect
upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as
set forth on Schedule 3.33 there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
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(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
it to any of its respective officers, directors, stockholders,
employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that
would have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any
agreement to sell or transfer, any material assets, property
or rights of any of its respective business to any person,
including, without limitation, the Seller and his affiliates,
other than distributions, sales or transfers in the ordinary
course of business to persons other than the Seller and his
affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Seller or any affiliate thereof, other than
the negotiation and adjustment of bills in the course of good
faith disputes with customers in a manner consistent with past
practice;
(viii)any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
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(xi) any transaction by them outside the ordinary course
of their respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of
the Company and the Seller, all information furnished, to be furnished or caused
to be furnished to the Purchaser by the Company or the Seller with respect to
the Seller, the Company or any of its Subsidiaries for the purposes of or in
connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Seller and the Company
as follows:
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser (i) are within the Purchaser's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental body, agency or official, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or a default under,
any Requirement of Law applicable to the Purchaser or any of its properties or
any Contract to which the Purchaser or any of its properties is bound, except
filings and approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser, threatened against or affecting,
the Purchaser or any of its properties or otherwise that could adversely affect
or restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance with the requirements of the
Securities Act and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein; provided, however,
that insofar as the foregoing relates to information in the Registration
Statement that relates to the Company, the Seller or any of the other Founding
Companies, such representation and warranty shall be deemed based on the
knowledge of the Purchaser.
4.6. Broker's or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person
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has or will have, as a result of the consummation of the transaction
contemplated by this Agreement, any right, interest or valid claim against or
upon the Seller for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Purchaser. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser.
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ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Seller and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Seller and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company or the Purchaser to
amend the provisions of this Agreement, to pay or cause any of their respective
Affiliates to pay any money, or to provide or cause any of their respective
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company and the Seller will and will cause the Company
and each of its Subsidiaries to, cooperate with the Purchaser in connection with
the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Company and the Seller
will and will cause the Company and each of its Subsidiaries to, afford to the
Purchaser, its agents, legal advisors, accountants, auditors, commercial and
investment banking advisors and other authorized representatives, agents and
advisors reasonable access to all of the properties and books and records of the
Company or any of its Subsidiaries (including those in the possession or control
or their accountants, attorneys and any other third party), as the case may be,
for the purpose of permitting the Purchaser to make such investigation and
examination of the business and properties of the Company and any of its
Subsidiaries as the Purchaser, in its discretion, shall deem necessary,
appropriate or desirable. Any such investigation, access and examination shall
be conducted upon reasonable prior notice under the circumstances. The Company
and the Seller will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Purchaser's sole benefit, and shall not (i) impair or reduce
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any representation or warranty made by the Company or the Seller in this
Agreement, (ii) relieve the Company or the Seller from its or his obligations
with respect to such representations and warranties (including, without
limitation, the Seller's obligations under Article 10), or (iii) mitigate the
Company's and the Seller's obligations to otherwise disclose all material facts
to the Purchaser with respect to the Company, each of its Subsidiaries and their
respective Businesses.
(b) The Purchaser will cooperate with the Company and Seller
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, Seller and their agents, legal advisors
and accountants reasonable access to all of the properties and books and records
of the Purchaser (including those in the possession or control or their
accountants, attorneys and any other third party), as the case may be, for the
purpose of permitting the Company and Seller to make such investigation and
examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and Seller, in their discretion, shall deem
necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Company and Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and Seller's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Purchaser in this
Agreement, (ii) relieve the Purchaser from its obligations with respect to such
representations and warranties (including, without limitation, the Purchaser's
obligations under Article 10), or (iii) mitigate the Purchaser's obligations to
otherwise disclose all material facts to the Company and the Seller with respect
to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of
the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries, the Seller shall, and shall cause the Company or the applicable
Subsidiary to, as the case may be, notify the Purchaser of such development,
event, circumstance or condition. In the event that the Purchaser receives such
notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and Seller the
opportunity to cure the matter giving rise to the termination right (but for no
longer than five days following the date Purchaser notifies the Company or
Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
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(b) Promptly upon the Company's or Seller's discovery of any
fact, event, condition or circumstance that causes any representation or
warranty made by the Company or the Seller to the Purchaser in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Seller shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The
Company shall and shall cause its Subsidiaries to, and the Seller shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser with the following information:
(a) the Company's audited consolidated balance sheet as of
March 31, 1997 and the related statements of operations, shareholders' equity
and cash flows for the year then ended, together with all proper exhibits,
schedules and notes thereto, audited by Arthur Andersen LLP, all of which shall
be prepared in accordance with GAAP consistently applied with prior periods and
shall present fairly the financial position of the Company and its Subsidiaries
for the year then ended and the results of operations and changes in
shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, the Seller and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Seller and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Company shall, and the
Seller shall cause the Company
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and each of its Subsidiaries to, operate their respective Businesses in the
normal and ordinary course in a manner consistent with past practice including,
without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's
Business in substantially the same manner as it has heretofore and not introduce
any material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's
corporate existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to
preserve intact the Company's and each such Subsidiary's business relationships
with its agents, customers, employees, creditors and others with whom the
Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's
assets, properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to the
profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed
against the Company or any such Subsidiary, as the case may be, before any
penalty or interest accrues on any unpaid portion thereof and to file all Tax
Returns when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by proper
proceedings and for which appropriate reserves as may be required by GAAP have
been established;
(g) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to
which the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which consent
shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with
past practices.
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5.8. Negative Covenants. During the period from and after the date
of this Agreement until the Closing Date, the Company shall not, and the Seller
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the
Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) except as set forth on the Disclosure Schedule, grant any
salary increase or permit any advance to any director, officer or employee or
enter into any new, or amend or otherwise alter, any Employee Benefit Plan, or
any employment or consulting Contract, or any Contract providing for the payment
of severance;
(d) other than in the ordinary course of business, make any
borrowings or otherwise create, incur, assume or guaranty any indebtedness
(except for the endorsement of negotiable instruments for deposit or collection
or similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or indebtedness;
provided that no borrowings may be made without Purchaser's consent which
include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance
on any of the Company's or any of its Subsidiaries' assets or the incurrence by
the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of Ten Thousand
Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem,
subdivide, combine, change or purchase any of the Company's or any of its
Subsidiary's shares, notes or other securities, whether debt or equity, or make
any Contract or commitments to do so;
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(i) enter into any transaction with any Affiliate of the
Seller, the Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate;
(j) declare or pay any dividend, distribution or payment in
respect of, or make any payment on account of, or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any of the Company's or any of its Subsidiaries'
securities, whether debt or equity, and whether in cash or property or in
obligations of the Company or any of its Subsidiaries, or (ii) pay any royalty
or management fee;
(k) grant or issue any subscription, warrant, option or other
right to acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, hypothecate, transfer or otherwise dispose of, any of the Company's or
any of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended March 31, 1997, except, in either
case, as may be required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any
capital expenditures or capital additions or betterments in excess of an
aggregate of $10,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Employee Benefit Plan. As used
in this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA;
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(q) enter into any transaction or conduct any operations not
in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to do any
of the foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to, advise the Purchaser promptly of their or its receipt of any written offer
or written proposal concerning the Shares, the Company, any of its Subsidiaries,
any part of their respective Businesses or any material interest therein, and
the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Seller shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Seller (other than
in the Registration Statement) Purchaser will endeavor to consult with Seller to
the extent time permits. Nothing contained herein shall restrict the ability of
the Company or Seller from contacting a third party in order to obtain a Consent
to the transactions contemplated hereby. Notwithstanding the foregoing, the
Company will not be prohibited from obtaining the consents required pursuant to
this Agreement.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedules
hereto with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Schedules, provided that no amendment or
supplement to the Disclosure Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would
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have a Material Adverse Effect shall be effective unless the Purchaser consents
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 5.11.
Except as otherwise provided herein, no amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Seller shall furnish or cause to be
furnished to the Purchaser and the underwriters of the Initial Public Offering
(the "Underwriters") all of the information concerning the Company or the Seller
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Company and the Seller agree promptly to advise the Purchaser
if at any time during the period in which a prospectus relating to the Purchaser
Financing Transaction is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the Seller
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy. The Purchaser agrees to use its
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Company with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as reasonably practicable prior to such filing (it being understood
that neither the Company nor the Seller has any obligation to review the same
other than with respect to information regarding the Company or the Seller) and
to diligently seek to cause the Registration Statement to be declared effective
and the Initial Public Offering to be completed. The Purchaser agrees that
neither the Company nor the Seller shall have any responsibility for pro forma
adjustments that may be made to the Financial Statements.
(b) The Company and the Seller acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all; (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all; and (iii) the decision of
the Seller to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will
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be made independent of, and without reliance upon, any statements, opinions or
other communications of, or due diligence investigation which have been or will
be made or performed by any prospective Underwriter, relative to the Purchaser
or the prospective Initial Public Offering. The Seller acknowledges that shares
of DocuNet Common Stock received as a part of the Purchase Price, if any, will
not be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall
provide to Purchaser prior to the Closing Date unaudited consolidated balance
sheets of the Company for each month and fiscal quarter end between the date of
this Agreement and the Closing Date, and unaudited consolidated statements of
income, cash flows and retained earnings of the Company for such subsequent
months and fiscal quarters. In addition, the Company shall prepare and deliver
to Purchaser at Closing the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein), shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year end adjustments). Such financial
statements shall present fairly the results of operations of the Subsidiaries
for the periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.12(a) have been reviewed by Arthur Andersen
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby
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authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act; (ii) such compliance by the Seller
and the Company shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement, and such
compliance by Purchaser shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement; and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made. If filings under the Hart-Scott
Act are required, the costs and expenses thereof (including filing fees) shall
be borne by Purchaser. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott Act, if applicable.
5.16. Repay Affiliate Loan. At or prior to Closing, all amounts
outstanding to Affiliates of the Company shall be repaid in full, including any
unpaid interest.
5.17. TPS Loan. At or prior to Closing, Seller shall assume all
amounts outstanding from the Company to TPS, Inc. and all liens and encumbrances
related to such debt shall be released, other than the account listed in the
Company's Balance Sheet and described as "Due to TPS Amount."
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ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser's Obligations. The
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and the Seller shall
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Company's and the Seller's representations and warranties contained
in this Agreement are true and correct on and as of the Closing Date as though
such representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and
the Seller shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and the Seller, as the case may be, at or
prior to the Closing Date. The Company and the Seller shall deliver to the
Purchaser a certificate, dated the Closing Date, certifying that the Company and
the Seller have fully performed and complied with all the duties, obligations
and conditions required by this Agreement to be performed and complied in all
material respects with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and the Seller shall
have delivered to the Purchaser all documents, certificates, instruments and
items (including, without limitation, certificates representing the Shares)
required to be delivered by him or it at or prior to the Closing Date pursuant
to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
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(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except for:
(i) Debt for which an adjustment to the Base Purchase Price has been made under
Section 2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any of the Shares or of any securities of
the Company or any of the Company's Subsidiaries; (ii) imposing or seeking to
impose limitations on the ability of the Purchaser to combine and operate the
business, operations and assets of the Company or any of the Company's
Subsidiaries with the Purchaser's business, operations and assets; (iii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Purchaser or any
of the Purchaser's directors, officers or employees; (iv) requiring or seeking
to require divestiture by the Purchaser of all or any material portion of the
business, assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the sale of the Shares, including as applicable, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the
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Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the Company
is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a Material Adverse Effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of existence certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Seller. Petty Livingston Dawson
Devening & Richards P.C., counsel for the Company and the Seller, shall have
delivered to the Purchaser their favorable opinion, dated the Closing Date, as
to the matters covered in Schedule 6.1(k). In rendering such opinion, counsel
may rely to the extent recited therein on certificates of public officials and
of officers of the Seller as to matters of fact, and as to any matter which
involves other than federal or Virginia law, such counsel may rely upon the
opinion of local counsel reasonably satisfactory to the Purchaser and its
counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Company and its Affiliates, the Seller or his Affiliates,
other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment agreement (collectively,
the "Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the
Seller shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Seller or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. The Seller and the Company shall have
executed the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Seller of, prior to or at the Closing, each and every of the following
conditions precedent:
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(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and warranties
had been made on and as of the Closing Date, except for those representations
and warranties that by their terms relate to an earlier date, which
representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Purchaser shall deliver to the
Seller a certificate of the Purchaser, executed by a duly authorized officer of
the Purchaser and dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by the Purchaser at or prior to the Closing Date. The Purchaser shall
deliver to the Seller a certificate, dated the Closing Date, certifying the
Purchaser has fully performed and complied in all material respects with all the
duties, obligations and conditions required by this Agreement to be performed
and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Seller all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to sell any of the Shares; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
the Seller; or (iii) restraining, enjoining or prohibiting or seeking to
restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into the Employment Agreements with each of the persons listed on Schedule
6.1(m) substantially in the form of Exhibit C attached hereto.
(g) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Purchaser's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
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articles or certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy of
the Purchaser's bylaws as in effect on the date thereof and at all times since
the adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the Purchasers's board of directors
authorizing the actions taken in connection with the purchase of the Shares,
including as applicable, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the Purchaser and including specimen signatures
on such certificate or certificates of such officers executing this Agreement on
behalf of the Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton &
Scheetz LLP, counsel for Purchaser, shall have delivered to the Company and
Seller their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to effect the sale of the Shares
referred to herein, provided, that such actions shall not include the actual
completion of the sale and purchase of the Shares and the delivery of the shares
of DocuNet Common Stock and the check(s) (or wire transfers) referred to in
Section 2 hereof and payment of consideration for the Shares, each of which
actions shall only be taken upon the Closing Date as herein provided. In the
event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Company advise Purchaser are required by
applicable laws of the State of Virginia in order to rescind any actions taken
in furtherance of the sale of the Shares as described in this Section. The
taking of the actions described above shall take place on the Pricing Date at
the offices of Pepper, Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and
Arch Streets, Philadelphia, PA 19103. On the Closing Date (i) certificates,
registered in the name of the Seller, properly endorsed and with all required
transfer stamps, representing all of the Shares being purchased by the Purchaser
under this Agreement shall be delivered to the Purchaser, (ii) all transactions
contemplated by this Agreement, including the delivery of shares of DocuNet
Common Stock to the Seller, the delivery of the shares of DocuNet Common Stock
to the Escrow Agent on account of the Escrow Agreement, the delivery of a
certified check or checks or a wire transfer in an amount equal to the cash
portion of the consideration which the Seller shall be entitled to receive
pursuant to Section 2 hereof, and the delivery of the documents contemplated to
be delivered by purchaser and Seller pursuant to Section 6 hereof, and (iii) the
closing with respect to the Initial Public Offering shall occur and be deemed to
be completed. The date on which the actions described in the preceding clauses
(i), (ii) and (iii) occurs shall be referred to as the "Closing Date". Except as
otherwise provided in Section 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written consent of the
party about whom such Confidential Information pertains, except (i) to any
party's directors, officers, employees, agents, advisors and representatives who
have a need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any Regulatory
Approvals, that may be required or advisable to consummate the transactions
contemplated by this Agreement, (iii) to enforce such party's rights and
remedies under this Agreement, (iv) with respect to disclosures that are
compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) The obligation of confidentiality contained in this
Section 8.1 shall, (i) from and after the date of this Agreement, supersede all
of the obligations contained in that certain letter agreement among the
Purchaser, the Company and the Seller dated April 21, 1997, and (ii) survive the
termination of this Agreement, or the Closing, as applicable, for a period of
two years after the date of such termination or the Closing Date, respectively;
provided, that, if the Closing shall occur, then the Purchaser's obligation of
confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with the Purchaser or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Company to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's purchase of the Shares, the Seller shall not, during the Restricted
Period, do any of the following, directly or indirectly, without the prior
written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or the
Company or any of their respective Affiliates or Subsidiaries, or any of their
respective successors or assigns, whether now existing or hereafter created or
acquired (collectively, the "Related Companies"), or otherwise engage or
participate, directly or indirectly, in any business conducted by Purchaser or a
Subsidiary (the "Restricted Business") within any geographic area located within
the United States of America, its possessions or territories (the "Restricted
Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's, the Company's or any of their respective
Related Companies' (A) customers or distributors or prospective customers or
distributors (wherever located) with respect to goods or services that are
competitive with those of the Purchaser, the Company, or any of their respective
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract, arrangement or relationship with the Purchaser, the Company
or any of their respective Related Companies or (D) employees to leave the
employ of the Purchaser, the Company or any of their respective Related
Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened
breach by him of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Company and their respective Related
Companies for which monetary damages
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would not be an adequate remedy. Accordingly, the Purchaser, the Company and any
of their respective Related Companies shall be entitled to injunctive relief
from a court of competent jurisdiction, including specific performance, with
respect to any such breach or threatened breach. In connection therewith, the
Seller shall, in any action or proceeding to so enforce any provision of this
Article 8, assert the claim or defense that an adequate remedy at law exists or
that injunctive relief is not appropriate under the circumstances. The rights
and remedies of the Purchaser, the Company and any of their respective Related
Companies set forth in this Section 8.3 are in addition to any other rights or
remedies to which the Purchaser, the Company or any of their respective Related
Companies may be entitled, whether existing under this Agreement, at law or in
equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser
and the Seller that the provisions of this Article 8 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if any provision of this Article 8 shall be determined to be invalid,
unenforceable or illegal for any reason, then the validity and enforceability of
all of the remaining provisions of this Article 8 shall not be affected thereby.
If any particular provision of this Article 8 shall be adjudicated to be invalid
or unenforceable, then such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
amendment to apply only to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided that, if any provision
contained in this Article 8 shall be adjudicated to be invalid or unenforceable
because such provision is held to be excessively broad as to duration,
geographic scope, activity or subject, then such provision shall be deemed
amended by limiting and reducing it so as to be valid and enforceable to the
maximum extent compatible with the applicable laws and public policy of such
jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he has
carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, the Company or any of their respective Related Companies, but he
nevertheless believes that he has received and will receive sufficient
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consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Company's and their respective Related Companies'
interests, and Seller does not believe that such restrictions will prevent him
from earning a living in businesses that are not competitive with those of the
Purchaser, the Company or any of their respective Related Companies during the
term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller, the Company and the Purchaser
contained in this Agreement shall survive until the second anniversary of the
Closing Date, except that the representations and warranties set forth in each
of Section 3.11, Section 3.20, Section 3.23 and Section 3.28 shall survive until
the expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Seller, the Company
and of the Purchaser contained in this Agreement will survive the Closing until,
by their own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Seller's and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who
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controls any such Underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder, shall be (i) an intended beneficiary of this
Agreement and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller's Indemnification. From and after the Closing Date, the
Seller shall, jointly and severally, indemnify and hold harmless the Purchaser,
the Company and any of their respective Subsidiaries, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal representatives, from and against all Indemnifiable Losses that may be
imposed upon, incurred by or asserted against any of them resulting from,
related to, or arising out of (i) any misrepresentation, breach of any warranty
or non-fulfillment of any covenant to be performed by the Company or the Seller
under this Agreement or any document, instrument, certificate or other item
required to be furnished to the Purchaser pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any untrue
statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that is based upon any misrepresentation or breach of any warranty
made by the Company or the Seller pursuant to this Agreement or upon any untrue
statement or omission contained in any written information furnished or caused
to be furnished by the Seller to the Purchaser (provided that the Seller hereby
acknowledges that the information concerning the Seller and the Company in the
Registration Statement shall be deemed to be provided to the Purchaser for the
purposes hereof); (iii) any liability or obligation of the Seller, the Company
or any of its Subsidiaries other than Debt for which an adjustment to the Base
Purchase Price has been made under Section 2.2(b) and Debt which does not
constitute an Adjusted Current Liability; (iv) any liability for payment of
Taxes that accrued or relate to the period of time prior to the Closing Date;
(v) any non-compliance with applicable Requirements of Law relating to bulk
sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vi) any action, claim or demand
by any holder of the Company's securities, whether debt or equity, in such
holder's capacity as such, whether now existing or hereafter arising or
incurred; (vii) any non-compliance with the Worker Adjustment and Retraining
Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and regulations
promulgated thereunder and any similar Requirement of Law; (viii) any liability
in connection with amounts outstanding under the loan from TPS, Inc. to the
Company, such obligation which was distributed to the Seller prior to Closing;
and (ix) any Legal Proceeding or Order arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
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10.1A. No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or the Company or any successor to
achieve after the Closing Date any projected financial information, including,
without limitation, sales of software and costs of software development, in and
of itself shall not result in an Indemnifiable Loss to Purchaser, or the
Company.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser shall indemnify and hold harmless the Seller and each of their
respective legal representatives, successors and assigns from and against all
Indemnifiable Losses imposed upon, incurred by or asserted against, the Seller
resulting from, related to, or arising out of: (i) any misrepresentation, breach
of any warranty or non-fulfillment of any covenant to be performed by the
Purchaser under this Agreement or any document, instrument, certificate or other
item furnished or to be furnished to the Seller pursuant hereto or thereto or in
connection with the transactions contemplated by this Agreement; (ii) any Debt
for which an adjustment to the Base Purchase Price has been made under Section
2.2(b) and any Adjusted Current Liabilities; (iii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Purchaser pursuant to
this Agreement or upon any untrue statement or omission contained in any
information furnished or caused to be furnished by the Purchaser; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss, give written notice to the party from
whom indemnification under this Article 10 is sought (the "Indemnifying Party")
of the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the
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Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss. The Indemnifying Party's
objection shall, in and of itself, not relieve the Indemnifying Party from its
obligations under this Article 10. In the event that the parties are unable to
resolve the subject of the Indemnity Notice, the issue shall be submitted for
determination to a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall, within fourteen (14) days after obtaining sufficient
information to articulate such grounds, give written notice to the applicable
Indemnifying Party thereof, together with such information as is reasonably
sufficient to describe the potential or contingent claim to the extent then
feasible (an "Unliquidated Indemnity Notice"). The failure of an Indemnified
Party to give the Indemnifying Party the Unliquidated Indemnity Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however that the Indemnifying Party shall not be liable for Indemnifiable Losses
incurred by the Indemnified Party that would not have been incurred but for the
delay in the delivery of, or the failure to deliver, the Unliquidated Indemnity
Notice. Within sixty (60) days after the amount of such claim shall be
finalized, resolved, or liquidated, the Indemnified Party shall give the
Indemnifying Party an Indemnity Notice, and the Indemnifying Party's obligations
under this Article 10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.23, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing,
but which is reasonably satisfactory to the Indemnified Party; provided, that if
the applicable claim or demand is against, or if the defendants in any such
Legal Proceeding shall include, both the Indemnified Party and the Indemnifying
Party and the Indemnified Party reasonably concludes that there are defenses
available to it that are different or additional to those available to the
Indemnifying Party or if the interests of the Indemnified Party may be
reasonably deemed to conflict with those of the Indemnifying Party, then the
Indemnified Party shall have the right to select separate counsel and to assume
the Indemnified Party's defense of such claim, demand or Legal Proceeding, with
the reasonable fees, expenses and disbursements of such counsel to be
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reimbursed by the Indemnifying Party as incurred. The Indemnifying Party shall
give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.23, the Purchaser shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Article 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary, no Indemnifiable
Losses with respect to Taxes shall be settled without the prior written consent
of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser, the Company, or any controlling Person of
the Purchaser or the Company (within the meaning of the Securities Act) makes a
claim for indemnification pursuant to Section 10.1(ii) but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
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jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 10.1(ii) provides for indemnification in
such case, then, the Purchaser, the Company, each controlling Person and the
Seller will contribute to the aggregate Indemnifiable Losses to which the
Purchaser, the Company or any such controlling Person may be subject (after
contribution from others) as is appropriate to reflect the relative fault of the
Purchaser, the Company, such controlling Person and the Seller in connection
with the statements or omissions which resulted in such Indemnifiable Losses, as
well as the relative benefit received by the Purchaser, the Company, such
controlling Person and the Seller as a result of the issuance of the securities
to which such Indemnifiable Losses relate, it being understood that the parties
acknowledge that the overriding equitable consideration to be given effect in
connection with this provision is the ability of one party or the other to
correct the statement or omission which resulted in such Indemnifiable Losses,
and that it would not be just and equitable if contribution pursuant hereto were
to be determined by pro rata allocation or by any other method of allocation
which does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, and
the other Persons or entities indemnified pursuant to Section 10.1 shall not
assert any claim for indemnification hereunder against the Seller until such
time as, the aggregate of all claims which such persons may have against the
Seller shall exceed $30,000 (the "Indemnification Threshold"), whereupon such
claims shall be indemnified in full. Seller shall not assert any claim for
indemnification hereunder against Purchaser or the Company until such time as
the aggregate of all claims which Seller may have against Purchaser or the
Company shall exceed $30,000, whereupon such claims shall be indemnified in
full. The limitation on assertion of claims for indemnification contained in
this paragraph shall apply only to claims based upon inaccuracies in, or
breaches of, representations and warranties contained in this Agreement or any
document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller shall not be
liable under this Article 10 or otherwise for an amount which exceeds the amount
of proceeds received by the Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
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No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period, if applicable.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common
Stock used to satisfy an Indemnity Claim shall be valued at the lower of the
Initial Public Offering Price and the Value as of the date such shares are so
used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Company, the Seller and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Company's or the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller, on the one
hand, or by the Purchaser, on the other hand, upon any material breach by such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non-breaching party to the
breaching party; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller, on the one hand, or by the Purchaser on
the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Company, the Seller or
the Purchaser and all rights and obligations of each party to this
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Agreement shall cease; provided, that (i) the provisions with respect to
expenses in Section 16.4 shall indefinitely survive any such termination, (ii)
the provisions with respect to confidentiality of Section 8.1 shall survive any
such termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3)
years after the Closing Date, the Purchaser shall, or shall cause the Company
and each of its Subsidiaries to, maintain all books and records maintained by
the Company or any such Subsidiary on or prior to the Closing Date and shall
permit the Seller or his representatives and agents access to all such books and
records, and to the Company's and its Subsidiaries' employees and auditors for
the purpose of obtaining information relating to periods on or prior to the
Closing Date, upon reasonable notice by the Seller and on terms not disruptive
to the business, operation or employees of the Purchaser, the Company or any of
their respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Seller becomes
aware of any fact or circumstance which would change (or, if after the Closing
Date, would have changed) a representation or warranty of Company or Seller in
this Agreement
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or would affect any document delivered pursuant hereto in any material respect,
the Company and the Seller shall promptly give notice of such fact or
circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the
Seller makes a payment after the Closing Date to Purchaser in full satisfaction
of an uncollected Receivable, Purchaser will assign its rights to such
Receivable to the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Seller or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, the Seller shall not (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Seller pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Seller pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
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ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to
be delivered to the Seller pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and
represents that none of the shares of DocuNet Common Stock issued to the Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND
SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY
TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller is or his respective purchaser representatives
have had an adequate opportunity to ask questions and receive answers from the
officers of the Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of the Purchaser,
the plans for the operations of the business of the Purchaser, the business,
operations and financial condition of the Founding Companies, and any plans for
additional acquisitions and the like. The Seller acknowledges receipt and review
of the draft of the Registration Statement attached hereto as Schedule 14.2 for
informational purposes
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<PAGE>
and subject to the limitations of Section 5.12(b). The Seller acknowledges that
such draft is subject to completion and subject to change, and Seller
acknowledges that his purchaser representatives have had an adequate opportunity
to ask questions and receive answers from the officers of the Purchaser
pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. At any time following the
Closing, whenever the Purchaser proposes to register any DocuNet Common Stock
for its own or others' account under the Securities Act for a public offering,
other than (i) any shelf registration of the DocuNet Common Stock; (ii)
registrations of shares to be used solely as consideration for acquisitions of
additional businesses by the Purchaser and (iii) registrations relating to
employee benefit plans, the Purchaser shall give the Seller prompt written
notice of its intent to do so. Upon the written request of the Seller given
within 30 days after receipt of such notice, Purchaser shall cause to be
included in such registration all of the DocuNet Common Stock which the Seller
requests. However, if the Purchaser is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 15.1 that the number
of shares to be sold by persons other than the Purchaser is greater than the
number of such shares which can be offered without adversely affecting the
offering, the Purchaser may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such persons)
to a number deemed satisfactory by such managing underwriter or such managing
underwriter can eliminate the participation of all such persons in the offering,
provided that, for each such offering made by the Purchaser after the Initial
Public Offering, a reduction shall be made first by reducing the number of
shares to be sold by persons other than the Purchaser, the Seller, the Founding
Companies, the stockholders of the Founding Companies and other stockholders
(the "Other Stockholders") of the Company immediately prior to the Initial
Public Offering, and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Seller, the Founding Companies, the
stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 15 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request
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<PAGE>
for the distribution for the DocuNet Common Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
Securities Act and the regulations thereunder.
15.3. Underwriting Agreement. In connection with each registration
pursuant to Section 15.1 covering an underwritten registration public offering,
the Purchaser and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of the Purchaser's size and
investment stature, including indemnification and the prohibition of sales or
transfers of such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated
to register shares of DocuNet Common Stock held by the Seller at any time when
the resale provisions of Rule 144(k) (or any similar or successor Seller
provision) promulgated under the Securities Act are available to the Seller.
15.5. Survival. The provisions of this Article 15 shall survive the
Closing until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
(a) If to the Company (prior to the Closing Date):
TPS Micrographics, Inc.
110 Vista Centre Drive
Forest, VA 24551
with a copy to:
Edward Dawson
Petty Livingston
Suite 1200-1300
Allied Arts Building
725 Church Street
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<PAGE>
Lynchburg, VA 24505
(b) If to Seller:
David Crowder
c/o TPS Micrographics, Inc.
110 Vista Centre Drive
Forest, VA 24551
with a copy to:
Edward Dawson
Petty Livingston
Suite 1200-1300
Allied Arts Building
725 Church Street
Lynchburg, VA 24505
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Attn: Bruce M. Gillis
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided
herein, this Agreement is not intended to, and does not, create any rights in or
confer any benefits upon anyone other than the parties hereto.
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<PAGE>
16.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Arthur Andersen LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, Seller shall be responsible to pay $10,000 of such fees and expenses.
16.5. Further Assurances. The Seller and the Purchaser shall, at
his, her or its own expense, from time to time upon the request of the other,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by the Purchaser or the Seller, such other documents,
certificates and instruments and take such actions as the Purchaser or the
Seller deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Seller shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, any
Underwriter or any auditor reasonably deems necessary or desirable to complete
any audit of the Company's financial statements or in connection with any
Purchaser Financing Transaction; provided, that the Seller shall be required to
execute any guaranty of any indebtedness or instrument of indebtedness obtained
by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Company, the Seller nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser; provided that the DocuNet
Common Stock to be issued in payment of a portion of the purchase price shall be
registered under Section 12 of the Securities Exchange Act of 1934 at the time
it is issued.
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<PAGE>
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Seller, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
TPS MICROGRAPHICS, INC.
By: /s/ David Crowder
_______________________________
David Crowder
President
Witness: /s/ David Crowder
_______________________ _______________________________
David Crowder, Individually
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<PAGE>
Schedule 6.1(k)
______________, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to ___________________, a _____________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of _______________, 1997 (the
"Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and _______ ("Stockholders"). This opinion is
furnished to you pursuant to Section _______ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the [Certificate] [Articles] of Incorporation
and Bylaws of the Company. We have also made such examinations of laws,
certificates of public officials, instruments, documents, and corporate records
and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth. In such examination we have
assumed (i) the genuineness of all signatures on certificates and documents
other than those signed by the Company and the Stockholders, (ii) the accuracy,
completeness and authenticity of all records and documents submitted to us as
originals, (iii) the conformity to the original of all documents submitted to us
as certified, conformed or photostatic copies, and (iv) the legal capacity of
all natural persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of____________ and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
<PAGE>
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected __________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of _______________.
Based on the foregoing and subject to the qualifications set forth
herein, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of ______________ and has all
necessary corporate power and authority to enter into the Transaction Documents
and to consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Company.
3. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the [Certificates] [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
<PAGE>
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
<PAGE>
Schedule 6.1(I)
Related Party Agreements
To be delivered at a later date.
<PAGE>
Schedule 6.2(i)
[__________]___, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation
(the "Purchaser"), in connection with the transactions contemplated by that
certain [Purchase Agreement] dated as of_______________, 1997 (the "Purchase
Agreement"), among the Purchaser, ___________, a _________ corporation (the
"Seller"), and ____________________ ("Stockholders"). This opinion is furnished
to you pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the Articles of Incorporation and Bylaws of
the Purchaser. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Purchaser, (ii) the accuracy, completeness and authenticity of all
records and documents submitted to us as originals, (iii) the conformity to the
original of all documents submitted to us as certified, conformed or photostatic
copies, and (iv) the legal capacity of all natural persons who are parties to
the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
1. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary
<PAGE>
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
3. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Out opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
__________________________________
A Partner
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among David Crowder ("Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Seller and the Escrow Agent are sometimes collectively referred to herein as the
"Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
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<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
David Crowder
c/o TPS Micrographics, Inc.
110 Vista Centre Drive
Forest, VA 24551
With a copy to:
Attention: Edward Dawson, Esquire
C. If to the Escrow Agent:
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With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Seller shall replenish the Escrow Account with Cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
David Crowder
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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<PAGE>
EXECUTION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
IMAGE AND INFORMATION SOLUTIONS, INC.
AND
DOCUNET INC.
Dated September 11, 1997
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE 1 - CERTAIN DEFINITIONS..............................................3
ARTICLE 2 - THE MERGER......................................................11
2.1. Delivery and Filing of Articles of Merger.......................11
2.2. Effective Time of the Merger....................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors
of Surviving Corporation......................................12
2.4. Certain Information with Respect to the Capital Stock of the
Company and Purchaser.........................................12
2.5. Effect of Merger................................................12
2.6. Manner of Conversion............................................13
2.7. Delivery of Shares..............................................13
2.8. Merger Consideration............................................14
2.9. Delivery of Merger Consideration................................19
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLER....................20
3.1. Organization; Qualification; Good Standing......................20
3.2. Authorization for Agreement.....................................21
3.3. Capitalization; Subsidiaries and Affiliates.....................21
3.4. Enforceability..................................................22
3.5. Matters Affecting Shares; Title to Shares.......................22
3.6. Predecessor Status; etc.........................................22
3.7. Spin-off by the Company.........................................23
3.8. Legal Proceedings...............................................23
3.9. Compliance with Laws............................................23
3.10. Labor Matters..................................................24
3.11. Employee Benefit Plans.........................................25
3.12. Financial Statements...........................................27
3.13. Distributions..................................................27
3.14. Absence of Undisclosed Liabilities.............................28
3.15. Real Property..................................................28
3.16. Tangible Personal Property.....................................29
3.17. Contracts......................................................30
3.18. Insurance......................................................32
3.19. Proprietary Rights.............................................32
3.20. Environmental Matters..........................................33
3.21. Permits........................................................34
3.22. Regulatory Filings.............................................34
3.23. Taxes and Tax Returns..........................................35
3.24. Investment Portfolio...........................................37
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Page
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3.25. Affiliate Transactions.........................................37
3.26. Accounts, Power of Attorney....................................37
3.27. Receivables....................................................37
3.28. Officers and Directors.........................................38
3.29. Corporate Records..............................................39
3.30. Brokers or Finders.............................................39
3.31. Customers......................................................39
3.32. Investment Company.............................................39
3.33. Absence of Changes.............................................39
3.34. Accuracy and Completeness of Information.......................41
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................41
4.1. Organization....................................................41
4.2. Authorization for Agreement.....................................41
4.3. Enforceability..................................................41
4.4. Litigation......................................................41
4.5. Registration Statement..........................................42
4.6. Brokers or Finders..............................................42
ARTICLE 5 - COVENANTS.......................................................42
5.1. Good Faith......................................................42
5.2. Approvals.......................................................42
5.3. Cooperation; Access to Books and Records........................42
5.4. Duty to Supplement..............................................44
5.5. Information Required For Purchase Financing Transactions........44
5.6. Performance of Conditions.......................................45
5.7. Conduct of Business.............................................45
5.8. Negative Covenants..............................................46
5.9. Exclusive Negotiation...........................................48
5.10. Public Announcements...........................................49
5.11. Amendment of Schedules.........................................49
5.12. Cooperation in Preparation of Registration Statement...........49
5.13. Examination of Final Financial Statement.......................50
5.13.A Audit..........................................................50
5.14. Lock-Up Agreements..............................................51
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act".............................51
5.16. Reorganization Status..........................................51
5.17. Leases.........................................................51
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Page
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5.18. Real Property Distribution.....................................52
5.19. Subsidiary.....................................................52
5.20. ...............................................................52
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING.................................52
6.1. Conditions Precedent to the Purchaser's Obligations.............52
6.2. Conditions Precedent to Company's and Seller's Obligations......55
ARTICLE 7 - CLOSING.........................................................57
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE.....................58
8.1. Confidentiality.................................................58
8.2. Covenant Not To Compete.........................................59
8.3. Specific Enforcement; Extension of Period.......................59
8.4. Disclosure......................................................60
8.5. Interpretation..................................................60
8.6. Seller's Acknowledgment.........................................60
ARTICLE 9 - SURVIVAL........................................................61
9.1. Survival of Representations, Warranties, Covenants and
Agreements....................................................61
9.2. Intentionally Omitted...........................................61
9.3. Underwriter's Benefit...........................................61
ARTICLE 10 - INDEMNIFICATION................................................62
10.1. Seller's Indemnification.......................................62
10.1.A. No Indemnification of Projected Information......63
10.2. Purchaser's Indemnification....................................63
10.3. Payment; Procedure for Indemnification.........................63
10.4. Equitable Contribution Under the Securities Act................65
10.5. Exclusiveness of Indemnification...............................66
10.6. Limitations on Indemnification.................................66
10.7. Value of DocuNet Common Stock..................................67
ARTICLE 11 - TERMINATION AND REMEDIES.......................................67
11.1. Termination....................................................67
11.2. Effect of Termination..........................................68
ARTICLE 12 - POST-CLOSING COVENANTS.........................................68
12.1. Maintenance and Access to Records..............................68
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12.2. Disclosure.....................................................69
12.3. Accounts Receivable............................................69
ARTICLE 13 - TRANSFER RESTRICTIONS..........................................69
13.1. Transfer Restrictions..........................................69
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS................................70
14.1. Compliance with Law............................................70
14.2. Economic Risk; Sophistication..................................70
ARTICLE 15 - REGISTRATION RIGHTS............................................71
15.1. Piggyback Registration Rights..................................71
15.2. Registration Procedures........................................71
15.3. Underwriting Agreement.........................................72
15.4. Availability of Rule 144.......................................72
15.5. Survival.......................................................72
ARTICLE 16 - MISCELLANEOUS..................................................72
16.1. Notices........................................................72
16.2. No Third Party Beneficiaries...................................73
16.3. Schedules......................................................73
16.4. Expenses.......................................................73
16.5. Further Assurances.............................................74
16.6. Entire Agreement; Amendment....................................74
16.7. Section and Paragraph Titles...................................74
16.8. Binding Effect.................................................74
16.9. Counterparts...................................................74
16.10. Severability..................................................74
16.11. Governing Law.................................................75
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of the 11th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), IMAGE AND INFORMATION SOLUTIONS, INC., a Louisiana
corporation (the "Company") and GARY D. BLACKWELDER (the "Seller"). The Seller
is the only stockholder of the Company.
WHEREAS, the respective Boards of Directors of Purchaser and
the Company (which together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Purchaser pursuant
to this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and the State of Louisiana;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"),
with each of the other Founding Companies (as defined herein) and
their respective stockholders in order to acquire additional
document management and related services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial
Public Offering of DocuNet Common Stock (as defined herein)
constitute the "DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential
Founding Companies (as defined herein) pursuant to the Other
Agreements, the Board of Directors of the Company has approved this
Agreement as part of the DocuNet Plan of Reorganization in order to
transfer the capital stock of the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) of the Code.
IN CONSIDERATION of the foregoing and the mutual promises, covenants
and agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
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ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, trusts, charges, proxies,
conditional sales, title retention agreements, rights under any Contracts,
liabilities and any other burdens of any nature whatsoever attached to or
adversely affecting such asset.
1.3. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer, or
Subsidiary of the Person specified; and (iii) the spouse, parents, children,
siblings, mothers-in-law, fathers-in law, sons-in-law, daughters-in-law,
bothers-in-law, and sisters-in-law of the Person specified. For purposes of this
definition and without limitation to the previous sentence, (x) "control" of a
Person means the power, direct or indirect, to direct or cause the direction of
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise, and (y) any Person owning more than ten
percent (10%) or more of the voting securities or similar interests of another
Person shall be deemed to be an Affiliate of that Person.
1.4. Accountants' CAWCA Report shall have the meaning set forth in
Section 2.8.
1.5. Affiliate Transaction shall have the meaning set forth in
Section 3.25.
1.6. Articles of Merger shall mean those Articles or Certificates of
Merger with respect to the Merger substantially in the forms attached as Annex I
hereto or with such other changes therein as may be required by applicable state
laws.
1.7. Balance Sheet Date shall mean July 31, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in
Section 2.8.
1.8. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.9. [Intentionally omitted.]
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1.10. Cash Purchase Price shall have the meaning set forth in
Section 2.9.
1.11. Claim Notice shall have the meaning set forth in Section
10.3(c).
1.12. Closing shall have the meaning set forth in Article 7.
1.13. [Intentionally omitted.]
1.14. Closing Date shall mean the date on which the Closing actually
takes place.
1.15. Closing Balance Sheet shall mean the balance sheet delivered
by the Company to the Purchaser as of the date immediately prior to the Closing
Date in accordance with Section 3.12(d).
1.16. Closing Debt Amount shall have the meaning set forth in
Section 2.8(b).
1.17. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.18. Common Stock shall mean the common stock, no par value per
share, of the Company.
1.19. Confidential Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party or any Potential Founding
Company, all financial, technical, commercial or other information, including
but not limited to information, materials, documents, financial reports,
business plans and marketing data that relate to the business, strategies or
operations of the parties hereto or a Potential Founding Company, disclosed or
otherwise made available by such party, such Affiliate or Potential Founding
Company (the "Discloser") to another party, affiliate or Potential Founding
Company (the "Recipient") in connection with the transactions contemplated by
this Agreement and (ii) each of the terms, conditions and other provisions
contained in this Agreement and in the agreements or documents to be delivered
pursuant to this Agreement. Notwithstanding the preceding sentence, the
definition of Confidential Information shall not include any information that
(i) is in the public domain at the time of disclosure to the Recipient or
becomes part of the public domain after such disclosure through no fault of the
Recipient, (ii) is possessed in writing by the Recipient at the time of
disclosure to such Recipient, (iii) is contained in the Registration Statement
on Form S-1 to be filed by Purchaser in connection with the Initial Public
Offering or (iv) is disclosed to a party or Potential Founding Company by any
Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or
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<PAGE>
(except as otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals,
authorizations, certifications or exemptions from any Person or under any
Contract or Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the
second recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any
indentures, indebtedness, contracts, leases, agreements, instruments, licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices
Act, 16 U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C.
ss.1681 et. seq., and any other provision of the Consumer Credit Protection Act,
in each case, together with the rules and regulations promulgated thereunder,
(ii) the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15
U.S.C. ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8(b).
1.24. DocuNet Common Stock shall mean the common stock, no par value
per share, of Purchaser.
1.25. Effective Time of the Merger shall mean the time as of which
the Merger becomes effective, which shall, in any case, occur on the Closing
Date.
1.26. Employee Benefit Plan shall mean any deferred compensation,
pension, profit sharing, stock option, stock purchase, savings, group insurance
or retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface
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<PAGE>
water, groundwater, land, or surface or subsurface strata) including, without
limitation, Requirements of Law relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment and Requirements of Law
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any of the foregoing including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et. seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et. seq., and the rules and regulations
promulgated thereunder, all as amended and supplemented from time to time, and
together with any successors thereto. As used in this Agreement, the term
"hazardous substances" shall have the meaning assigned to that term in CERCLA,
and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.28. Escrow Agent shall mean the individual or entity named as the
Escrow Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the
Seller, the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to
the terms and conditions therein as referred to in Section 2.9, substantially in
the form attached hereto as Exhibit A.
1.30. Escrow Amount shall mean the amount of cash and/or the Value
of the DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.31. ERISA shall mean the Employment Retirement Income Security Act
of 1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with
the Company in a controlled group or affiliated service group under Sections
414(b), (c), (m) or (o) of the Code.
1.33. [Intentionally omitted.]
1.34. Financial Statements shall have the meaning set forth in
Section 3.12(a).
1.35. Founding Companies shall mean those Potential Founding
Companies that enter into definitive acquisition or merger agreements or asset
purchase agreements with the Purchaser in anticipation of a simultaneous
acquisition by Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in
the United States set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such other statement by such
other entity as may be generally recognized as the successors for
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<PAGE>
the aforementioned; and shall also mean that the accounting principles observed
in a current period are comparable in all material respects to those applied in
a preceding period unless specific exemption is noted in the financial
statements where a change of accounting method, principle or presentation has
occurred.
1.37. Governmental or Regulatory Authority shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the government of the United States or of any foreign
country, any state or any political subdivision of any such government (whether
state, provincial, county, city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations,
claims, demands, damages, penalties, settlements, causes of action, costs and
expenses. Indemnifiable Losses shall include, without limitation, the actual
costs paid in connection with an Indemnified Party's investigation and
evaluation of any claim or right asserted against such Indemnified Party and all
reasonable attorneys', experts' and accountants' fees, expenses and
disbursements and court costs, including, without limitation, those incurred in
connection with the Indemnified Party's enforcement of this Agreement and the
indemnification provisions of Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section
10.3(a).
1.42. Initial Public Offering shall mean the Purchaser's initial
public offering of the Purchaser's common stock registered under the Securities
Act.
1.43. Initial Public Offering Price shall mean the price to the
public of the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights,
patent applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to the
Business, in each case together with any amendments, modifications and
supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth
in Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to,
or used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
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1.47. IRS means the Internal Revenue Service or any successor
organization thereto.
1.48. Knowledge shall mean with respect to any representation,
warranty or statement of any party in this Agreement that is qualified by such
party's "knowledge," the actual knowledge of such party or of any officer or
director of such party, or (i) in the case of any such officer or director, that
knowledge that a reasonably prudent officer or director should have if such
person duly performed his or her duties as an officer or director of such party
or any of such party's Subsidiaries, or made reasonable and diligent inquiry and
exercised due diligence with respect thereto, of the matter to which such
qualification applies, and (ii) in the case of the Seller, that knowledge that
Seller should have if the Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.49. Leases shall mean the leases for Real Property with the
material terms set forth on Exhibit D attached hereto.
1.50. Legal Proceeding shall mean any action, suit, arbitration,
claim or investigation by or before any Governmental or Regulatory Authority,
any arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.51. Material Adverse Effect shall mean an effect which is or would
be materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.52. Merger means the merger of the Company with and into Purchaser
pursuant to this Agreement and the applicable provisions of the laws of the
Commonwealth of Pennsylvania and other applicable state laws.
1.53. [Intentionally omitted.]
1.54. [Intentionally omitted.]
1.55. Order shall mean any judgment, order, writ, decree, injunction
or other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.56. PBGC means the Pension Benefit Guaranty Corporation or any
successor organization thereto.
1.57. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights
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or approvals granted or issued by any Governmental or Regulatory Authority
relating to the Business of the Company or any of its Subsidiaries.
1.58. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.59. Potential Founding Company shall mean any person or entity
entering into a letter of intent with the Purchaser, or its Affiliates, to
participate in the simultaneous acquisition by Purchaser and Initial Public
Offering.
1.60. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes
place.
1.61. Property shall mean the Real Property, Intellectual Property
and Tangible Personal Property of the Company.
1.62. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.63. Purchaser's CAWCA Response Notice shall have the meaning set
forth in Section 2.8.
1.63A.Purchaser's CDA Response Notice shall have the meaning set
forth in Section 2.8(b).
1.64. Real Property shall mean all real property owned or leased to
the Company or any of its Subsidiaries.
1.65. Receivables shall have the meaning set forth in Section 3.27.
1.66. Regulatory Approvals shall mean all Consents from all
Governmental or Regulatory Authorities.
1.67. Related Companies shall have the meaning set forth in Section
8.2(a).
1.68. Requirement of Law shall mean, with respect to any Person,
such Person's articles or certificate of incorporation, by-laws or other
governing or constitutive documents, if any, and any provision of law, statute,
treaty, rule, regulation, ordinance or pronouncement
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having the effect of law, or any Order, to which, in each case, such Person or
any of such Person's properties, operations, business or assets is bound or
subject.
1.69. Restricted Area shall have the meaning set forth in Section
8.2(a).
1.70. Restricted Business shall have the meaning set forth in
Section 8.2(a).
1.71. Restricted Period shall mean, with respect to the Seller, the
period commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which the Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.72. Securities Act shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.73. Sellers' CDA Objection shall have the meaning set forth in
Section 2.8(b).
1.74. [Intentionally omitted].
1.75. Shares shall mean shares of Common Stock of the Company.
1.76. Stock Purchase Price shall have the meaning set forth in
Section 2.9.
1.77. Surviving Corporation shall mean Purchaser as the surviving
party in the Merger.
1.78. Subsidiary shall mean, with respect to any Person, any Person
of which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
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1.79. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.80. Taxes shall mean (i) any tax, charge, fee, levy or other
assessment including, without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupancy,
occupation, property or other similar taxes, including any interest or penalties
thereon, and additions to tax or additional amounts imposed by any federal,
state, local or foreign governmental authority, domestic or foreign (a "Taxing
Authority") or (ii) any liability for the payment of any taxes, interest,
penalty, addition to tax or like additional amount resulting from the
application of Treasury Regulation ss.1.1502-6 or comparable Requirement of Law.
1.81. Tax Returns shall mean any declaration, return, report,
estimate, information return, schedule, statements or other document filed or
required to be filed with, or when none is required to be filed with a Taxing
Authority, the statement or other document issued by, a Taxing Authority since
October 31, 1994, together with any amendments thereto.
1.82. Trade Accounts Receivable shall mean, as of the applicable
date, the Company's trade accounts receivable associated with the Business.
1.83. Underwriter shall have the meaning set forth for that term in
Section 2(a)(11) of the Securities Act.
1.84. Unliquidated Indemnity Notice shall have the meaning set forth
in Section 10.3(b).
1.85. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8.
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of Louisiana and stamped receipt copies of each
such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger,
the Company shall be merged with and into Purchaser in accordance with the
Articles of Merger, the separate existence of the Company shall cease, Purchaser
shall be the surviving party in the Merger and Purchaser is sometimes
hereinafter referred to as the Surviving Corporation. The Merger will be
effected in a single transaction.
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2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Purchaser then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Purchaser 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 then existing Board of Directors of Purchaser at the Effective
Time of the Merger. The Board of Directors of the Surviving Corporation shall
hold office subject to the provisions of the laws of the Commonwealth of
Pennsylvania and of the Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the then
existing officers of Purchaser at the Effective Time of the Merger, each of such
officers to serve, subject to the provisions of the Certificate of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is duly
elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company
and Purchaser. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and
Purchaser as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto; and
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 10 million shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Louisiana. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the Company shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into the Purchaser, and
Purchaser, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time of the Merger, the separate existence of the Company shall cease
and, in accordance with the terms of this Agreement, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a
public, as well as of a private, nature, and all property, real, personal and
mixed,
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and all debts due on whatever account, including subscriptions to shares, and
all taxes, including those due and owing and those accrued, and all other choses
in action, and all and every other interest of or belonging to or due to the
Company and Purchaser 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 Purchaser; 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 Purchaser, 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 Purchaser and any claim existing,
or action or proceeding pending, by or against the Company or Purchaser 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 Purchaser shall be impaired by the Merger,
and all debts, liabilities and duties of the Company and Purchaser shall attach
to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of
outstanding capital stock of the Company ("Company Stock") into shares of
DocuNet Common Stock shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
deemed to represent (1) the right to receive the number of shares of DocuNet
Common Stock provided in Section 2.9 hereof with respect to such holder and (2)
the right to receive the amount of cash provided in Section 2.9 hereof with
respect to such holder (collectively, the "Merger Consideration"); and
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet Common
Stock or other consideration shall be delivered or paid in exchange therefor.
All DocuNet Common Stock received by the Seller pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Seller shall be fully exercisable by the Seller and the Seller shall not be
deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Seller shall deliver to Purchaser at the
Closing the certificates representing all of the issued and outstanding shares
of the Company Stock, duly
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endorsed in blank by the Seller, or accompanied by blank stock powers, and with
all necessary transfer tax and other revenue stamps, acquired at the Seller's
expense, affixed and canceled. The Seller agrees promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Seller, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), the Working Capital
Adjustment (as hereinafter defined), the Cash Adjustment (as hereinafter
defined), and, subject to Section 2.8(f) below, the Net Book Value of Assets and
Liabilities Adjustment (as hereinafter defined), on the terms and conditions set
forth below:
(a) Base Purchase Price. Subject to Section 2.9(c), the Base
Purchase Price shall be Five Million Four Hundred Thousand dollars
($5,400,000), subject to adjustments as set forth herein (the "Base
Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's
Closing Balance Sheet (the "Closing Debt Amount"). The Company's Debt
shall mean all of the Company's liabilities, including contingent
liabilities, except the loans listed on Schedule 2.8(b) attached hereto
and Adjusted Current Liabilities, in accordance with GAAP. The Company's
Adjusted Current Liabilities shall mean all of the Company's liabilities
which would be classified as current liabilities in accordance with GAAP,
except current amounts of principal, interest or penalties due and owing:
(i) under promissory notes or lines of credit to lending institutions;
(ii) to an employee or an Affiliate of the Company, or the Seller,
provided, however, that Adjusted Current Liabilities shall include accrued
employee bonuses payable and accrued matching contributions payable under
the Company's 401(k) plan, (iii) to a lessor under a capital lease; or
(iv) on account of Taxes or earned insurance premiums. Promptly following
the Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Seller shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Seller's objection, if
any, to the Accountants' CDA Report (the "Seller's CDA Objection") shall
set forth in reasonable detail the Seller's objection(s) to the
Accountants' CDA Report and the Seller's calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Seller's CDA Objection,
the
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Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Seller does not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Seller's adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the
"Final Debt Amount"), if any, shall be paid by the Seller to the Purchaser
in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash
in a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (as defined below) equal to such amount. The term "Value"
in respect of a share of DocuNet Common Stock shall mean the lower of the
Initial Public Offering Price and the average closing price of the DocuNet
Common Stock during the 20 trading-day period ending immediately prior to
the applicable payment date. If the Seller objects to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Seller's
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Seller and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based
upon the calculations of the independent accountants, and any adjustments
of Base Purchase Price based on the amount determined as provided above
shall be paid to the Purchaser in immediately available funds within five
(5) business days of the determination of such amount by such accounting
firm. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing cash in a like amount with the Escrow Agent upon such payment
either cash in a like amount or a number of shares of DocuNet Common Stock
having an aggregate Value equal to such amount. The parties hereto agree
to cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Seller shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Seller and the Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $1,000,000
on the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current
assets, less: (i) the portion of trade receivables that are more than 100
days past the original invoice date; (ii) an aggregate amount of Inventory
exceeding $475,000; (iii) promissory notes or other amounts due from
employees or Affiliates of the Company; and (iv) the Adjusted Current
Liabilities, calculated pursuant
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to GAAP. Promptly following the Closing and in order to verify the
accuracy of the adjustment made at the Closing, the Purchaser agrees to
cause the Accountants to verify the amount of the Closing Adjusted Working
Capital Amount. The Accountants shall issue a report as to their
determination of the Closing Adjusted Working Capital Amount (the
"Accountants' CAWCA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CAWCA Report to
the Seller no later than sixty (60) days following the Closing Date. The
determination of the Closing Adjusted Working Capital Amount by the
Accountants shall be conclusive and binding upon the parties hereto unless
the Seller shall object to the Accountants' CAWCA Report within fifteen
(15) days following their receipt of the Accountants' CAWCA Report. The
Seller's objection, if any, to the Accountants' CAWCA Report (the
"Seller's CAWCA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CAWCA Report and the Seller's
calculation of the Closing Adjusted Working Capital Amount. Within ten
(10) days after receipt of the Seller's CAWCA Objection, the Purchaser
will notify the Seller whether it accepts or disputes the Seller's
adjustments, if any, which notification shall set forth in reasonable
detail the adjustments made by the Seller which the Purchaser continues to
dispute (the "Purchaser's CAWCA Response Notice"). If the Seller does not
object to the Accountants' CAWCA Report, or if the Purchaser agrees to
accept the Seller's adjustments to the Accountants' CAWCA Report, then the
adjustment based on the then final Closing Adjusted Working Capital Amount
(the "Final Adjusted Working Capital Amount"), if any, shall be paid by
Seller to the Purchaser in immediately available funds within five (5)
business days of such acceptance. If such amount is not received by
Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CAWCA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount,
based upon the calculations of the independent accountants, and any
adjustments of Base Purchase Price based on the amount determined as
provided above shall be paid to the Purchaser in immediately available
funds within five (5) business days of the determination of such amount by
such accounting firm. If such amount is not received by Purchaser within
such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to
replenish the Escrow Amount by depositing with the Escrow Agent upon such
payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. The parties
hereto agree to cooperate fully with such independent accountants at their
own cost and expense, including, but not limited to, providing such
independent accountants with access to, and copies of, all books and
records that they shall reasonably request. The Purchaser and the Seller
shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the
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parties hereto are unable to agree upon an independent accounting firm,
the Seller and Purchaser will request that one be designated by the
President of the Philadelphia office of the American Arbitration
Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$1,275,000 on the Closing Date (the "Closing Net Book Value Amount"). The
Net Book Value of the Company's Acquired Assets and Liabilities shall mean
the tangible Assets of the Company, less Adjusted Current Liabilities,
calculated pursuant to GAAP. Promptly following the Closing, and in order
to verify the accuracy of the adjustment made at the Closing, the
Purchaser agrees to cause the Accountants to verify the amount of the
Closing Net Book Value Amount. The Accountants shall issue a report as to
their determination of the Closing Net Book Value Amount (the
"Accountants' CNBVA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CNBVA Report to
the Seller not later than sixty (60) days following the Closing Date. The
determination of the Closing Net Book Value Amount by the Accountants
shall be conclusive and binding upon the parties hereto unless the Seller
shall object to the Accountants' CNBVA Report within fifteen (15) days
following their receipt of the Accountants' CNBVA Report. The Seller's
objection, if any, to the Accountants' CNBVA Report (the "Seller's CNBVA
Objection") shall set forth in reasonable detail the Seller's objection(s)
to the Accountants' CNBVA Report and the Seller's calculation of the
Closing Net Book Value Amount. Within ten (10) days after receipt of the
Seller's CNBVA Objection, the Purchaser will notify the Seller whether it
accepts or disputes the Seller's adjustments, if any, which notification
shall set forth in reasonable detail the adjustments made by the Seller
which the Purchaser continues to dispute (the "Purchaser's CNBVA Response
Notice"). If the Seller does not object to the Accountants' CNBVA Report,
or if the Purchaser agrees to accept the Seller's adjustments to the
Accountants' CNBVA Report, then the adjustment based on the then final
Closing Net Book Value Amount (the "Final Net Book Value Amount"), if any,
shall be paid by Seller to the Purchaser in immediately available funds
within five (5) business days of such acceptance. If such amount is not
received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CNBVA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Net Book
Value Amount and the Final Net Book Value Amount, based upon the
calculations of the independent accountants, and any adjustments of Base
Purchase Price based on the amount determined as provided above shall be
paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not
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received by Purchaser within such time period, such amount shall be paid
from the Escrow Amount pursuant to the Escrow Agreement and Seller shall
be obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount.
The parties hereto agree to cooperate fully with such independent
accountants at their own cost and expense, including, but not limited to,
providing such independent accountants with access to, and copies of, all
books and records that they shall reasonably request. The Purchaser and
the Seller shall each bear one-half of all of the costs and expenses of
such independent accounting firm, and if the parties hereto are unable to
agree upon an independent accounting firm, the Seller and Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of any
two or more of the Working Capital Adjustment, and the Net Book Value of
Assets and Liabilities Adjustment, Seller shall only be obligated to pay
the greatest of the applicable adjustment amounts to Purchaser.
2.9. Delivery of Merger Consideration. On the Closing Date, the Seller who
is the holder of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.9(c), a number of
shares of DocuNet Common Stock equal to (i) $3.4 million ("Stock Purchase
Price"), divided by (ii) the Initial Public Offering Price, shall be
issued at Closing to Seller.
(b) Cash Purchase Price. In addition, an aggregate amount equal to
the Base Purchase Price less (i) the Stock Purchase Price and (ii) the
reductions, if any, to be made at Closing pursuant to Sections 2.8(b),
2.8(c), 2.8(d), and 2.8(e)) shall be payable at the Closing in cash to the
Seller ("Cash Purchase Price"). The specific amount of the Cash Purchase
Price shall be payable to the Seller by a wire transfer to accounts to be
designated by the Seller on Schedule 2.9(b).
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock equal to (i) $270,000 divided by (ii) the
Initial Offering Price shall be delivered at Closing to the Escrow Agent
pursuant to the Escrow Agreement (the "Escrow Amount"). The Escrow Amount
shall be available to fund (but shall not be the sole source of funding)
any obligations of Seller under this Agreement pursuant to the terms of
the Escrow Agreement; provided, however, if the amount of cash plus the
Value of the shares of DocuNet Common Stock (valued at the Initial Public
Offering Price) in the Escrow Amount falls below $270,000 (the "Threshold
Value") due to payment from the Escrow Amount pursuant to Section 2.8
hereof, the Seller shall contribute additional cash or shares of DocuNet
Common Stock to the Escrow Amount in an amount necessary
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so that the amount of cash plus the Value of the shares of Common Stock
(valued at the Initial Public Offering Price) in the Escrow Amount would
equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth on the Disclosure Schedule delivered by the
Company and Seller to the Purchaser on the date hereof (the "Disclosure
Schedule"), the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, the Company and the
Seller hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are
corporations duly incorporated, validly existing and in good standing under the
laws of the state of their respective incorporation or organization, (ii) have
the power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly qualified
and authorized to do business and are in good standing in all jurisdictions
where the failure to be duly qualified, authorized and in good standing would
have a Material Adverse Effect upon their respective Businesses, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise). Listed in the Disclosure Schedule is a true and complete list of
all jurisdictions in which the Company or any of its Subsidiaries is qualified
to do business.
(b) There is no Legal Proceeding or Order pending or, to the
knowledge of the Company or the Seller, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or seeking
to revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule. Except
as set forth in the Disclosure Schedule, the minute books of the Company and
each of its Subsidiaries, as heretofore made available to the Purchaser, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company: (i) are within the Company's corporate
powers and duly authorized by all necessary corporate and shareholder action on
the part of the Company and (ii) do not (A) require any action by or in respect
of, or filing with, any Governmental or Regulatory Authority, (B)
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contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any Requirement of Law
applicable to the Company or any of its properties or any Contract to which the
Company or any of its properties is bound or subject or (C) result in the
creation of any Adverse Claim on any of the Shares.
(b) The Seller. The Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Seller (i) are within the powers and authority of the
Seller and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) contravene, violate or
constitute, with or without the passage of time or the giving of notice or both,
a breach or default under, any Requirement of Law applicable any of them or any
of their respective properties or any Contract to which any of them or any of
their respective properties is bound or subject or (C) result in the creation of
any Adverse Claim on any of the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company
consists of 25,000 shares of a single class of common stock, having no par value
per share, of which 100 are issued and outstanding. All of the Shares are owned
by Seller. The Company does not have any other authorized class or classes of
securities of any kind, whether debt or equity. All of the Shares are validly
issued, fully paid and non-assessable and have not been issued in violation of
applicable securities laws or of any preemptive rights or other rights to
subscribe for, purchase or otherwise acquire securities. Except for 200 shares
held in treasury, the Company does not hold any shares of its capital stock in
its treasury or otherwise, and no shares of the Company's capital stock are
reserved by the Company for issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule
is a complete and accurate list of all the Company's Subsidiaries, showing the
percentage of Company's ownership or control of, as well as the identity of any
other owners and the percentage of each such other owner's ownership of, the
outstanding capital stock of, or other ownership interest in, each Subsidiary.
The authorized capital stock of each Subsidiary currently consists of a single
class of common stock, the number of authorized shares and par value of which
are set forth opposite each such Subsidiary's name in the Disclosure Schedule.
No Subsidiary has any other authorized class or classes of securities of any
kind, whether debt or equity. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable is free of
any Adverse Claims, and has not been issued in violation of applicable
securities laws or of any preemptive rights or other rights to subscribe for,
purchase or otherwise acquire securities. No Subsidiary holds any shares of its
capital stock in its treasury or otherwise, and no shares of any Subsidiary's
capital stock are reserved by such Subsidiary for issuance. Except as set forth
in the Disclosure Schedule, neither the Company nor any Subsidiary owns or
controls, directly or indirectly, any debt, equity or other financial or
ownership interest in any other Person.
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(c) Affiliates. Included in the Disclosure Schedule is a
complete and accurate list of all Persons (other than the Seller or any of the
Persons described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has acquired, or agreed to acquire, whether
by merger or consolidation, by purchase of equity interests or assets, or
otherwise, any business or any other Person, or otherwise acquired, or agreed to
acquire, any assets that are material, either individually or in the aggregate,
to the Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding
subscriptions, warrants, options, rights, agreements, convertible securities or
other commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and
delivered by the Company and the Seller and constitutes the legal, valid and
binding obligation of the Company and the Seller, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full
legal and beneficial title to his Shares and has full power, right and authority
to sell and deliver such Shares in accordance with this Agreement, free of any
Adverse Claims. There are no existing agreements, subscriptions, options,
warrants, calls, commitments, conversion rights or other rights of any character
to purchase or otherwise acquire from the Seller at any time, or upon the
happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is
a listing of all names of all predecessor companies for the past five years of
the Company, including the names of any entities from whom the Company
previously acquired material assets outside the ordinary course of business.
Except as disclosed in the Disclosure Schedule, the Company has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
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3.8. Legal Proceedings.
(a) The Seller. There is no Legal Proceeding or Order pending
against, or to the knowledge of the Seller, threatened against or affecting, the
Seller or any of his properties or otherwise, that could adversely affect or
restrict the ability of the Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
the validity of this Agreement. The Seller does not have knowledge of any fact,
event, condition or circumstance that could reasonably be expected to give rise
to the commencement of any Legal Proceeding or the entering of any Order against
the Seller that could adversely affect or restrict the ability of the Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule
completely and accurately lists and fully describes all Orders outstanding
against the Company or any of its Subsidiaries. In addition, the Disclosure
Schedule completely and accurately lists and fully describes each pending, and,
to the Company's or the Seller's knowledge, each threatened, Legal Proceeding
that has been commenced, brought or asserted by (i) the Company or any of its
Subsidiaries, as the case may be, against any Person or (ii) any Person against
the Company or any of its Subsidiaries, as the case may be. Neither the Company
nor the Seller has knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries
is operating in compliance with all Requirements of Law applicable to it or any
of its respective properties or to which the Company or any of its Subsidiaries
or any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor the
Seller has received any notice from any Person concerning alleged violations of,
or the occurrence of any events or conditions resulting in alleged noncompliance
with, any Requirement of Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or to which the Company or
any of its Subsidiaries or any of their respective properties is bound or
subject including, without limitation, any of the Credit Acts. None of the
Company, the Seller, any of their respective Affiliates (other than a Person who
is an Affiliate solely by virtue of clause (iii) of the definition thereof), or
any of such Affiliates' respective Affiliates (other than a Person who is an
Affiliate solely by virtue of clause (iii) of the definition thereof) has made
any illegal kickback, bribe, illegal gift or illegal political contribution to
or on behalf of any customer, or to any officer, director, employee of any
customer, or to any other Person.
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3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and
accurate list of all consulting or similar Contracts to which the Company or any
of its Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Seller have delivered or caused to be delivered to the
Purchaser true and complete copies of all such Contracts, each of which is
included in the Disclosure Schedule. Since the Balance Sheet Date, neither the
Company nor any of its Subsidiaries has increased the compensation payable to
its consultants or the rate of compensation payable to its consultants. To the
knowledge of the Company and the Seller, no individuals retained by the Company
or any of its Subsidiaries as an independent contractor or consultant would be
reclassified by the IRS, the U.S. Department of Labor or any other Governmental
or Regulatory Authority as an employee of the Company or of any of its
Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and
accurate list of the name of each employee of the Company and of each of its
Subsidiaries, together with such employee's position or function, the rate of
hourly, monthly or annual compensation (as the case may be) paid or to be paid
to such employee in 1995, 1996 and, to the extent known, 1997, any accrued sick
leave or pay or vacation and any incentive or bonus arrangement with respect to
any such employee. Except as is set forth in the Disclosure Schedule, since the
Balance Sheet Date, neither the Company nor any of its Subsidiaries has
increased the compensation payable to its employees or the rate of compensation
payable to its employees. The Disclosure Schedule also identifies those
employees with whom the Company or any of its Subsidiaries has entered into an
employment Contract or a Contract obligating the Company or any such Subsidiary
to pay severance or similar payments to any employee. The Company and the Seller
have delivered or caused to be delivered to the Purchaser true and complete
copies of such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or the Seller, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no,
work stoppage, strike, slowdown, picketing or other labor disturbance or
controversy by or with respect to any of the employees of the Company or any of
its Subsidiaries. In addition, no dispute with or claim against the Company
relating to any labor or employment matter including, without limitation
employment practices, discrimination, terms and conditions of employment, or
wages and hours, is outstanding or, to either of the Company or the Seller's
knowledge, is threatened. There is no claim or petition pending before, and at
no time since January 1, 1992 has there been, any claim or petition made to, any
Governmental or Regulatory Authority including, without limitation, the National
Labor Relations Board or the Equal Employment
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Opportunity Commission against the Company or any of its Subsidiaries with
respect to any labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate
list and description of each Employee Benefit Plan. With respect to each
Employee Benefit Plan, the Company and the Seller have delivered or caused to be
delivered to the Purchaser true and complete copies of (i) the plan document,
trust agreement and any other document governing such Employee Benefit Plan,
(ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
(b) Each of the Employee Benefit Plans has been operated and
administered in compliance with their respective terms and all applicable
Requirements of Law including, without limitation, ERISA and the Code. The
Company has not incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the PBGC in connection with any Employee
Benefit Plan (or other class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax
qualified under the Code is identified as such on the Disclosure Schedule
attached to this Agreement. Each such Employee Benefit Plan has received, or the
Company has applied for or will in a timely manner apply for, a favorable
determination letter from the IRS stating that such Employee Benefit Plan meets
the requirements of the Code and that any trust or trusts associated therewith
are tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan"
covering employees of the Company or any of its Subsidiaries within the meaning
of Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer
Plan" within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums
required to be made with respect to the Employee Benefit Plans including,
without limitation, the payment of the applicable premiums on any insurance
Contract funding an Employee Benefit Plan, have been fully paid in such a manner
as not to cause any interest, penalties or other amounts that have not been
satisfied or discharged to be assessed against the Company or any of its
Subsidiaries with respect thereto.
(f) The Company has complied with the reporting and disclosure
requirements of ERISA applicable to the Employee Benefit Plans and the
continuation coverage requirements of the Code and ERISA applicable to any of
the Employee Benefit Plans.
(g) There has been no "prohibited transaction" or "reportable
event" within the meaning of the Code or ERISA within the last sixty (60)
months, or breach of
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fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Surviving Corporation, the Company or any of their
respective Subsidiaries to any tax, penalty or other liability under the Code or
ERISA.
(h) No Employee Benefit Plan has been terminated within the
past sixty (60) months. There are no Legal Proceedings or claims with respect to
any of the Employee Benefit Plans (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course of
business) pending or, to the knowledge of the Company or the Seller threatened,
and to the knowledge of the Company or the Seller, there are no facts, events,
conditions or circumstances that could give rise to any such Legal Proceeding or
claim (other than routine claims for benefits from eligible participants or
beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever
sponsored, maintained or contributed to, or been obligated to contribute to, any
employee benefit plan subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical
benefits, post retirement death benefits or any post retirement welfare benefits
of any fund whatsoever.
(k) There are no current or former employees of the Company or
any of its Subsidiaries who are on leave of absence under either of the
Uniformed Services Employment or Reemployment Rights Act or the Family Medical
Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of
their respective officers, directors or significant employees (as such term is
defined in Regulation S-K of the Securities Act), or any other Person has made
any statement or communication or provided any materials to any employee or
former employee of the Company of any of its Subsidiaries that provides for or
could be construed as a contract, agreement or commitment by the Purchaser or
any of its Affiliates to provide for any pension, welfare, or other employee
benefit or fringe benefit plan or arrangement to any such employee or former
employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in any increase in or acceleration of any obligation or liability under any
Employee Benefit Plan or to any employee or former employee of the Company or
any of its Subsidiaries.
3.12. Financial Statements.
(a) The Company and the Seller have delivered or caused to be
delivered to the Purchaser a copy of the Company's consolidated balance sheets
as of October 31, 1995 and 1996 and July 31, 1997 and the related statements of
operations, shareholders'
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equity and cash flows for the years then ended, together with all proper
exhibits, schedules and notes thereto, (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The books and records of the Company accurately and fairly
reflect, in reasonable scope and detail and in accordance with good business
practice, the transactions and assets and liabilities of the Company and such
other information as is contained therein.
(c) Since the Balance Sheet Date, (i) the Company and each of
its Subsidiaries have operated, and the Seller has caused the Company and each
of its Subsidiaries to operate, their respective Businesses in the normal and
ordinary course in a manner consistent with past practices, (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon Company or any of
its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv) neither
the Company nor any of its Subsidiaries has made or committed to make any
capital expenditure or capital addition or betterments in excess of an aggregate
of $10,000; and (v) neither the Company nor any of its Subsidiaries has made any
gift or contribution (charitable or otherwise) to any Person (other than gifts
made since the Balance Sheet Date which, in the aggregate, do not exceed
$5,000).
(d) On the Closing Date, the Company and the Seller will also
deliver or caused to be delivered to the Purchaser a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, except as set forth
in the Disclosure Schedule, all of which have been maintained in accordance with
good business practice and in the normal and ordinary course of business, and
will be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and
accurately lists and fully describes (i) all dividends, distributions,
redemptions or payments declared, accrued, accumulated or made in respect to any
of the Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company or any of its Subsidiaries, and (iii) any other
amounts to which any Person is entitled to receive pursuant to any dividend or
distribution right in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the
extent reflected on, or fully reserved against in, the balance sheet of the
Company and its Subsidiaries at July 31,
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1997 including, without limitation, all notes thereto, prepared in accordance
with GAAP (the "Company Balance Sheet"), neither the Company nor any of its
Subsidiaries has any liabilities or obligations, whether direct or indirect,
matured or unmatured, contingent or otherwise, except for liabilities or
obligations that were incurred consistently with past business practice in or as
a result of the normal and ordinary course of business since July 31, 1997.
3.15. Real Property.
(a) The Disclosure Schedule contains a complete and accurate
list of all the locations of all Real Property owned or leased by the Company or
any of the Subsidiaries and the name and address of the lessor and, if a Person
different than such lessor, the manager thereof. The Company and the Seller have
delivered or caused to be delivered to the Purchaser true and complete copies of
all Contracts related to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, the Seller, the Company or any of its Subsidiaries is a
party to any Contract that commits or purports to commit the Company or any of
its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Real Property, (iii) is free of all Adverse Claims, and (iv)
constitutes a valid and binding obligation of, and is enforceable in accordance
with its terms against, the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Seller, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and
there has been no damage, destruction or loss to any of the Real Property that
remains unremedied to date (ordinary wear and tear excepted) and (ii) suitable
to carry out each of the Company's and its Subsidiaries' respective Business as
conducted thereon.
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(e) There are no condemnation, appropriation or other
proceedings involving any taking of the Real Property pending, or to the
knowledge of the Company or the Seller, threatened, against any of the Real
Property.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any Real Property, the lease of Real
Property or acquisition of new businesses, with respect to which the Company or
any Subsidiary has made any expenditure in the two-years prior to the date of
this Agreement in excess of $10,000, or which if pursued by the Company would
require additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases
all such properties as are presently used in the conduct of their respective
Businesses and operations. The Company and the Seller have delivered or caused
to be delivered to the Purchaser true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
(b) Since the Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred or suffered any material physical damage,
destruction, theft or loss of their respective tangible items of material
personal property, whether owned or leased. All material Tangible Personal
Property including, without limitation, all computer hardware and software
(including all operating and application systems), is in good working order,
condition
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and repair and suitable to carry out each of the Company's and its Subsidiaries'
respective Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible
Personal Property (i) is in full force and effect, (ii) affords the Company or
such Subsidiary, as the case may be, peaceful, undisturbed and exclusive
possession of the applicable Tangible Personal Property, (iii) is free of all
Adverse Claims and (iv) constitutes a valid and binding obligation of, and is
enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Company and each of its Subsidiaries has performed the
obligations required to be performed by it to date under all Contracts relating
to or affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Seller,
has threatened to terminate or not renew any such Contract or (iii) to the
knowledge of the Company and the Seller, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Seller, no event
or condition has occurred, whether with or without the passage of time or the
giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and
accurate list of each Contract described below to which either the Company or
any of its Subsidiaries or any of their respective properties is party or is
otherwise bound or subject:
(i) each Contract with the Company's or any of its
Subsidiaries', as applicable, customers (but only if such customers are among
the Company's twenty-five highest, in terms of dollar value of purchases, for
the twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint
venture or arrangement that involves a sharing of profits (whether through
equity ownership, Contract or otherwise) with any other Person;
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(iii) any Contract that purports to or has the effect of
limiting either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of
either Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the
Company or any of its Subsidiaries has created, incurred, assumed or guaranteed
any indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary
course of the applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within
one of the foregoing categories described in (i) through (vi) above or (z) is
not otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act to be
attached as an exhibit to any registration statement on Form S-1 filed by either
the Company or any of its Subsidiaries under the Act if the Company were to file
such a registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) is valid and binding on each of the parties thereto in
accordance with its terms, (ii) was made in the normal and ordinary course of
the Business and (iii) contains no provision or covenant prohibiting or limiting
the ability of the Company or any Subsidiary to operate their respective
Businesses.
(c) No party to any material Contract to which the Company or
any of its Subsidiaries or any of their respective properties is a party or is
otherwise bound or subject (i) has provided any notice to the Company or any of
its Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Seller,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Seller, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Seller, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
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(d) Except as set forth in the Disclosure Schedule, no Consent
of any party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject is required in connection with the transactions contemplated by
this Agreement.
(e) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete
and accurate list of all insurance policies held by the Company and by each of
its Subsidiaries identifying all of the following for each such policy: (i) the
type of insurance; (ii) the insurer; (iii) the policy number; (iv) the
applicable policy limits, (v) the applicable periodic premium; and (vi) the
expiration date. Each such insurance policy is valid and binding and is and has
been in effect since the date of its issuance. All premiums due thereunder have
been paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or the Seller, no such insurer is the subject of
insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and
accurate list and full description of each item of the Company's and each of its
Subsidiaries Intellectual Property together with, in the case of registered
Intellectual Property: the (i) applicable registration number; (ii) filing,
registration, issue or application date; (iii) record owner; (iv) country; (v)
title or description; and (vi) remaining life. In addition, the Disclosure
Schedule identifies whether each item of Intellectual Property is owned by the
Company or any of its Subsidiaries or possessed and used by the Company or such
Subsidiary under any Contract. The Intellectual Property constitutes valid and
enforceable rights and does not infringe or conflict
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with the rights of any other Person; provided that to the extent the foregoing
relates to Intellectual Property used but not owned by the Company, such
representation and warranty is given solely to the knowledge of the Company and
the Seller.
(b) There is neither pending, nor to the Company's or the
Seller's knowledge, threatened, any Legal Proceeding against the Company or any
of its Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's and the Seller's
knowledge, is there a basis for such a notice. To the Company's and the Seller's
knowledge, no Person, is infringing the Company's or any of its Subsidiaries
rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any obligation to compensate
others for the use of any Intellectual Property. In addition, except as
otherwise provided on the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has granted any license or other right to use, in any manner,
any of the Intellectual Property, whether or not requiring the payment of
royalties.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the
operation of each of their respective Businesses is and has been in compliance
with all applicable Environmental Laws.
(b) There have occurred no and there are no events,
conditions, circumstances, activities, practices, incidents, or actions on the
part of, or caused by, the Company (or, to the knowledge of the Company and the
Seller, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Company or any of its Subsidiaries, based
upon or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
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(c) To the knowledge of the Company and the Seller, there is
no asbestos contained in or forming a part of any building, structure or
improvement comprising a part of any of the Real Property. To the knowledge of
the Company and the Seller, there are no polychlorinated biphenyls (PCBs)
present, in use or stored on any of the Real Property. To the knowledge of the
Company and the Seller, no radon gas or the presence of radioactive decay
products of radon are present on, or underground at any of the Real Property at
levels beyond the minimum safe levels for such gas or products prescribed by
applicable Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their
respective employees, independent contractors and agents has obtained and holds
in full force, and the Disclosure Schedule sets forth a complete and accurate
list of, all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not (i) result
in or give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is
no Order outstanding against the Company or any of its Subsidiaries, nor is
there now pending, or to the Company's or the Seller's knowledge, threatened,
any Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries
has filed all registrations, filings, reports, or submissions that are required
by any Requirement of Law. All such filings were made in compliance with
applicable Requirements of Law when filed and no deficiencies have been asserted
by any Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and
timely filed all Tax Returns. Each such Tax Return as amended, (if amended) is
true, accurate and complete. The Company and each of its Subsidiaries has paid
in full all Taxes for the period covered by such Tax Return. All Taxes not yet
due and payable have been withheld or reserved for or, to the
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extent that they relate to periods on or prior to the date of the Company
Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with
all applicable Requirements of Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Requirements
of Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries that has not been resolved and
paid in full or fully reserved for and identified on the Company Balance Sheet
and, to the knowledge of the Company and the Seller, no deficiency for any Taxes
has been proposed that has not been fully reserved for and identified on the
Company Balance Sheet. Neither the Company nor any of its Subsidiaries has
received any outstanding and unresolved notices from the IRS or any other Taxing
Authority of any proposed examination or of any proposed change in reported
information relating to the Company or any such Subsidiary. Except as set forth
in the Disclosure Schedule (which sets forth the nature of the proceeding, the
type of Tax Return, the deficiencies proposed or assessed and the amount
thereof, and the taxable year in question), no Legal Proceeding or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or
any of its Subsidiaries regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge
of the Company and the Seller, is any request for any such waiver or consent
pending.
(e) There are no liens or encumbrances of any kind for Taxes
upon any assets or properties of the Company or any of its Subsidiaries other
than for Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party
to any Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed
to make, nor is any of them required to make, any adjustment under Section
481(a) of the Code for any period ending after the Closing Date by reason of a
change in accounting method or
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otherwise and neither the Company nor any of its Subsidiaries has any knowledge
that the IRS has proposed such adjustment or change in accounting method.
(i) None of the assets of the Company or any of its
Subsidiaries is required to be treated as owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party
to any venture, partnership, Contract or arrangement under which it could be
treated as a partner for federal income tax purposes other than Inter Linx
Global Information Exchange LLC.
(k) Neither the Company nor any of its Subsidiaries has a
permanent establishment located in any tax jurisdiction other than the United
States, nor are any of them liable for the payment of Taxes levied by any
jurisdiction located outside the United States.
(l) Except as provided in the Disclosure Schedule, other than
in respect of a period for which a Tax is not yet due, no state of facts exists
or has existed that would constitute grounds for the assessment of any Tax
liability with respect to a period that has not been audited by the IRS or any
other Taxing Authority.
(m) Except as provided in the Disclosure Schedule, no power of
attorney has been granted by the Company or any of its Subsidiaries with respect
to any matter relating to Taxes that is currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(o) Neither the Company nor any of its Subsidiaries is a party
to any Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code ss.338 (or any predecessory
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Code ss.279(b).
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3.24. Investment Portfolio. Except as set forth in the Disclosure
Schedule attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and
fully describes each Contract, transaction or series of transactions, whether
written or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of the
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Company or any of its Subsidiaries maintains any
account (whether checking, savings, investment, trust or otherwise), lock box or
safe deposit box (collectively, the "Accounts"), and the account numbers and
name of the Persons having authority to affect transactions with respect thereto
or other access thereto. The Disclosure Schedule also sets forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or any Subsidiary and a description of the
terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule,
since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
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3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists
the names of the Company's and each of its Subsidiaries' respective directors,
executive officers, and any of their respective significant employees (as such
term is defined in Regulation S-K under the Securities Act) and the compensation
payable to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to
this Agreement, none of the Seller or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition
under the Federal bankruptcy laws or any state insolvency or similar law, or (y)
had a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position having
similar powers and authority at or within two (2) years of the date of such
filing;
(ii) been convicted of, or pled guilty or no contest to,
any crime (other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal
Proceeding (other than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating
to an alleged violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to securities or
commodities, (y) any Requirement of Law respecting financial institutions,
insurance companies, or fiduciary duties owed to any Person, (z) any Requirement
of Law prohibiting fraud (including, without limitation, mail fraud or wire
fraud);
(v) been the subject of any Order enjoining or otherwise
prohibiting him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a
self- regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the Commodity
Exchange Act, as amended, or (z) any substantially equivalent foreign authority
or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
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3.30. Brokers or Finders. Except as set forth in the Disclosure
Schedule, neither the Company, any of its Subsidiaries nor the Seller has
engaged the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or the Surviving
Corporation for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Company, its Subsidiaries or
the Seller. Without degradation to any of the foregoing, the Company, its
Subsidiaries and the Seller are solely responsible for the payment of the
commissions, fees and other compensation payable to the Person having any such
right, interest or claim on account of any action on the part of the Company,
its Subsidiaries or the Seller, including, without limitation, the Persons
identified on the Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely
lists the names of the twenty-five largest customers (in terms of dollar value
of purchases) of the Company and each of its Subsidiaries and details the
Company's and each such Subsidiary's total revenue attributable to each such
customer for the 1995, 1996 and 1997 fiscal years and the current fiscal year to
date. Except as set forth in the Disclosure Schedule, there has been no adverse
change in the Company's or any of its Subsidiaries' business relationship with
any such customer that, in the aggregate, would have a Material Adverse Effect
upon the Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940 and the rules and regulations promulgated thereunder, as
amended from time to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as
set forth on the Disclosure Schedule there has not been with respect to the
Company and any Subsidiary:
(i) any event or circumstance (either singly or in the
aggregate) which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities
outstanding, or ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or
distribution in respect of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of
its capital stock, except any declaration of dividends payable
by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by
it to any of its respective officers, directors, stockholders,
employees, consultants or
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agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character that
would have a Material Adverse Effect;
(vi) any distribution, sale or transfer, or any
agreement to sell or transfer, any material assets, property
or rights of any of its respective business to any person,
including, without limitation, the Seller and their
affiliates, other than distributions, sales or transfers in
the ordinary course of business to persons other than the
Seller and their affiliates;
(vii) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to
it, including without limitation any indebtedness or
obligation of the Seller or any affiliate thereof, other than
the negotiation and adjustment of bills in the course of good
faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any
of its assets, property or rights or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(ix) any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course
of their respective businesses; or
(xii) any cancellation or termination of a material
Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of
the Company and the Seller, all information furnished, to be furnished or caused
to be furnished to the Purchaser by the Company or the Seller with respect to
the Seller, the Company or any of its Subsidiaries for the purposes of or in
connection with this Agreement, or any transaction contemplated by this
Agreement is or, if furnished after the date of this Agreement, shall be true
and complete in all material respects and does not, and, if furnished after the
date of this Agreement, shall not, contain any untrue statement of material fact
or fail to state any material fact necessary to make such information not
misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby, represents and warrants to the Seller and the
Company as follows:
4.1. Organization.
(a) The Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation,
(ii) has the power and authority to own and operate its properties and assets
and to transact its business as currently conducted and (iii) is duly qualified
and authorized to do business and is in good standing in all jurisdictions where
the failure to be duly qualified, authorized and in good standing would have a
material adverse effect upon the Purchaser's businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise).
(b) True and complete copies of the Purchaser's articles of
incorporation and bylaws are attached hereto as Schedule 4.1(b). Such articles
and bylaws shall be amended prior to the Closing as further set forth and
described in the Registration Statement attached hereto as Schedule 14.2.
4.2. Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Purchaser (i) are within the Purchaser's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental body, agency or official, except as set forth in this
Agreement or (B) contravene, violate or constitute, whether with or without the
passage of time or the giving of notice or both, a breach or a default under,
any Requirement of Law applicable to the Purchaser or any of its properties or
any Contract to which it or any of its properties are bound, except filings and
approvals in connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending
against or, to the knowledge of the Purchaser, threatened against or affecting,
the Purchaser or any of its properties or otherwise that could adversely affect
or restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1
and any amendment thereto which is filed with the Securities and Exchange
Commission in connection with the Initial Public Offering will have been
prepared in all material respects in compliance
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with the requirements of the Securities Act and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein; provided, however, that insofar as the foregoing relates to
information in the Registration Statement that relates to the Company, the
Seller or any of the other Founding Companies, such representation and warranty
shall be deemed based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services
of any broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Seller for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
4.7. Capitalization. The total outstanding capital authorized of the
Purchaser is 40 million shares of DocuNet Common Stock and 10 million shares of
preferred stock, no par value per share.
ARTICLE 5
COVENANTS
.
5.1. Good Faith. Each of the Company, the Seller and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Seller and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. The Seller shall use his or its
commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company or the Purchaser to
amend the provisions of this Agreement, to pay or cause any of their respective
Affiliates to pay any money, or to provide or cause any of their respective
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
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(a) The Company will, and the Seller will and will cause the
Company and each of its Subsidiaries to, cooperate with the Purchaser in
connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and the Seller will and will cause the Company and each of its
Subsidiaries to, afford to the Purchaser and its agents, legal advisors,
accountants, auditors, commercial and investment banking advisors and other
authorized representatives, agents and advisors reasonable access to all of the
properties and books and records of the Company or any of its Subsidiaries
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Purchaser to make such investigation and examination of the business and
properties of the Company and any of its Subsidiaries as the Purchaser, in its
discretion, shall deem necessary, appropriate or desirable. Any such
investigation, access and examination shall be conducted upon reasonable prior
notice under the circumstances. The Company will, and the Seller will cause the
Company and each of its Subsidiaries to, cause each of their respective
directors, officers, employees and representatives, including, without
limitation, their respective counsel and accountants, to cooperate fully with
the Purchaser, in connection with such investigation, access and examination.
The results of such investigation and examination is for the Purchaser's sole
benefit, and shall not (i) impair or reduce any representation or warranty made
by the Company or the Seller in this Agreement, (ii) relieve the Company or the
Seller from his obligations with respect to such representations and warranties
(including, without limitation, the Seller's obligations under Article 10), or
(iii) mitigate the Company's and the Seller's obligations to otherwise disclose
all material facts to the Purchaser with respect to the Company, each of its
Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and the
Seller in connection with the transactions contemplated by this Agreement and
any Purchaser Financing Transaction, including, without limitation, cooperating
in the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Purchaser will afford to the Company, the Seller and their agents, legal
advisors and accountants reasonable access to all of the properties and books
and records of the Purchaser (including those in the possession or control or
its accountants, attorneys and any other third party), as the case may be, for
the purpose of permitting the Company and the Seller to make such investigation
and examination of the business and properties of the Purchaser and any of its
Subsidiaries as the Company and the Seller, in its discretion, shall deem
necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Company and the Seller, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Company's and Seller's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Purchaser in this
Agreement, (ii) relieve the Purchaser from its obligations with respect to such
representations and warranties (including, without limitation, the
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Purchaser's obligations under Article 10), or (iii) mitigate the Purchaser's
obligations to otherwise disclose all material facts to the Company and the
Seller with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or the Seller's discovery of
the occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Shares, or the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company or any of its
Subsidiaries, the Seller shall, and shall cause the Company or the applicable
Subsidiary to, as the case may be, notify the Purchaser of such development,
event, circumstance or condition. In the event that the Purchaser receives such
notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Seller to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and the Seller
the opportunity to cure the matter giving rise to the termination right (but for
no longer than five days following the date Purchaser notifies the Company or
the Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
(b) Promptly upon the Company's or the Seller's discovery of
any fact, event, condition or circumstance that causes any representation or
warranty made by the Company or the Seller inaccurate at any time after the date
of this Agreement, the Seller shall, and shall cause the Company and its
Subsidiaries to, notify the Purchaser of such fact, event, condition or
circumstance.
5.5. Information Required For Purchase Financing Transactions. The
Company shall and shall cause its Subsidiaries to, and the Seller shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser with the following information:
(a) the Company's audited consolidated balance sheet as of
July 31, 1997 and the related statements of operations, shareholders' equity and
cash flows for the year then ended, together with all proper exhibits, schedules
and notes thereto, audited by Arthur Andersen LLP, all of which shall be
prepared in accordance with GAAP consistently applied with prior periods and
shall present fairly the financial position of the Company and its Subsidiaries
for the year then ended and the results of operations and changes in
shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by
the Purchaser or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company
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maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP applied on
a consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of the
Company and its Subsidiaries as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to themselves
as the Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, the Seller and the
Purchaser shall, and the Seller shall cause the Company and each of its
Subsidiaries to, take all reasonable steps necessary or appropriate and use all
commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Seller and the Purchaser to consummate the transactions
contemplated by this Agreement including, without limitation, all conditions
precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after
the date of this Agreement to the Closing Date, the Company shall, and Seller
shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's
Business in substantially the same manner as it has heretofore and not introduce
any material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's
corporate existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to
preserve intact the Company's and each such Subsidiary's business relationships
with its agents, customers, employees, creditors and others with whom the
Company or each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's
assets, properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to the
profitable conduct of their respective Businesses;
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(f) to pay when due all Taxes lawfully levied or assessed
against the Company or any such Subsidiary, as the case may be, before any
penalty or interest accrues on any unpaid portion thereof and to file all Tax
Returns when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by proper
proceedings and for which appropriate reserves as may be required by GAAP have
been established;
(g) to maintain in full force and effect all policies of
insurance adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies of
established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to
which the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) except to the extent set forth on Schedule 2.8(b)(4) to
maintain present debt and lease instruments and not enter into new or amended
debt or lease instruments over Ten Thousand Dollars ($10,000), without the
knowledge and consent of the Purchaser, which consent shall not be unreasonably
withheld; and
(j) to collect accounts receivable in a manner consistent with
past practices.
5.8. Negative Covenants. Except as set forth in the Disclosure
Schedule, during the period from and after the date of this Agreement until the
Closing Date, the Company shall not, and the Seller shall not cause the Company
or any of its Subsidiaries to do, and shall not permit the Company or any such
Subsidiary to do, directly or indirectly, any of the following without the
express prior written consent of the Purchaser, which consent shall not be
unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the
Company's or any such Subsidiary's certificate or articles of incorporation,
by-laws or any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to
purchase or lease any real property;
(c) grant any salary increase or permit any advance to any
director, officer or employee or enter into any new, or amend or otherwise
alter, any Employee Benefit Plan, or any employment or consulting Contract, or
any Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any
borrowings or otherwise create, incur, assume or guaranty any indebtedness
(except for the endorsement of negotiable instruments for deposit or collection
or similar transactions in the normal and ordinary
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course of the Business), issue any commercial paper, or refinance or prepay any
existing borrowings or indebtedness; provided that no borrowings may be made
without Purchaser's consent which include prepayment penalties or restrictions
on prepayment;
(e) enter into any Permit other than in the normal and
ordinary course of business;
(f) enter into any Contract, other than in the ordinary course
of the Business; provided that any Contract permitted to be entered into
pursuant to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance
on any of the Company's or any of its Subsidiaries' assets or the incurrence by
the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of Ten Thousand
Dollars ($10,000) and cause the aggregate commitment under all such new
Contracts to exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any
contribution (charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem,
subdivide, combine, change or purchase any of the Company's or any of its
Subsidiary's shares, notes or other securities, whether debt or equity, or make
any Contract or commitments to do so;
(i) enter into any transaction with any Affiliate of the
Seller, the Company or any of its Subsidiaries including, without limitation the
purchase, sale or exchange of property with, the rendering of any service to, or
the making of any loans to, any such Affiliate (provided that the foregoing will
not restrict the Company's ability to pay dividends on its Common Stock);
(j) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option or other
right to acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate,
with or into any other Person or acquire or agree to acquire or be acquired by
any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, hypothecate, transfer or otherwise dispose of, any of the Company's or
any of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
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(n) (i) change any of its methods of accounting in effect as
at the Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation of
income Tax Returns for the taxable year ended July 31, 1997, except, in either
case, as may be required by any applicable Requirement of Law, the IRS or GAAP;
(o) from July 31, 1997 until Closing, enter into any Contract
or make any commitment to make any capital expenditures or capital additions or
betterments in excess of an aggregate of $75,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited transaction"
involving any Employee Benefit Plan, (iii) fail to pay to any Employee Benefit
Plan any contribution which it is obligated to pay under the terms of such
Employee Benefit Plan, whether or not such failure to pay would result in an
"accumulated funding deficiency" or (iv) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Employee Benefit Plan. As used
in this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA;
(q) enter into any transaction or conduct any operations not
in the normal and ordinary course of business;
(r) enter into any Contract or make any commitment to do any
of the foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor the Seller
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and the Seller shall and shall cause the Company and each of its Subsidiaries
to,
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advise the Purchaser promptly of their or its receipt of any written offer or
written proposal concerning the Shares, the Company, any of its Subsidiaries,
any part of their respective Businesses or any material interest therein, and
the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the
Company nor the Seller shall issue any public report, statement, press release
or similar item or make any other public disclosure with respect to the
execution or substance of this Agreement prior to the consultation with and
approval of the Purchaser. In addition, prior to Closing, before Purchaser
issues a public statement that refers to the Company or the Seller (other than
in the Registration Statement) Purchaser will endeavor to consult with Seller to
the extent time permits. Nothing contained herein shall restrict the ability of
the Company or the Seller from contacting a third party in order to obtain a
Consent to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Disclosure Schedule or any other Schedules
hereto with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule, provided that no amendment or
supplement to the Disclosure Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect
shall be effective unless the Purchaser consents to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 6 and 7
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 5.11. Except as otherwise
provided herein, no amendment of or supplement to a Schedule shall be made later
than 24 hours prior to the anticipated effectiveness of the Registration
Statement in connection with the Initial Public Offering (the "Registration
Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and the Seller shall furnish or cause to be
furnished to the Purchaser and the underwriters of the Initial Public Offering
(the "Underwriters") all of the information concerning the Company or the Seller
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Company and the Seller agree promptly to advise the Purchaser
if at any time during the period in which a prospectus relating to the Purchaser
Financing Transaction is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the Seller
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy. The Purchaser agrees to use its
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable,
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to furnish the Company with a copy thereof and each amendment thereto in
substantially the form in which it is to be filed as promptly as reasonably
practicable prior to such filing (it being understood that neither the Company
nor the Seller have any obligation to review the same other than with respect to
information regarding the Company or the Sellers) and diligently seek to cause
the Registration Statement to be declared effective and the Initial Public
Offering to be completed. The Purchaser agrees that neither the Seller nor the
Company shall have any responsibility for pro forma adjustments that may be made
to the Financial Statements.
(b) The Company and the Seller acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Seller, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Seller to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall
provide to Purchaser prior to the Closing Date unaudited consolidated balance
sheets of the Company for each month and fiscal quarter end between the date of
this Agreement and the Closing Date, and unaudited consolidated statements of
income, cash flows and retained earnings of the Company for such subsequent
months and fiscal quarters. In addition, the Company shall prepare and deliver
to Purchaser at Closing the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein), shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year end adjustments). Such financial
statements shall present fairly the results of operations of the Subsidiaries
for the periods indicated thereon.
5.13.AAudit Opinion. The parties acknowledge that the Financial
Statements identified in Section 3.12(a) have been reviewed by Arthur Andersen
LLP in anticipation of rendering its unqualified opinion thereon prior to
consummation of the Initial Public Offering.
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5.14. Lock-Up Agreements. In connection with the Initial Public
Offering, for good and valuable consideration, the Company and the Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Seller, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and the Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott Act may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act; (ii) such compliance by the Seller
and the Company shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement, and such
compliance by Purchaser shall be deemed a condition precedent in addition to the
conditions precedent set forth in Article 6 of this Agreement; and (iii) the
parties agree to cooperate and use their best efforts to cause all filings
required under the Hart-Scott Act to be made. If filings under the Hart-Scott
Act are required, the costs and expenses thereof (including filing fees) shall
be borne by Purchaser. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall
undertake any actions not contemplated by this Agreement that would cause the
merger to fail to qualify as a reorganization as defined under Section
368(a)(1)(A) of the Code.
5.17. Leases. DocuNet and the owners of the Real Property subject to
the Leases shall execute the Leases prior to, or at, the Closing.
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5.18. Real Property Distribution. Prior to the Closing, the
buildings owned by the Company on 3000 and 3002 DeSoto Street, Monroe,
Louisiana, will be distributed to the Seller or an entity of the Seller's
choosing, together with all obligations under the mortgage outstanding on such
buildings.
5.19. Subsidiary. Prior to the Closing, Inter Linx Global
Information Exchange, L.L.C., a Subsidiary of the Company ("Inter Linx"), shall
be dissolved and the Company will assume all operation so Inter Linx.
5.20. Debt Distribution. Prior to Closing, all liabilities of the
Company to Ray Blackwelder, together with all amounts outstanding thereunder
(including principal and unpaid interest), shall be assumed by Seller and the
Company's obligations thereunder satisfied and discharged; provided, however,
that the Company shall not in any way, whether by direct payment, prepayment or
financing, provide funds to satisfy and discharge such obligations.
5.21. Account Receivable Distribution. Prior to Closing, the
Receivable From Stockholder reflected on the Company Balance Sheet shall be
distributed to the Seller, the Seller shall assume all liabilities and
obligations, if any, under the split-dollar life insurance policies on the
Seller and Ray Blackwelder and the Company shall relinquish any rights to
reimbursement of provisions paid thereunder.
5.22. Right of First Refusal. Purchaser agrees that it shall not
sell or transfer to an unrelated third party ("Transfer") or close or
permanently discontinue ("Closure") any of the operations and assets of the
Company's current retail business, which includes art and engineering supplies,
blueprint reprographics and offset printing (the "Retail Business") without
first giving written notice to the Seller of an intention effect such Transfer
or Closure (the "Notice"). The Notice shall consist of (i) a statement of
Purchaser's bona fide intention to transfer and the identity and address of the
prospective transferee, if any; (ii) in the event of a proposed Transfer, the
terms of the proposed Transfer, including without limitation, any financing
arrangements known to the Purchaser (the "Transfer Terms"); and (iii) an offer
to sell the Retail Business to the Seller at the Transfer Terms, in the event of
a Transfer, or at the Closing Pricing (as defined below), in the event of a
Closure (the "Offer"). Seller shall have thirty (30) days from the date the
Notice is sent (the "Offering Period") to either accept or reject the Offer. In
the event that Seller accepts the Offer, Seller shall purchase the Retail
Business within fifteen (15) days of such acceptance. If Seller fails to respond
to the Offer prior to expiration of the Offering Period or rejects the Offer,
Purchaser shall be free to effect the Transfer or the Closure. The Closing Price
shall mean the price determined by a Certified Valuation Appraiser ("CVA")
mutually agreeable to both the Purchaser and the Seller, the costs of which
shall be jointly paid by the Purchaser and Seller (the "First Appraisal"). If
either Purchaser or Seller disagrees with the valuation, it may obtain a second
appraisal, at its own cost, by a CVA (the "Second Appraisal"). If the Second
Appraisal differs from the First Appraisal by more than 20%, then the CVAs
providing the First and Second Appraisals shall select a third CVA, the costs
and expenses of which shall be paid equally by the Purchaser and Seller, to
evaluate the methods of the first two appraisals (but not to conduct a third
appraisal). The third CVA will be directed to select between the First and
Second Appraisal, which shall become the
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Closing Price. Any taxes, fees or other costs to effect the foregoing transfer
or arising out of the sale will be paid equally by the Purchaser and Seller.
Seller's ownership (but not active involvement) shall not be subject to Section
8.2 of this Agreement.
5.23. Foreign Qualification. The Company shall qualify to do
business as a foreign corporation in the State of Mississippi prior to Closing.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser's Obligations. The
Purchaser's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Company and the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier date,
which representations and warranties shall be true and correct in all material
respects with regard to such earlier date. The Company and the Seller shall
deliver to the Purchaser a certificate dated the Closing Date, certifying that
all of the Company's and the Seller's representations and warranties contained
in this Agreement are true and correct on and as of the Closing Date as though
such representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and
the Seller shall have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and the Seller, as the case may be, at or
prior to the Closing Date. The Company and the Seller shall deliver to the
Purchaser a certificate, dated the Closing Date, certifying that the Company and
the Seller have fully performed and complied in all material respects with all
the duties, obligations and conditions required by this Agreement to be
performed and complied with by them at or prior to the Closing Date.
(c) Delivery of Documents. The Company and the Seller shall
have delivered to the Purchaser all documents, certificates, instruments and
items (including, without limitation, certificates representing the Shares)
required to be delivered by him, her or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and
all Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this Agreement
shall have been taken or obtained.
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(e) Financing. The Registration Statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except for:
(i) Debt for which an adjustment to the Base Purchase Price has been made under
Section 2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to
the Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the Books
and Records and with GAAP applied on a consistent basis (except for the absence
of notes and subject to normal year-end audit adjustments) and presents fairly
the financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of
this Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser to acquire or hold or to
exercise full rights of ownership of any shares or of any securities of the
Company or any of the Company's subsidiaries; (ii) imposing or seeking to impose
limitations on the ability of the Purchaser to combine and operate the business,
operations and assets of the Company or any of the Company's Subsidiaries with
the Purchaser's business, operations and assets; (iii) imposing or seeking to
impose other sanctions, damages or liabilities arising out of the transactions
contemplated by this Agreement on the Purchaser or any of the Purchaser's
directors, officers or employees; (iv) requiring or seeking to require
divestiture by the Purchaser of all or any material portion of the business,
assets or property of the Company or any of its Subsidiaries; or (v)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered
to the Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed
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(such date to be specified), (C) a true and correct copy of the Company's bylaws
as in effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Company's board of directors authorizing the actions taken in
connection with the Merger, including as applicable, without limitation, the
execution, delivery and performance of this Agreement were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the Company's incumbent officers and including
specimen signatures on such certificate or certificates as their genuine
signatures; and (iii) the Company is in good standing in all jurisdictions where
the ownership or lease of property or the conduct of its business requires it to
qualify to do business, except for those jurisdictions where the failure to be
duly qualified, authorized and in good standing would not have a material
adverse effect upon the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) on the Company. The
certification referred to above in (iii) shall attach certificates of good
standing certified by the Secretaries of State or other appropriate officials of
such states, dated as of a date not more than a five (5) days prior to the
Closing Date.
(k) Opinion of Counsel of Seller. Phelps, Dunbar, L.L.P.,
counsel for the Company and the Seller, shall have delivered to the Purchaser
their favorable opinion, dated the Closing Date, as to the matters covered in
Schedule 6.1(k). In rendering such opinion, counsel may rely to the extent
recited therein on certificates of public officials and of officers of Seller as
to matters of fact, and as to any matter which involves other than federal or
Louisiana law, such counsel may rely upon the opinion of local counsel
reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing
agreements between the Company and the Seller, Affiliates of the Company or the
Seller, other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on
Schedule 6.1(m) shall have entered into an employment agreement (collectively,
the "Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) FIRPTA Certificate. The Seller shall have delivered to the
Purchaser a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(o) Insurance. The Purchaser shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(p) Escrow Agreement. The Seller and the Company shall have
executed the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Seller's Obligations. The
Company's and Seller's obligations to consummate the transactions contemplated
by this
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Agreement are subject to the satisfaction of, or waiver in writing by the Seller
of, prior to or at the Closing, each and every of the following conditions
precedent:
(a) Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the date of the
Closing Date, with the same force as though such representations and warranties
had been made on and as of the Closing Date except for those representations and
warranties that by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser shall deliver to the Seller a certificate,
executed by a duly authorized officer of the Purchaser, dated as of the Closing
Date, certifying that all of its representations and warranties contained in
this Agreement are true and correct on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by them at or prior to the Closing Date. The Purchaser shall deliver
to the Seller a certificate, dated the Closing Date, certifying that each of
them has fully performed and complied in all material respects with all the
duties, obligations and conditions required by this Agreement to be performed
and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered
to the Seller all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not
have been instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Seller to consummate the Merger; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any of
its Subsidiaries or any of their respective directors, officers or employees or
on any of the Seller; or (iii) restraining, enjoining or prohibiting or seeking
to restrain, enjoin or prohibit the consummation of transactions contemplated by
this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered
into the Employment Agreements with each of the persons listed on Schedule
6.1(m).
(g) Secretary's Certificate. The Purchaser shall have
delivered to the Seller a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Purchaser's articles or certificate of
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incorporation attached to the certificate is true, correct and complete, (B) no
amendment to such articles or certificate of incorporation has occurred since
the date of the last amendment annexed (such date to be specified), (C) a true
and correct copy of the such entity's bylaws as in effect on the date thereof
and at all times since the adoption of the resolution referred to in (D) is
annexed to such certificate, (D) the resolutions by the entity's board of
directors authorizing the actions taken in connection with the Merger, including
as applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate) and (ii) setting forth the
incumbent officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating
to the Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet Common
Stock to the Underwriters in the Initial Public Offering shall have occurred
simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton &
Scheetz LLP, counsel for Purchaser, shall have delivered to the Company and the
Seller their favorable opinion, dated the Closing Date, as to the matters
covered in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of officers of
Purchaser as to matters of fact, and such opinion may be limited to federal laws
and the laws of the Commonwealth of Pennsylvania.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all
administrative actions necessary to prepare to (i) effect the Merger (including,
if permitted by applicable state law, the filing with the appropriate state
authorities of the Articles of Merger which shall become effective at the
Effective Time of the Merger) and (ii) effect the conversion and delivery of
Shares referred to in Section 2.9 hereof and payment of consideration for the
Shares; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
referred to in Section 2 hereof, each of which actions shall only be taken upon
the Closing Date as herein provided. In the event that there is no Closing Date
and this Agreement terminates, Purchaser hereby covenants and agrees to do all
things required by Pennsylvania law and all things which counsel for the Company
advise Purchaser are required by applicable laws of the State of Louisiana in
order to rescind the merger effected by the filing of the Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above shall take place on the Pricing Date at the offices of Pepper,
Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets,
Philadelphia, PA 19103. On the Closing Date (x) the Articles of Merger shall be
or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
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contemplated by this Agreement, including the conversion and delivery of shares,
the delivery of a certified check or checks in an amount equal to the cash
portion of the consideration which the Seller shall be entitled to receive
pursuant to the Merger referred to in Section 2 hereof and (z) the closing with
respect to the Initial Public Offering shall occur and be deemed to be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Closing Date." Except as
otherwise provided in Section 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential
Information only in connection with the transactions contemplated hereby
(including the Initial Public Offering) and shall not disclose any Confidential
Information about any other party to any Person unless the party desiring to
disclose such Confidential Information receives the prior written consent of the
party about whom such Confidential Information pertains, except (i) to any
party's directors, officers, employees, agents, advisors and representatives who
have a need to know such Confidential Information for the performance of their
duties as employees, agents or representatives, (ii) to the extent strictly
necessary to obtain any Consents including, without limitation, any Regulatory
Approvals, that may be required or advisable to consummate the transactions
contemplated by this Agreement, (iii) to enforce such party's rights and
remedies under this Agreement, (iv) with respect to disclosures that are
compelled by any Requirement of Law or pursuant to any Legal Proceeding;
provided, that the party compelled to disclose Confidential Information
pertaining to any other party shall notify such other party thereof and use his
or its commercially reasonable efforts to cooperate with such other party to
obtain a protective order or other similar determination with respect to such
Confidential Information; (v) made to any party's legal counsel, independent
auditors, investment bankers or financial advisors under an obligation of
confidentiality; (vi) to other Founding Companies or Potential Founding
Companies; or (vii) as otherwise permitted by Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this
Agreement are not consummated in accordance with the terms of this Agreement,
each party shall, upon the request of the other party, return to the other party
or destroy all Confidential Information and any copies thereof previously
delivered by such requesting party, except to the extent that such party deems
such Confidential Information necessary or desirable to enforce his or its
rights under this Agreement.
(c) [Intentionally omitted.]
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(d) The parties hereto acknowledge and agree that they may
become aware of potential acquisition targets of the Purchaser, including but
not limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with the Purchaser or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to acquire or merge with, any Purchaser Targets until the later of 300
days after the date of this Agreement or 180 days after termination of this
Agreement.
(e) The Purchaser will cause each of the Founding Companies
other than the Company to enter into a provision similar to this Section 8.1
requiring each such Founding Company to keep confidential any information
obtained by such Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the
Purchaser's consummation of the Merger, the Seller shall not, during the
Restricted Period, do any of the following, directly or indirectly, without the
prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the
Surviving Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in any
business conducted by Purchaser or a Subsidiary (the "Restricted Business")
within any geographic area located within the United States of America, its
possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, that nothing contained in this
Section 8.2(b) shall prohibit the Seller from owing, as a passive investor, not
more than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or
attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to goods
or services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company, or any of their respective Related Companies, (B)
suppliers or vendors or prospective suppliers or vendors (wherever located) to
supply materials, resources or services to be used in connection with goods or
services that are competitive with those of the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract,
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arrangement or relationship with the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies or (D) employees to leave
the employ of the Purchaser, the Surviving Corporation, the Company or any of
their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller acknowledges that any breach or threatened
breach by him or her of any provision of Sections 8.1 or 8.2 will cause
continuing and irreparable injury to the Purchaser, the Surviving Corporation,
the Company and their respective Related Companies for which monetary damages
would not be an adequate remedy. Accordingly, the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies shall be
entitled to injunctive relief from a court of competent jurisdiction, including
specific performance, with respect to any such breach or threatened breach. In
connection therewith, the Seller shall not, in any action or proceeding to so
enforce any provision of this Article 8, assert the claim or defense that an
adequate remedy at law exists or that injunctive relief is not appropriate under
the circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies may be entitled, whether existing under this Agreement, at law
or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not
include, and shall be deemed extended by, any time required for litigation to
enforce the relevant covenant periods. The term "time required for litigation"
as used in this Section 8.3(b) shall mean the period of time from the earlier of
the Seller's first breach of the provisions of Sections 8.1 or 8.2 or service of
process upon the Seller through the expiration of all appeals related to such
litigation.
8.4. Disclosure. The Seller acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which the Seller may, directly or indirectly, breach or threaten to
breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser
and the Seller that the provisions of this Article 8 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if any provision of this Article 8 shall be determined to be invalid,
unenforceable or illegal for any reason, then the validity and enforceability of
all of the remaining provisions of this Article 8 shall not be affected thereby.
If any particular provision of this Article 8 shall be adjudicated to be invalid
or unenforceable, then such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
amendment to apply only to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided that, if any provision
contained in this Article 8 shall be adjudicated to be invalid or unenforceable
because such provision is held to be excessively broad as to duration,
geographic scope, activity or subject,
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then such provision shall be deemed amended by limiting and reducing it so as to
be valid and enforceable to the maximum extent compatible with the applicable
laws and public policy of such jurisdiction, such amendment only to apply with
respect to the operation of such provision in the applicable jurisdiction in
which the adjudication is made.
8.6. Seller's Acknowledgment. The Seller acknowledges that he or she
has carefully read and considered the provisions of this Article 8. The Seller
acknowledges and understands that the restrictions contained in this Article 8
may limit his ability to earn a livelihood in a business similar to that of the
Purchaser, the Company or any of their respective Related Companies, but he
nevertheless believes that he has received and will receive sufficient
consideration and other benefits to justify such restrictions. The Seller also
acknowledges and understands that these restrictions are reasonably necessary to
protect the Purchaser's, the Surviving Corporation's, the Company's and their
respective Related Companies' interests, and the Seller does not believe that
such restrictions will prevent him from earning a living in businesses that are
not competitive with those of the Purchaser, the Surviving Corporation, the
Company or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and
Agreements. Subject to the last three (3) sentences of this Section 9.1, the
representations and warranties of the Seller, the Company and the Purchaser
contained in this Agreement shall survive until the second anniversary of the
Closing Date, except that the representations and warranties set forth in each
of Section 3.11, Section 3.20 and Section 3.23 shall survive until the
expiration of the statute of limitations applicable to the subject matter
addressed thereunder. The covenants and agreements of the Seller, the Company
and of the Purchaser contained in this Agreement will survive the Closing until,
by their own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Seller or the Company in this Agreement
or any written information furnished or caused to be furnished by the Seller or
the Company to the Purchaser that is incorporated in, or is the basis for
omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of
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limitations regarding claims brought by investors in such Purchaser Financing
Transaction alleging material misstatements or omissions in such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Seller's and the Company's
representations and warranties and covenants contained in this Agreement or any
document, instrument, certificate or other item furnished or to be furnished to
the Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller's Indemnification. From and after the Closing Date, the
Seller shall, jointly and severally, indemnify and hold harmless the Purchaser,
the Surviving Corporation and the Company and any of their respective
Subsidiaries, and each Person who controls (within the meaning of the Securities
Act) the Purchaser, the Surviving Corporation or, after the Closing Date, the
Company or any of its Subsidiaries, and each of their respective directors,
officers, employees, agents, successors and assigns and legal representatives,
from and against all Indemnifiable Losses that may be imposed upon, incurred by
or asserted against any of them resulting from, related to, or arising out of
(i) any misrepresentation, breach of any warranty or non-fulfillment of any
covenant to be performed by the Company or the Seller under this Agreement or
any document, instrument, certificate or other item required or to be furnished
to the Purchaser pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by the Company or the Seller
pursuant to this Agreement or upon any untrue statement or omission contained in
any written information furnished or caused to be furnished by the Seller to the
Purchaser (provided that the Seller hereby acknowledges that the information
concerning the Seller and the Company in the Registration Statement shall be
deemed to be provided to the Purchaser for the purposes hereof); (iii) any
liability or obligation of the Seller, the Company or any of its Subsidiaries
other than liabilities reflected in the determination of the Net Book Value of
the Combined Assets and Liabilities made under Section 2.8(c); (iv) any
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liability or claim for Taxes that accrued or relates to a period of time ending
on or prior to the Closing Date (without regard to any information provided on
the Disclosure Statement or otherwise disclosed to or known by any Indemnified
Party); (v) any liabilities or obligations of the Seller or the Company in
connection with the operations of Inter Linx prior to closing or the dissolution
of Inter Linx (without regard to any information provided herein, including the
Disclosure Schedule, or otherwise disclosed to or known by any Indemnified
Party); (vi) any non-compliance with applicable Requirements of Law relating to
bulk sales, bulk transfers and the like or to fraudulent conveyances, fraudulent
transfers, preferential transfers and the like; (vii) any action, claim or
demand by any holder of the Company's securities, whether debt or equity, in
such holder's capacity as such, whether now existing or hereafter arising or
incurred; (viii) any non-compliance with the Worker Adjustment and Retraining
Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and regulations
promulgated thereunder and any similar Requirement of Law; and (is) any Legal
Proceeding or Order arising out of any of the foregoing even though such Legal
Proceeding or Order may not be filed, become final, or come to light until after
the Closing Date.
10.1.A. No Indemnification of Projected Information. Notwithstanding
any possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser or the Surviving
Company.
10.2. Purchaser's Indemnification. From and after the Closing Date,
the Purchaser and the Surviving Corporation shall indemnify and hold harmless
the Seller and each of its respective legal representatives, successors and
assigns from and against all Indemnifiable Losses imposed upon, incurred by or
asserted against, the Seller resulting from, related to, or arising out of: (i)
any misrepresentation, breach of any warranty or non-fulfillment of any covenant
to be performed by the Purchaser under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
pursuant hereto or thereto or in connection with the transactions contemplated
by this Agreement; (ii) any liabilities reflected in the determination of the
Net Book Value of the Combined Acquired Assets and Liabilities made under
Section 2.8(c); (iii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Purchaser pursuant to this Agreement or upon any untrue
statement or omission contained in any information furnished or caused to be
furnished by the Purchaser; and (iv) any Legal Proceeding or Order arising out
of any of the foregoing even though such Legal Proceeding or Order may not be
filed, become final, or come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under
this Article 10 (the "Indemnified Party") shall suffer an Indemnifiable Loss,
he, she or it shall, within fourteen (14) days after obtaining Knowledge of the
incurrence of any such Indemnifiable Loss,
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give written notice to the party from whom indemnification under this Article 10
is sought (the "Indemnifying Party") of the amount of the Indemnifiable Loss,
together with reasonably sufficient information to enable the Indemnifying Party
to determine the accuracy and nature of the claimed Indemnifiable Loss (the
"Indemnity Notice"). The failure of any Indemnified Party to give the
Indemnifying Party the Indemnity Notice shall not release the Indemnifying Party
of liability under this Article 10; provided, however that the Indemnifying
Party shall not be liable for Indemnifiable Losses incurred by the Indemnified
Party that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Indemnity Notice. Within thirty (30) days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
Indemnifiable Loss or (ii) object to such claim, in which case the Indemnifying
Party shall give written notice to the Indemnified Party of such objection
together with the reasons therefor, it being understood that the failure of the
Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss. The Indemnifying Party's
objection shall not, in and of itself, relieve the Indemnifying Party from its
obligations under this Article 10. In the event that the parties are unable to
resolve the subject of the Indemnity Notice, the issue shall be submitted for
determination to a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have
reasonable grounds to believe that an Indemnifiable Loss may be incurred, such
Indemnified Party shall, within fourteen (14) days after obtaining sufficient
information to articulate such grounds, give written notice to the applicable
Indemnifying Party thereof, together with such information as is reasonably
sufficient to describe the potential or contingent claim to the extent then
feasible (an "Unliquidated Indemnity Notice"). The failure of an Indemnified
Party to give the Indemnifying Party the Unliquidated Indemnity Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however that the Indemnifying Party shall not be liable for Indemnifiable Losses
incurred by the Indemnified Party that would not have been incurred but for the
delay in the delivery of, or the failure to deliver, the Unliquidated Indemnity
Notice. Within sixty (60) days after the amount of such claim shall be
finalized, resolved, or liquidated, the Indemnified Party shall give the
Indemnifying Party an Indemnity Notice, and the Indemnifying Party's obligations
under this Article 10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for
indemnification under this Article 10 shall involve any action or threatened
claim or demand by any third party against the Indemnified Party, the
Indemnified Party, within the earlier of, as applicable, ten (10) days after
receiving notice of the filing of a lawsuit or sixty (60) days after receiving
notice of the existence of a claim or demand giving rise to the claim for
indemnification (which shall include a notice from any Governmental Authority of
an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying
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Party shall not be liable for Indemnifiable Losses incurred by the Indemnified
Party that would not have been incurred but for the delay in the delivery of, or
the failure to deliver, the Claim Notice. Subject to the provision contained in
the third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing, but which is reasonably
satisfactory to the Indemnified Party; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the Indemnified Party and the Indemnifying Party and the
Indemnified Party reasonably concludes that there are defenses available to it
that are different or additional to those available to the Indemnifying Party or
if the interests of the Indemnified Party may be reasonably deemed to conflict
with those of the Indemnifying Party, then the Indemnified Party shall have the
right to select separate counsel and to assume the Indemnified Party's defense
of such claim, demand or Legal Proceeding, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have the right to control the defense thereof
at the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled
to defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party (i) retains counsel reasonably satisfactory to the
Indemnified Party and pursuant to an arrangement satisfactory to the Indemnified
Party; otherwise, the Indemnified Party shall have the right to control the
defense of the claim or the litigation. Notwithstanding any other provision
contained in this Agreement, the party controlling the defense of the claim or
the litigation shall not settle any such claim or litigation without the written
consent of the other party; provided, that if the Indemnified Party is
controlling the defense of the claim or the litigation and shall have, in good
faith, negotiated a settlement thereof, which proposed settlement contains terms
that are reasonable under the circumstances, then the Indemnifying Party shall
not withhold or delay the giving of such consent (and in the event the
Indemnifying Party and Indemnified Party are unable to agree as to whether the
proposed settlement terms are reasonable, the Indemnifying Party and Indemnified
Party will request that the disagreement be resolved by a neutral third party
designated by the President of the Philadelphia office of the American
Arbitration Association). In the event that the Indemnifying Party is
controlling the defense of the claim or the litigation and shall have negotiated
a settlement thereof, which proposed settlement is substantively final and
unconditional as to the parties thereto (other than the consent of the
Indemnified Party required under this Section 10.3(c)) and contains an
unconditional release of the Indemnified Party and does not include the taking
of any actions by, or the imposition of any restrictions on the part of, the
Indemnified Party and the Indemnified Party shall refuse to consent to such
settlement, the liability of the Indemnifying Party under this Article 10, upon
the ultimate disposition of such litigation or claim, shall be limited to the
amount of the proposed settlement; provided, however,
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that in the event the proposed settlement shall require that the Indemnified
Party make an admission of liability, a confession of judgment, or shall contain
any other non-financial obligation which, in the reasonable judgment of the
Indemnified Party, renders such settlement unacceptable, then the Indemnified
Party's failure to consent shall not give rise to the limitation of Indemnifying
Party's liability as provided for in this Section 10.3(c), and the Indemnifying
Party shall continue to be liable to the full extent of such litigation or claim
and provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide
for just and equitable contribution to joint liability under the Securities Act
in any case in which the Purchaser, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, the Surviving
Corporation, the Company, each controlling Person and the Seller will contribute
to the aggregate Indemnifiable Losses to which the Purchaser, the Surviving
Corporation, the Company or any such controlling Person may be subject (after
contribution from others) as is appropriate to reflect the relative fault of the
Purchaser, the Surviving Corporation, the Company, such controlling Person and
the Seller in connection with the statements or omissions which resulted in such
Indemnifiable Losses, as well as the relative benefit received by the Purchaser,
the Surviving Corporation, the Company, such controlling Person and the Seller
as a result of the issuance of the securities to which such Indemnifiable Losses
relate, it being understood that the parties acknowledge that the overriding
equitable consideration to be given effect in connection with this provision is
the ability of one party or the other to correct the statement or omission which
resulted in such Indemnifiable Losses, and that it would not be just and
equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; provided, however, that,
in any such case, no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights
of the parties under this Article 10 are exclusive of other rights and remedies
that the parties may have under this Agreement (but for this provision), at law
or in equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, the
Surviving Corporation and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Seller until such time as, the aggregate of all claims which such persons
may have against the Seller shall exceed $54,000 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. The Seller
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shall not assert any claim for indemnification hereunder against Purchaser, the
Company or the Surviving Corporation until such time as, the aggregate of all
claims which the Seller may have against Purchaser, the Company or the Surviving
Corporation shall exceed $54,000, whereupon such claims shall be indemnified in
full. The limitation or assertion of claims for indemnifications contained in
this paragraph shall apply only to claims based upon inaccuracies in, or
breaches of, representations and warranties contained in this Agreement or any
document, instrument, certificate or other item required to be furnished
pursuant to this Agreement or in connection with the transaction contemplated by
this Agreement.
No person shall be entitled to indemnification under this Article 10 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, except for Indemnifiable
Losses described in Section 10.1(iv), the Seller shall not be liable under this
Article 10 or otherwise for an amount which exceeds the amount of proceeds
received by the Seller in connection with the transactions contemplated herein.
For purposes of the foregoing limitation, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice,
an Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been
given prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common
Stock used to satisfy an Indemnity Claim shall be valued at the lower of the
Initial Public Offering Price and the Value as of the date such shares are so
used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the
transactions contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written
agreement among the Company, the Seller and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant
to Section 5.4(a), or if any of the Company's or the Seller's representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Seller if any of
the Purchaser's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
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(d) at any time before the Closing, by the Seller, on the one
hand, or by the Purchaser, on the other hand, upon any material breach by such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non-breaching party to the
breaching party; or
(e) at any time after the date which is 270 days after the
date of this Agreement, by the Seller, on the one hand, or by the Purchaser on
the other hand, upon notification to the non-terminating party by the
terminating party if the Closing shall not have occurred on or before such date
and such failure to consummate is not caused by a breach of this Agreement by
the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this
Agreement is validly terminated pursuant to Section 11.1, then this Agreement
shall forthwith become void, and, subject to such Section 11.2(b), there shall
be no liability under this Agreement on the part of the Company, the Seller or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.9 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3)
years after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Company or any such Subsidiary on or prior to the Closing Date
and shall permit the Seller or their respective representatives and agents
access to all such books and records, and to the Surviving Corporation's and its
Subsidiaries' employees and auditors for the purpose of obtaining
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information relating to periods on or prior to the Closing Date, upon reasonable
notice by the Seller and on terms not disruptive to the business, operation or
employees of the Purchaser, the Surviving Corporation, the Company or any of
their respective Subsidiaries, to assist the Seller in (i) completing any tax or
regulatory filings or financial statements required or appropriate to be made by
the Seller after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of the
Seller, the Company or any of its Subsidiaries any litigation controlled by the
Seller or (iii) complying with requests made of the Seller by any Taxing
Authority or any Governmental or Regulatory Authority conducting an audit,
investigation or inquiry relating to the Company's or any of its Subsidiaries'
activities during periods prior to the Closing Date. The Seller will hold all
information provided to them pursuant to this Section 12.1 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the
registration statement relating to the Initial Public Offering and prior to the
25th day after the date of the final prospectus of Purchaser utilized in
connection with the Initial Public Offering, the Company or the Seller 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 the Seller
in this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Company and the Seller shall promptly give notice of such
fact or circumstance to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the
Seller makes a payment after the Closing Date to Purchaser in full satisfaction
of an uncollected Receivable, Purchaser will assign its rights to such
Receivable to the Company or the Seller, as applicable.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 13.1 (or trusts for the benefit of the Seller or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 15 hereof, the Seller shall not (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Seller pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Seller pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
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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 FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Seller acknowledges that the shares of DocuNet Common Stock to
be delivered to the Seller pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by the Seller pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
14.1. Compliance with Law. The Seller covenants, warrants and
represents that none of the shares of DocuNet Common Stock issued to the Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND
SUBSTANCE SATISFACTORY TO THE
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CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Seller is able to bear the
economic risk of an investment in the DocuNet Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
DocuNet Common Stock. The Seller or its respective purchaser representatives
have had an adequate opportunity to ask questions and receive answers from the
officers of the Purchaser concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of the Purchaser,
the plans for the operations of the business of the Purchaser, the business,
operations and financial condition of the Founding Companies, and any plans for
additional acquisitions and the like. The Seller acknowledges receipt and review
of the draft Registration Statement attached hereto as Schedule 14.2 for
informational purposes and subject to the limitations of Section 5.12(b). The
Seller acknowledges that such draft is subject to completion and subject to
change, and Seller acknowledges that his purchaser representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. Subject to Sections 5.14 and
15.5, at any time following the Closing, whenever the Purchaser proposes to
register any DocuNet Common Stock for its own or others' account under the
Securities Act for a public offering, other than (i) any shelf registration of
DocuNet Common Stock; (ii) registrations of shares to be used solely as
consideration for acquisitions of additional businesses by the Purchaser; and
(iii) registrations relating to employee benefit plans, the Purchaser shall give
the Seller prompt written notice of its intent to do so. Upon the written
request of the Seller given within 30 days after receipt of such notice,
Purchaser shall cause to be included in such registration all of the DocuNet
Common Stock which the Seller requests. However, if the Purchaser is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 15.1 that the number of shares to be sold by persons other than the
Purchaser is greater than the number of such shares which can be offered without
adversely affecting the offering, the Purchaser may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by such persons) to a number deemed satisfactory by such managing
underwriter or such managing underwriter can eliminate the participation of all
such persons in the offering, provided that, for each such offering made by the
Purchaser after the Initial Public Offering, a reduction shall be made first by
reducing the number of shares to be sold by persons other than the Purchaser,
the Seller, the Founding Companies, the stockholders of the Founding Companies
and other stockholders (the "Other Stockholders") of the Company immediately
prior to the Initial Public Offering, and
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thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Seller, the Founding Companies, the stockholders of the
Founding Companies, and the Other Stockholders, pro rata based upon the number
of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection
with the registrations under this Article 15 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts and fees, if any, of separate counsel
engaged by the Seller) shall be borne by the Purchaser. In connection with
registrations under Section 15.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
15.3. Underwriting Agreement. In connection with each registration
pursuant to Section 15.1 covering an underwritten registration public offering,
the Purchaser and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of the Purchaser's size and
investment stature, including indemnification and the prohibition of sales or
transfers of such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated
to register shares of DocuNet Common Stock held by the Seller at any time when
the resale provisions of Rule 144(k) (or any similar or successor Seller
provision) promulgated under the Securities Act are available to the Seller.
15.5. Survival. The provisions of this Article 15 shall survive the
Closing until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the
parties of this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Section 16.1, for
all purposes when presented personally to such party or sent by certified or
registered mail, return receipt requested, with proper postage prepaid, or any
national overnight delivery service, with proper charges prepaid, to such party
at its address set forth below:
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(a) If to the Company (prior to the Closing Date):
with a copy to:
C. Delbert Hosemann, Jr.
Phelps Dunbar, L.L.P.
200 S. Lamar Street
Jackson, Mississippi 39225-3066
(b) If to the Seller:
Gary Blackwelder
with a copy to:
C. Delbert Hosemann, Jr.
Phelps Dunbar, L.L.P.
200 S. Lamar Street
Jackson, Mississippi 39225-3066
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of
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notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided
herein, this Agreement is not intended to, and does not, create any rights in or
confer any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are
incorporated by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own
expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel. The parties acknowledge that all
fees and expenses of Arthur Andersen LLP incurred in auditing the Company's
financial statements in connection with the transactions contemplated hereby
shall be the responsibility of Purchaser, provided that, notwithstanding the
foregoing, the Seller shall be responsible to pay $10,000 of such fees and
expenses.
16.5. Further Assurances. The Seller, the Surviving Corporation and
the Purchaser shall, at his or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Seller, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Seller deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Seller shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of either Company's financial statements or
in connection with any Purchaser Financing Transaction; provided, that the
Seller shall not be required to execute any guaranty of any indebtedness
obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other
documents, instruments or other writings delivered or to be delivered pursuant
to this Agreement constitute the entire agreement among the parties with respect
to the subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles
used in this Agreement are for convenience only and are not intended to define
or limit the contents or substance of any such section or paragraph.
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<PAGE>
16.8. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties to this Agreement and their respective
heirs, personal representatives, and successors and permitted assigns. Neither
the Company, the Seller nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser; provided that the DocuNet
Common Stock to be issued in payment of a portion of the purchase price shall be
registered under Section 12 of the Securities Exchange Act of 1934 at the time
it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than
those contained in Article 8 of this Agreement, in which case, Section 8.5 of
this Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed
as to its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
IN WITNESS WHEREOF, the Seller, the Purchaser and the Company have
each caused this Agreement to be duly executed as of the date first written
above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
----------------------------------
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
IMAGE AND INFORMATION
SOLUTIONS, INC.
By: /s/ Gary D. Blackwelder
----------------------------------
Gary D. Blackwelder
President
Witness: /s/ Gary D. Blackwelder
------------------------ --------------------------------------
Gary D. Blackwelder, Individually
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<PAGE>
Schedule 6.1(k)
Form of Opinion of Seller's Counsel
__________, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to ___________________, a ______________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of ___________, 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and ("Stockholders"). This opinion is furnished to you pursuant to
Section ______ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the [Certificate] [Articles] of Incorporation
and Bylaws of the Company. We have also made such examinations of laws,
certificates of public officials, instruments, documents, and corporate records
and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth. In such examination we have
assumed (i) the genuineness of all signatures on certificates and documents
other than those signed by the Company and the Stockholders, (ii) the accuracy,
completeness and authenticity of all records and documents submitted to us as
originals, (iii) the conformity to the original of all documents submitted to us
as certified, conformed or photostatic copies, and (iv) the legal capacity of
all natural persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of_________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected ________ law, without
regard for principles of choice of law, and that such documents are being
executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of__________.
-79-
<PAGE>
Based on the foregoing and subject to the qualifications set forth
herein, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of_____________ and has all
necessary corporate power and authority to enter into the Transaction Documents
and to consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Company.
3. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the (Certificates) [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
winch may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
-80-
<PAGE>
Schedule 6.1(l)
Related Party Agreements
None.
-81-
<PAGE>
Schedule 6.1(m)
Employment Agreements
Gary Blackwelder
-82-
<PAGE>
Schedule 6.2(i)
Form of Opinion of Purchaser's Counsel
[_______] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation
(the "Purchaser"), in connection with the transactions contemplated by that
certain [Purchase Agreement] dated as of _________, 1997 (the "Purchase
Agreement"), among the Purchaser, __________, a _________ corporation (the
"Seller"), and ____________________ ("Stockholders"). This opinion is furnished
to you pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the
Purchase Agreement and the Escrow Agreement (collectively the "Transaction
Documents"). We have also examined the Articles of Incorporation and Bylaws of
the Purchaser. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Purchaser, (ii) the accuracy, completeness and authenticity of all
records and documents submitted to us as originals, (iii) the conformity to the
original of all documents submitted to us as certified, conformed or photostatic
copies, and (iv) the legal capacity of all natural persons who are parties to
the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States and we do not purport to
express any opinion herein with respect to the laws of any other state or
jurisdiction.
Based on the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
1. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary
-83-
<PAGE>
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
3. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting or relating to
creditors' rights, (ii) as to any covenants not to compete, the unenforceability
of, or limitation on, certain provisions when such provisions are found
unreasonable in scope, (iii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iv) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (v)
the unenforceability of or limitation on the enforceability of certain
provisions, including without limitation indemnification provisions, when such
provisions are found to be contrary to public policy.
This opinion is rendered as of the date hereof and we assume no
obligation to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
------------------------------
A Partner
-84-
<PAGE>
Schedule 14.2
Draft Registration Statement
To be provided.
-85-
<PAGE>
Disclosure Schedule Section 5.8
1. Payments to the Company's 401(k) plan in the ordinary course of business and
consistent with past practices.
2. Bonuses in an aggregate amount of $50,000 already accrued on the Financial
Statements at July 31, 1997.
3. Additional bonuses to employees of the Company in an aggregate amount not to
exceed $50,000 prior to Closing in connection with the transactions contemplated
herein.
4. Bonus to Seller in an amount up to aggregate of $325,000 from July 31, 1997
to the Closing Date.
5. Increase in annual salary of Gary D. Blackwelder to $125,000 on November 15,
1997 if the Closing has not yet occurred.
-86-
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Gary Blackwelder ("Seller"), DocuNet Inc., a Pennsylvania
corporation ("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the
Seller and the Escrow Agent are sometimes collectively referred to herein as the
"Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
-3-
<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
-4-
<PAGE>
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to Seller:
Gary Blackwelder
With a copy to:
Attention: , Esquire
C. If to the Escrow Agent:
With a copy to:
-5-
<PAGE>
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Seller; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock whereupon such amounts and shares of Common Stock not
disbursed for indemnified losses of price adjustments shall be delivered to
seller; provided, however, that in all events all Common Stock held in the
Escrow Account shall be distributed to the Seller within five (5) years from the
Closing and, to the extent such Common Stock is distributed, Seller shall
replenish the Escrow Account with cash in a like amount, valued at the Share
Value.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Gary Blackwelder
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
-7-
<PAGE>
Execution
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CODALEX MICROFILMING CORPORATION
DOCUNET INC.
AND
CODALEX ACQUISITION CORP.
Dated September 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................11
2.1. Delivery and Filing of Articles of Merger.........................................................11
2.2. Effective Time of the Merger......................................................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation.....................................................................................11
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco.............................................................................11
2.5. Effect of Merger..................................................................................12
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................18
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................19
3.1. Organization; Qualification; Good Standing........................................................19
3.2. Authorization for Agreement.......................................................................19
3.3. Capitalization; Subsidiaries and Affiliates.......................................................20
3.4. Enforceability....................................................................................21
3.5. Matters Affecting Shares; Title to Shares.........................................................21
3.6. Predecessor Status; etc...........................................................................21
3.7. Spin-off by the Company...........................................................................21
3.8. Legal Proceedings.................................................................................22
3.9. Compliance with Laws..............................................................................22
3.10. Labor Matters.....................................................................................23
3.11. Employee Benefit Plans............................................................................24
3.12. Financial Statements..............................................................................26
3.13. Distributions.....................................................................................26
3.14. Absence of Undisclosed Liabilities................................................................27
3.15. Real Property.....................................................................................27
3.16. Tangible Personal Property........................................................................28
3.17. Contracts.........................................................................................29
3.18. Insurance.........................................................................................31
3.19. Proprietary Rights................................................................................31
3.20. Environmental Matters.............................................................................32
3.21. Permits...........................................................................................33
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3.22. Regulatory Filings...............................................................................33
3.23. Taxes and Tax Returns............................................................................34
3.24. Investment Portfolio.............................................................................36
3.25. Affiliate Transactions...........................................................................36
3.26. Accounts, Power of Attorney......................................................................36
3.27. Receivables......................................................................................36
3.28. Officers and Directors...........................................................................37
3.29. Corporate Records................................................................................38
3.30. Broker's or Finders..............................................................................38
3.31. Customers........................................................................................38
3.32. Investment Company...............................................................................38
3.33. Absence of Changes...............................................................................38
3.34. Accuracy and Completeness of Information.........................................................39
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO.....................................................................................40
4.1. Organization.....................................................................................40
4.2. Authorization for Agreement......................................................................40
4.3. Enforceability...................................................................................40
4.4. Litigation.......................................................................................40
4.5. Registration Statement...........................................................................40
4.6. Brokers or Finders...............................................................................41
ARTICLE 5 - COVENANTS............................................................................................41
5.1. Good Faith.......................................................................................41
5.2. Approvals........................................................................................41
5.3. Cooperation; Access to Books and Records.........................................................41
5.4. Duty to Supplement...............................................................................43
5.5. Information Required For Purchase Financing Transactions.........................................43
5.6. Performance of Conditions........................................................................44
5.7. Conduct of Business..............................................................................44
5.8. Negative Covenants...............................................................................45
5.9. Exclusive Negotiation............................................................................47
5.10. Public Announcements.............................................................................48
5.11. Amendment of Schedules...........................................................................48
5.12. Cooperation in Preparation of Registration Statement.............................................48
5.13. Examination of Final Financial Statement.........................................................49
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5.13A. Audit Opinion....................................................................................50
5.14. Lock-Up Agreements...............................................................................50
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott Act")................................................................50
5.16. Reorganization Status............................................................................50
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................51
6.1. Conditions Precedent to the Purchaser and Newco's Obligations....................................51
6.2. Conditions Precedent to Company's and Sellers' Obligations.......................................53
ARTICLE 7 - CLOSING..............................................................................................55
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................56
8.1. Confidentiality..................................................................................56
8.2. Covenant Not To Compete..........................................................................57
8.3. Specific Enforcement; Extension of Period........................................................58
8.4. Disclosure.......................................................................................59
8.5. Interpretation...................................................................................59
8.6. Sellers' Acknowledgment..........................................................................59
ARTICLE 9 - SURVIVAL.............................................................................................59
9.1. Survival of Representations, Warranties, Covenants and Agreements................................59
9.2. Intentionally Omitted............................................................................60
9.3. Underwriter's Benefit............................................................................60
ARTICLE 10 - INDEMNIFICATION.....................................................................................60
10.1. Sellers' Indemnification........................................................................60
10.1A. No Indemnification of Projected Information.....................................................61
10.2. Purchaser's Indemnification.....................................................................61
10.3. Payment; Procedure for Indemnification..........................................................62
10.4. Equitable Contribution Under the Securities Act.................................................64
10.5. Exclusiveness of Indemnification................................................................65
10.6. Limitations on Indemnification..................................................................65
10.7. Value of DocuNet Common Stock...................................................................65
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ARTICLE 11 - TERMINATION AND REMEDIES............................................................................66
11.1. Termination......................................................................................66
11.2. Effect of Termination............................................................................66
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................67
12.1. Maintenance and Access to Records................................................................67
12.2. Disclosure.......................................................................................67
12.3. Accounts Receivable..............................................................................67
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................68
13.1. Transfer Restrictions............................................................................68
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................68
14.1. Compliance with Law..............................................................................69
14.2. Economic Risk; Sophistication....................................................................69
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................70
15.1. Piggyback Registration Rights....................................................................70
15.2. Registration Procedures..........................................................................70
15.3. Underwriting Agreement...........................................................................70
15.4. Availability of Rule 144.........................................................................71
15.5. Survival.........................................................................................71
ARTICLE 16 - MISCELLANEOUS.......................................................................................71
16.1. Notices..........................................................................................71
16.2. No Third Party Beneficiaries.....................................................................72
16.3. Schedules........................................................................................72
16.4. Expenses.........................................................................................73
16.5. Further Assurances...............................................................................73
16.6. Entire Agreement; Amendment......................................................................73
16.7. Section and Paragraph Titles.....................................................................73
16.8. Binding Effect...................................................................................73
16.9. Counterparts.....................................................................................74
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16.10. Severability.....................................................................................74
16.11. Governing Law....................................................................................74
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), CODALEX ACQUISITION CORP., a Pennsylvania corporation
("Newco"), CodaLex Microfilming Corporation, a North Carolina corporation (the
"Company"), Madeline Solomon and David C. Yezbak (individually, a "Seller", and
together, the "Sellers,").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the Commonwealth of Pennsylvania, having been incorporated solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that the Company
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and the State of
North Carolina;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with each
of the other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional document management and related
services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial Public
Offering of DocuNet Common Stock (as defined herein) constitute the
"DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential Founding
Companies (as defined herein) pursuant to the Other Agreements, the Board
of Directors of the Company has approved this Agreement as part of the
DocuNet Plan of Reorganization in order to transfer the capital stock of
the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
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IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, brothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4A. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.4. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.5. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.6. Balance Sheet Date shall mean June 30, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
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1.7. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.8. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.9. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.10. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.11. Closing shall have the meaning set forth in Article 7.
1.12. [Intentionally omitted.]
1.13. Closing Date shall mean the date on which the Closing actually takes
place.
1.14. Closing Balance Sheet. shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.16A. Closing Consolidating Balance Sheet shall mean the Consolidating
Balance Sheet of the Company and III, prepared in the same manner as the Company
Balance Sheet, prepared as of the date immediately prior to the Closing Date.
1.15. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.16. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17A. Combined Debt shall have the meaning set forth in Section 2.8(b).
1.17. Common Stock shall mean the common stock, no par value per share, of
the Company.
1.19. Company Balance Sheet shall have the meaning set forth in Section
3.14.
1.18. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in
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connection with the transactions contemplated by this Agreement and (ii) each of
the terms, conditions and other provisions contained in this Agreement and in
the agreements or documents to be delivered pursuant to this Agreement.
Notwithstanding the preceding sentence, the definition of Confidential
Information shall not include any information that (i) is in the public domain
at the time of disclosure to the Recipient or becomes part of the public domain
after such disclosure through no fault of the Recipient, (ii) is possessed in
writing by the Recipient at the time of disclosure to such Recipient, (iii) is
contained in the Registration Statement on Form S-1 to be filed by Purchaser in
connection with the Initial Public Offering or (iv) is disclosed to a party or
Potential Founding Company by any Person other than a party to this Agreement or
a Potential Founding Company; provided, that the party to whom such disclosure
has been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall not
include disclosure of information to a Potential Founding Company or (except as
otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.19. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.20. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.21. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.22. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8.
1.23. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
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1.24. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
1.25. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA Affiliate (including,
without limitation, health insurance, life insurance and other benefit plans
maintained for retirees) within the previous six plan years or with respect to
which contributions are or were (within such six year period) made or required
to be made by the Company or any ERISA Affiliate or with respect to which the
Company has any liability.
1.26. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.27. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.28. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.29. Escrow Amount shall mean the amount of cash and/or the Value of the
DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.30. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
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1.31. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.32. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
1.33. Financial Statements shall have the meaning set forth in Section
3.12(a).
1.34. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.35. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.36. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.37A. III shall mean Imaging Information Industries, Inc.
1.37. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.38. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.39. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
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1.41. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.42. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.43. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to the
Business, in each case together with any amendments, modifications and
supplements thereto.
1.44. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.45. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.46. IRS means the Internal Revenue Service or any successor organization
thereto.
1.47. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
148A. Lease shall mean the lease of Real Property with the material terms
and conditions set forth on Exhibit D attached hereto.
1.48. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.49. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
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1.50. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.51. [Intentionally omitted.]
1.52. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
1.53. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.54. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.55. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.56. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.57. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.58. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.59. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.59. Purchase Price shall have the meaning set forth in Section 2.8.
1.60. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or
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equity, or any other financing or credit arrangement sought by the Purchaser or
any of its Subsidiaries.
1.61. Intentionally Omitted
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.62. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
1.63. Receivables shall have the meaning set forth in Section 3.27.
1.64. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.65. Related Companies shall have the meaning set forth in Section 8.2(a).
1.66. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.67. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.68. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.69. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.70. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.71. [Intentionally omitted].
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1.72. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.73. Shares shall mean shares of Common Stock of the Company.
1.74. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.75. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
1.76. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.77. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.78. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.79. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.80. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.80A Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.80. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
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1.81. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.82. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the Commonwealth of Pennsylvania and the
Secretary of State of the State of North Carolina and stamped receipt copies of
each such filing to be delivered to Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By- laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such Bylaws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: Andy Bacas, David C. Yezbak and S. David
Model. The Board of Directors of the Surviving Corporation shall hold
office subject to the provisions of the laws of the Commonwealth of
Pennsylvania and of the Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions
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of the Certificate of Incorporation and By-laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and 10 million shares of preferred
stock, [no] par value, of which no shares will be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of North Carolina. Except as
herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of the Company shall be merged with and into the Newco, and
Newco, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time of the Merger, the separate existence of the Company shall cease
and, in accordance with the terms of this Agreement, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a
public, as well as of a private, nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all taxes, including those due and owing and those accrued, and all other
choses in action, and all and every other interest of or belonging to or due to
the Company and Newco shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the state of
incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted
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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 the Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with
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respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), on the terms and conditions
set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase
Price shall be One Million Seven Hundred Eleven Thousand Four Hundred Fifty
dollars ($1,711,450), subject to adjustments as set forth herein (the "Base
Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Company's Closing
Consolidating Balance Sheet (the "Closing Debt Amount"). The Company's Debt
shall mean all of the Company's liabilities, contingent or otherwise,
except Adjusted Current Liabilities, in accordance with GAAP. The Company's
Adjusted Current Liabilities shall mean all of the Company's liabilities
which would be classified as current liabilities in accordance with GAAP,
except current amounts owing: (i) under promissory notes or lines of credit
to lending institutions; (ii) to an employee or an Affiliate of the
Company, or the Sellers; (iii) to a lessor under a capital lease; or (iv)
on account of Taxes or earned insurance premiums. Promptly following the
Closing and in order to verify the accuracy of the adjustment made at
Closing, the Purchaser agrees to cause the internal accounting staff and
the independent certified public accountant of the Purchaser (the
"Accountants") to verify the Closing Debt Amount. The Accountants shall
issue a report as to their determination of the Closing Debt Amount (the
"Accountants' CDA Report") promptly after their determination of such
amount and the Purchaser shall deliver the Accountants' CDA Report to the
Sellers not later than sixty (60) days following the Closing Date. The
determination of the Closing Debt Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Sellers shall
object to the Accountants' CDA Report within fifteen (15) days following
their receipt of the Accountants' CDA Report. The Sellers' objection, if
any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall
set forth in reasonable detail the Sellers' objection(s) to the
Accountants' CDA Report and the Sellers' calculation of the Closing Debt
Amount. Within ten (10) days after receipt of the Sellers' CDA Objection,
the Purchaser will notify the Sellers whether it accepts or disputes the
Sellers' adjustments, which notification shall set forth in reasonable
detail the adjustments, if any, made by the Sellers which the Purchaser
continues to dispute (the "Purchaser's CDA Response Notice"). If the
Sellers do not object to the Accountants' CDA Report, or if the Purchaser
agrees to accept the Sellers' adjustments to the Accountants' CDA Report,
then the adjustment based on the then final Closing Debt Amount (the "Final
Debt Amount"), if any, shall be paid by Sellers to the Purchaser in
immediately available funds within five (5) business days of
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such acceptance. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Sellers shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (as defined below) equal to such amount. The term "Value"
in respect of a share of DocuNet Common Stock shall mean the lower of the
Initial Public Offering Price and the average closing price of the DocuNet
Common Stock during the 20 trading day period ending immediately prior to
the applicable payment date. If the Sellers object to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Sellers'
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Sellers and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, such
amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value equal to such amount. The parties hereto agree to cooperate fully
with such independent accountants at their own cost and expense, including,
but not limited to, providing such independent accountants with access to,
and copies of, all books and records that they shall reasonably request.
The Purchaser and the Sellers shall each bear one-half of all of the costs
and expenses of such independent accounting firm, and if the parties hereto
are unable to agree upon an independent accounting firm, the Sellers and
the Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.3(c), a number of
shares of DocuNet Common Stock, equal to (i) $699,355 (the "Stock Purchase
Price") divided by (ii) the Initial Public Offering Price, shall be issued
at Closing to Sellers in the individual amount for each Seller as indicated
on Schedule 2.4 attached hereto.
(b) Cash Purchase Price. In addition, an aggregate amount equal to the
Base Purchase Price less (i) the Stock Purchase Price and (ii) the
reductions, if any, to be made at Closing pursuant to Section 2.8(b) shall
be payable at the Closing in cash to the Sellers ("Cash Purchase Price").
The specific amount of the Cash Purchase Price shall be payable to each of
the Sellers by a check payable to the order of the applicable Seller, or a
wire transfer to an account to be designated by such Seller in writing not
less than three (3) business days prior to the Closing,
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such method of payment to be determined in the sole discretion of
Purchaser, in the individual amount for each Seller set forth on Schedule
2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of
shares of DocuNet Common Stock equal to (i) $76,650 divided by (ii) the
Initial Public Offering Price shall be delivered at Closing to the Escrow
Agent pursuant to the Escrow Agreement (the "Escrow Amount"), in the
individual amount for each Seller as indicated on Schedule 2.4 attached
hereto. The Escrow Amount shall be available to fund (but shall not be the
sole source of funding) any obligations of the Sellers under this Agreement
pursuant to the terms of the Escrow Agreement; provided, however, if the
amount of cash plus the value of the shares of DocuNet Common Stock valued
at the Initial Public Offering Price in the Escrow Amount falls below
$76,650 (the "Threshold Value") due to payment from the Escrow Account
pursuant to Section 2.8 hereof, the Sellers shall contribute additional
cash or shares of DocuNet Common Stock to the Escrow Account in an amount
necessary so that the amount of cash plus the value of the shares of
DocuNet Common Stock (valued at the Initial Public Offering Price) in the
Escrow Amount would equal the Threshold Value.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the
state of their respective incorporation or organization, (ii) have the
power and authority to own and operate their respective properties and
assets and to transact their respective Businesses and (iii) are duly
qualified and authorized to do business and are in good standing in all
jurisdictions where the failure to be duly qualified, authorized and in
good standing would have a Material Adverse Effect upon their respective
Businesses, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise). Listed in the Disclosure
Schedule is a true and complete list of all jurisdictions in which the
Company or any of its Subsidiaries is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge
of the Company or any of the Sellers, threatened against or affecting the
Company or any of its Subsidiaries revoking, limiting or curtailing, or
seeking to revoke, limit or curtail the Company's or any of its
Subsidiaries' power, authority or qualification to own, lease or operate
their respective properties or assets or to transact their respective
Businesses.
(c) True and complete copies of the Company's and each of its
Subsidiaries' articles or certificate of incorporation, bylaws and other
constitutive documents are attached as part of the Disclosure Schedule.
Except as set forth in the Disclosure Schedule, the minute books of the
Company and each of its Subsidiaries, as heretofore made available to the
Purchaser and Newco, are correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, (B) contravene, violate or constitute,
with or without the passage of time or the giving of notice or both, a breach or
default under, any Requirement of Law applicable to the Company or any of its
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properties or any Contract to which the Company or any of its properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
100,000 shares of a single class of common stock, having no par value per share,
of which 10,000 shares are issued and outstanding. All of the Shares are
collectively owned by the Sellers in the proportions set forth in the
Capitalization Table. The Company does not have any other authorized class or
classes of securities of any kind, whether debt or equity. All of the Shares are
validly issued, fully paid and non-assessable and have not been issued in
violation of applicable securities laws or of any preemptive rights or other
rights to subscribe for, purchase or otherwise acquire securities. The Company
does not hold any shares of its capital stock in its treasury or otherwise, and
no shares of the Company's capital stock are reserved by the Company for
issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary owns or controls, directly or
indirectly, any debt, equity or other financial or ownership interest in any
other Person.
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(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
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3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Company or any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the Company or
any of its Subsidiaries, as the case may be. Neither the Company nor any of the
Sellers have knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution to or on
behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
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3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such employee's position or function, the rate of hourly, monthly
or annual compensation (as the case may be) paid or to be paid to such employee
in 1995, 1996 and, to the extent known, 1997, any accrued sick leave or pay or
vacation and any incentive or bonus arrangement with respect to any such
employee. Except as is set forth in the Disclosure Schedule, since the Balance
Sheet Date, neither the Company nor any of its Subsidiaries has increased the
compensation payable to its employees or the rate of compensation payable to its
employees. The Disclosure Schedule also identifies those employees with whom the
Company or any of its Subsidiaries has entered into an employment Contract or a
Contract obligating the Company or any such Subsidiary to pay severance or
similar payments to any employee. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the employees of the Company or any of its
Subsidiaries. In addition, no dispute with or claim against the Company relating
to any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages and
hours, is outstanding or, to either of the Company or the Sellers' knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment
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Opportunity Commission against the Company or any of its Subsidiaries with
respect to any labor or employment matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
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(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Company or any of their respective Subsidiaries to
any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
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3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the combined consolidated balance sheets of
the Company and III as of June 30, 1995, 1996 and 1997 and the related
statements of operations, shareholders' equity and cash flows for the years then
ended, together with all proper exhibits, schedules and notes thereto
(collectively, the "Financial Statements"). A true and complete copy of the
Financial Statements is attached to the Disclosure Schedule. The Financial
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except for changes required or permitted by
GAAP and noted thereon) and fairly represent the combined financial position of
the Company, III and their Subsidiaries as of the date of such Financial
Statements and the combined results of operations and changes in shareholders'
equity and cash flows for the periods covered thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Company and such other information as is
contained therein.
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its Subsidiaries to operate, their respective Businesses in the normal
and ordinary course in a manner consistent with past practices, (ii) there has
been no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon the Company or
any of its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv)
neither the Company nor any of its Subsidiaries has made or committed to make
any capital expenditure or capital addition or betterments in excess of an
aggregate of $10,000; and (v) neither the Company nor any of its Subsidiaries
has made any gift or contribution (charitable or otherwise) to any Person (other
than gifts made since the Balance Sheet Date which, in the aggregate, do not
exceed $5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company, III and their Subsidiaries, all of which
have been maintained in accordance with good business practice and in the normal
and ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to
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any Person in respect of any ownership, indebtedness or other economic interest
in the Company or any of its Subsidiaries, and (iii) any other amounts to which
any Person is entitled to receive pursuant to any dividend or distribution right
in respect of any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company set
forth in the Adjusted Balance Sheet at June 30, 1997 including, without
limitation, all notes thereto, prepared in accordance with GAAP and attached
hereto as Schedule 3.14 (the "Company Balance Sheet"), neither the Company nor
any of its Subsidiaries has any liabilities or obligations, whether direct or
indirect, matured or unmatured, contingent or otherwise, except for liabilities
or obligations that were incurred consistently with past business practice in or
as a result of the normal and ordinary course of business since June 30, 1997.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts relating to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge
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of the Company and the Sellers, no event or condition has occurred, whether with
or without the passage of time or the giving of notice, or both, that would
constitute such a breach or default.
(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Company or any
Subsidiary has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Company would require
additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and
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valid title to all of its Tangible Personal Property, including all items of
Tangible Personal Property reflected on the Company Balance Sheet, free of all
Adverse Claims.
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Tangible Personal Property, (iii) is free of all Adverse Claims and
(iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
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(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
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(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and the Sellers,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Company and the Sellers, in breach or default
under any provision thereof, and, to the knowledge of the Company and the
Sellers, no event or condition has occurred, whether with or without the passage
of time or the giving of notice, or both, that would constitute such a breach or
default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
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3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual Property together with, in the case of registered Intellectual
Property: the (i) applicable registration number; (ii) filing, registration,
issue or application date; (iii) record owner; (iv) country; (v) title or
description; and (vi) remaining life. In addition, the Disclosure Schedule
identifies whether each item of Intellectual Property is owned by the Company or
any of its Subsidiaries or possessed and used by the Company or such Subsidiary
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Company, such representation and warranty is given solely
to the knowledge of the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's or any of the Sellers'
knowledge, is there a basis for such a notice. To the Company's and all of the
Sellers' knowledge, no Person is infringing the Company's or any of its
Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
granted any license or other right to use, in any manner, any of the
Intellectual Property, whether or not requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
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3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal Proceeding, Order or action
involving or relating to the Company or any of its Subsidiaries, based upon or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substance or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could
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adversely affect any Permit required to be obtained and maintained by the
Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Company's or any of its
Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
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(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to make, nor
is any of them required to make, any adjustment under Section 481(a) of the Code
for any period ending after the Closing Date by reason of a change in accounting
method or otherwise and neither the Company nor any of its Subsidiaries has any
knowledge that the IRS has proposed such adjustment or change in accounting
method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
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(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of any
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or money manager, brokerage house and similar institution in
which the Company or any of its Subsidiaries maintains any account (whether
checking, savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto. The Disclosure Schedule also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power.
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3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has good and valid title to
their respective Receivables, free of all Adverse Claims. Neither the Company
nor any of its Subsidiaries has sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected on the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e. without resort to litigation or assignment to
a collection agency), and are not subject to any dispute, counterclaim, defense,
set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement
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of Law respecting financial institutions, insurance companies, or fiduciary
duties owed to any Person, (z) any Requirement of Law prohibiting fraud
(including, without limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or Newco for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Company, its Subsidiaries or the Sellers.
Without degradation to any of the foregoing, the Company, its Subsidiaries and
the Sellers are solely responsible for the payment of the commissions, fees and
other compensation payable to the Person having any such right, interest or
claim on account of any action on the part of the Company, its Subsidiaries or
the Sellers, including, without limitation, the Persons identified on the
Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1995, 1996 and 1997 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
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(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
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(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
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4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and Newco and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of its properties or otherwise that could adversely
affect or restrict the ability of the Purchaser or Newco to consummate fully the
transactions contemplated by this Agreement or that in any manner draws into
question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the Sellers or any of the other Founding Companies, such
representation and warranty shall be deemed made based on the knowledge of the
Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such
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Regulatory Approvals and Consents, and shall provide, and shall cause the
Company and all Subsidiaries to provide, such information and communications to
all Governmental or Regulatory Authorities as they or the Purchaser may request
from time to time in connection therewith. Nothing contained herein shall
require either of the Company, Newco or the Purchaser to amend the provisions of
this Agreement, to pay or cause any of their respective Affiliates to pay any
money, or to provide or cause any of their respective Affiliates to provide any
guaranty to obtain any such Regulatory Approvals or Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with Newco and the Purchaser
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and each
of its Subsidiaries to, afford to the Purchaser, Newco, and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in their discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and each
of the Sellers will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser and Newco, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any
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other third party), as the case may be, for the purpose of permitting the
Company and Sellers to make such investigation and examination of the business
and properties of the Purchaser and any of its Subsidiaries as the Company and
Sellers, in their discretion, shall deem necessary, appropriate, or desirable.
Any such investigation, access and examination shall be conducted upon
reasonable prior notice under the circumstances. Purchaser will cause each of
its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for the Company's and Sellers'
sole benefit, and shall not (i) impair or reduce any representation or warranty
made by the Purchaser in this Agreement, (ii) relieve the Purchaser from its
obligations with respect to such representations and warranties (including,
without limitation, the Purchaser's obligations under Article 10), or (iii)
mitigate the Purchaser's obligations to otherwise disclose all material facts to
the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and Sellers the
opportunity to cure the matter giving rise to the termination right (but for no
longer than five days following the date Purchaser or Newco notifies the Company
or Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the
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Company and its respective Subsidiaries to, furnish the Purchaser and Newco with
the following information:
(a) the Company's audited consolidated balance sheet as of June 30,
1997 and the related statements of operations, shareholders' equity and
cash flows for the year then ended, together with all proper exhibits,
schedules and notes thereto, audited by Arthur Andersen LLP, all of which
shall be prepared in accordance with GAAP consistently applied with prior
periods and shall present fairly the financial position of the Company and
its Subsidiaries for the year then ended and the results of operations and
changes in shareholders' equity and cash flows for the period covered
thereby;
(b) any unaudited interim financial statements requested by the
Purchaser, Newco or any Underwriter to be included in any registration
statement, prospectus, document or other item, or any amendment or
supplement thereof, relating to any Purchaser Financing Transaction, all of
which shall (i) be in accordance with the books and records of the Company
maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject
to normal year-end audit adjustments), (iii) present fairly the financial
position of the Company and its Subsidiaries as of the date thereof and the
results of operations and changes in shareholders' equity and cash flows
for the periods covered thereby, and (iv) include comparable interim
financial statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary,
desirable or appropriate in connection with any Purchaser Financing
Transaction or the preparation of any registration statement, prospectus,
document or other item relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Sellers, Newco and the Purchaser to consummate the
transactions contemplated by this Agreement including, without limitation, all
conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
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(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do
business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact
the Company's and each such Subsidiary's business relationships with its
agents, customers, employees, creditors and others with whom the Company or
each such Subsidiary has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets,
properties and rights (including, without limitation, those held under
leases, the Intellectual Property and Accounts) necessary or advisable to
the profitable conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns
when due (including after applicable extensions); provided that no such
payment shall be required which is being contested in good faith and by
proper proceedings and for which appropriate reserves as may be required by
GAAP have been established;
(g) to maintain in full force and effect all policies of insurance
adequate (both in terms of coverage and amount of coverage) to insure
against risks as are customarily and prudently insured against by companies
of established repute engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which
the Company or any such Subsidiary is a party or by which it or its
properties are bound or subject;
(i) to maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments over Ten Thousand Dollars
($10,000), without the knowledge and consent of the Purchaser, which
consent shall not be unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld:
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(a) make or adopt any changes to or otherwise alter the Company's or
any such Subsidiary's certificate or articles of incorporation, by-laws or
any other governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or
lease any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any
Contract providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings
or otherwise create, incur, assume or guaranty any indebtedness (except for
the endorsement of negotiable instruments for deposit or collection or
similar transactions in the normal and ordinary course of the Business),
issue any commercial paper or refinance any existing borrowings or
indebtedness; provided that no borrowings may be made without Purchaser's
consent which include prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course
of business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant
to this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on
any of the Company's or any of its Subsidiaries' assets or the incurrence
by the Company or any of its Subsidiaries of liabilities (other than in the
performance of services for customers in the ordinary course of business)
in any one transaction or series of related transactions in excess of Ten
Thousand Dollars ($10,000) and cause the aggregate commitment under all
such new Contracts to exceed One Hundred Thousand Dollars ($100,000), or
(ii) involve a term of more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide,
combine, change or purchase any of the Company's or any of its Subsidiary's
shares, notes or other securities, whether debt or equity, or make any
Contract or commitments to do so;
(i) except with and between Laser Graphics Systems & Services, Inc.
and Imaging Information Industries, Inc. and subject to the limitations in
Article 8 hereof, such transactions to be on an arms-length basis enter
into any transaction with any Affiliate of any Seller, the Company or any
of its Subsidiaries including, without limitation the purchase, sale or
exchange of property with, the rendering of any service to, or the making
of any loans to, any such Affiliate;
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(j) (i) declare or pay any dividend, distribution or payment in
respect of, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any of the Company's or any of its
Subsidiaries' securities, whether debt or equity, and whether in cash or
property or in obligations of the Company or any of its Subsidiaries, or
(ii) pay any royalty or management fee;
(k) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether by conversion or otherwise, or make any
commitment to do so;
(l) merge or consolidate, or agree to merge or consolidate, with or
into any other Person or acquire or agree to acquire or be acquired by any
Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any
of such Subsidiaries assets having an aggregate fair market value in excess
of $10,000 or more, except for the disposition of obsolete or worn-out
assets in the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in effect as at the
Balance Sheet Date, or (ii) make or rescind any express or deemed election
relating to Taxes, or change any of its methods of reporting income or
deductions for income tax purposes from those employed in the preparation
of income Tax Returns for the taxable year ended June 30, 1997, except, in
either case, as may be required by any applicable Requirement of Law, the
IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate
of $10,000;
(p) cause or permit the Company or any such Subsidiary to (i)
terminate any Employee Benefit Plan, (ii) permit any "prohibited
transaction" involving any Employee Benefit Plan, (iii) fail to pay to any
Employee Benefit Plan any contribution which it is obligated to pay under
the terms of such Employee Benefit Plan, whether or not such failure to pay
would result in an "accumulated funding deficiency" or (iv) allow or suffer
to exist any occurrence of a "reportable event" or any other event or
condition, which presents a material risk of termination by the PBGC of any
Employee Benefit Plan. As used in this Agreement, the terms "accumulated
funding deficiency" and "reportable event" shall have the respective
meanings assigned to them in ERISA, and the term "prohibited transaction"
shall have the meaning assigned to it in the Code and ERISA;
(q) enter into any transaction or conduct any operations not in the
normal and ordinary course of business;
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(r) enter into any Contract or make any commitment to do any of the
foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their respective Businesses to any Person (other than the Purchaser,
Newco, a Potential Founding Company or their representatives) with a view to
sell, exchange or dispose or solicit an offer for the acquisition of any of the
Shares or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule or any other Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the
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Schedules as amended or supplemented pursuant to this Section 5.11. Except as
otherwise provided herein, no amendment of or supplement to a Schedule shall be
made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Company with a copy thereof and each amendment thereto in substantially the form
in which it is to be filed as promptly as reasonably practicable prior to such
filing (it being understood that neither the Sellers nor the Company has any
obligation to review the same other than with respect to information regarding
the Company or the Sellers) and to diligently seek to cause the Registration
Statement to be declared effective and the Initial Public Offering to be
completed. The Purchaser agrees that neither the Sellers nor the Company shall
have any responsibility for pro forma adjustments that may be made to the
Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the
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prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
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5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Hart-Scott
Act to be made. If filings under the Hart-Scott Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties which by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Company and each of
the Sellers shall deliver to the Purchaser and Newco a certificate dated
the Closing Date, certifying that all of the Company's and the Sellers'
representations and warranties contained in this Agreement are true and
correct on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of
the Sellers shall have performed and complied in all material respects with
each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied
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by the Company and each of the Sellers, as the case may be, at or prior to
the Closing Date. The Company and each of the Sellers shall deliver to the
Purchaser and Newco a certificate, dated the Closing Date, certifying that
the Company and the Sellers have fully performed and complied in all
material respects with all the duties, obligations and conditions required
by this Agreement to be performed and complied with by them at or prior to
the Closing Date.
(c) Delivery of Documents. The Company and each of the Sellers shall
have delivered to the Purchaser and Newco all documents, certificates,
instruments and items (including, without limitation, certificates
representing the Shares) required to be delivered by him, her or it at or
prior to the Closing Date pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all
Consents including, without limitation, all Regulatory Approvals, necessary
or advisable in connection with the transactions contemplated by this
Agreement shall have been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each of its
Subsidiaries shall have satisfied and discharged all of their Debt except
for: (i) Debt for which an adjustment to the Base Purchase Price has been
made under Section 2.8(b) and (ii) Debt which constitutes an Adjusted
Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to the
Purchaser a true and complete copy of the Closing Balance Sheet, together
with a certificate dated the Closing Date, signed by the Company's chief
financial officer that the Closing Balance Sheet is in accordance with the
Books and Records and with GAAP applied on a consistent basis (except for
the absence of notes and subject to normal year-end audit adjustments) and
presents fairly the financial position of the Company as of the Closing
Date.
(h) No Material Adverse Change. From and after the date of this
Agreement, there shall not have occurred or be threatened any development,
event, circumstance or condition that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect upon
the Shares, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Company or
any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Purchaser or Newco to consummate
the Merger; (ii) imposing or seeking to impose limitations on the ability
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of the Purchaser to combine and operate the business, operations and assets
of the Company or any of the Company's Subsidiaries with the Purchaser or
Newco's business, operations and assets; (iii) imposing or seeking to
impose other sanctions, damages or liabilities arising out of the
transactions contemplated by this Agreement on the Purchaser, Newco or any
of the Purchaser or Newco's directors, officers or employees; (iv)
requiring or seeking to require divestiture by the Purchaser or Newco of
all or any material portion of the business, assets or property of the
Company or any of its Subsidiaries; or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Company's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the
last amendment annexed (such date to be specified), (C) a true and correct
copy of the Company's bylaws as in effect on the date thereof and at all
times since the adoption of the resolution referred to in (D) is annexed to
such certificate, (D) the resolutions by the Company's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate); (ii) setting forth
the Company's incumbent officers and including specimen signatures on such
certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or
lease of property or the conduct of its business requires it to qualify to
do business, except for those jurisdictions where the failure to be duly
qualified, authorized and in good standing would not have a Material
Adverse Effect upon the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) on
the Company. The certification referred to above in (iii) shall attach
certificates of good standing certified by the Secretaries of State or
other appropriate officials of such states, dated as of a date not more
than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Sellers. Gray, Layton, Kersh, Solomon,
Sigmon, Furr & Smith, P.A., counsel for the Company and the Sellers, shall
have delivered to the Purchaser and Newco their favorable opinion, dated
the Closing Date, as to the matters covered in Schedule 6.1(k). In
rendering such opinion, counsel may rely to the extent recited therein on
certificates of public officials and of officers of the Sellers as to
matters of fact, and as to any matter which involves other than federal or
North Carolina law, such counsel may rely upon the opinion of local counsel
reasonably satisfactory to the Purchaser and its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and its Affiliates, any of the Sellers or their
Affiliates, other than those, if any, set forth on Schedule 6.1(l), shall
have been canceled.
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(m) Employment Agreements. Each of the persons listed on Schedule
6.1(m) shall have entered into an employment agreement (collectively, the
"Employment Agreements") with the Company substantially in the form of
Exhibit C attached hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers
shall have repaid the Company (including the Subsidiaries) in full all
amounts owing by the Sellers or employees of the Company to the Company
(including the Subsidiaries).
(o) FIRPTA Certificate. Each Seller shall have delivered to the
Purchaser a certificate to the effect that he or she is not a foreign
person pursuant to Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing
Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed
the Escrow Agreement substantially in the form of Exhibit A attached
hereto.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be
true and correct in all material respects on and as of the date of the
Closing Date with the same force as though such representations and
warranties had been made on and as of the Closing Date, except for those
representations and warranties that by their terms relate to an earlier
date, which representations and warranties shall be true and correct in all
material respects with regard to such earlier date. The Purchaser and Newco
shall each deliver to the Sellers a certificate, executed by a duly
authorized officer of the Purchaser and Newco, respectively, dated as of
the Closing Date, certifying that all of its representations and warranties
contained in this Agreement are true and correct on and as of the Closing
Date as though such representations and warranties had been made on and as
of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco
shall each have performed and complied in all material respects with each
and every covenant, agreement and condition required by this Agreement to
be performed or satisfied by them at or prior to the Closing Date. The
Purchaser and Newco shall each deliver to the Sellers a certificate, dated
the Closing Date, certifying that each of them has fully performed and
complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by
it at or prior to the Closing Date.
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(c) Delivery of Documents. The Purchaser and Newco shall have
delivered to the Sellers all documents, certificates, instruments and items
required to be delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal
Proceeding, and no Order shall have been entered (i) imposing or seeking to
impose limitations on the ability of the Sellers to consummate the Merger;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the
Company or any of its Subsidiaries or any of their respective directors,
officers or employees or on any of the Sellers; or (iii) restraining,
enjoining or prohibiting or seeking to restrain, enjoin or prohibit the
consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the
Closing Date and signed on its behalf by its Secretary to the effect that
(i)(A) the copy of the Purchaser's or Newco's as the case may be, articles
or certificate of incorporation attached to the certificate is true,
correct and complete, (B) no amendment to such articles or certificate of
incorporation has occurred since the date of the last amendment annexed
(such date to be specified), (C) a true and correct copy of the such
entity's bylaws as in effect on the date thereof and at all times since the
adoption of the resolution referred to in (D) is annexed to such
certificate, (D) the resolutions by the entity's board of directors
authorizing the actions taken in connection with the Merger, including as
applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy
of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the entity and including specimen
signatures on such certificate or certificates of such officers executing
this Agreement on behalf of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the
Securities and Exchange Commission and the closing of the sale of DocuNet
Common Stock to the Underwriters in the Initial Public Offering shall have
occurred simultaneously with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers
their favorable opinion, dated the Closing Date, as to the matters covered
in Schedule 6.2(i). In rendering such opinion, counsel may rely to the
extent recited therein on certificates of public officials and of
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officers of Purchaser as to matters of fact, and such opinion may be
limited to federal laws and the laws of the Commonwealth of Pennsylvania.
(j) Related Transactions. The purchase by Purchaser or its Affiliates
of all of the outstanding capital stock of Laser Graphics Systems &
Services, Inc. pursuant to that certain Stock Purchase Agreement dated as
of the date hereof and the purchase by Purchaser of the assets and
assumption of certain liabilities of Image Information Industries, Inc.
pursuant to that certain Asset Purchase Agreement dated as of the date
hereof.
ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of North Carolina in
order to rescind the merger effected by the filing of the Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above shall take place on the Pricing Date at the offices of Pepper,
Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets,
Philadelphia, PA 19103. On the Closing Date (x) the Articles of Merger shall be
or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the delivery of a certified check or checks in an amount equal to the cash
portion of the consideration which the Sellers shall be entitled to receive
pursuant to the Merger referred to in Section 2 hereof and (z) the closing with
respect to the Initial Public Offering shall occur and be deemed to be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Closing Date." Except as
otherwise provided in Section 11 hereof, during the period from the Pricing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the Initial Public Offering is terminated
pursuant to the terms thereof.
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ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person including, but not limited to, any employees, agents
or representatives of Microfilm World Inc. ("Mircrofilm World"), or other
employees, agents or representatives of Microfilm World to the extent such party
is employed by Microfilm World, unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated April 17, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential
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Founding Companies (collectively, the "Purchaser Targets"), in the course of
discussions with the Purchaser or a Potential Founding Company. Accordingly, the
parties hereto each agree not to directly or indirectly seek to acquire or merge
with, or pursue or respond to, with an intent to acquire or merge with, any
Purchaser Targets until the later of 300 days after the date of this Agreement
or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, each of the Sellers shall not, during the
Restricted Period, do any of the following, directly or indirectly, without the
prior written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in
any business conducted by Purchaser or a Subsidiary (the "Restricted
Business") within any geographic area located within the United States of
America, its possessions or territories (the "Restricted Area"); provided,
however, that the parties hereby acknowledge that Madeline and Theodore J.
Solomon may continue to be involved in the operation and management of
Microfilm World;
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted
Business within the Restricted Area; provided, however, that the parties
hereby acknowledge that Madeline Solomon, who currently is a stockholder of
Microfilm World, may continue to own stock in Microfilm World provided,
that nothing contained in this Section 8.2(b) shall prohibit any Seller
from owing, as a passive investor, not more than five percent (5%) of the
outstanding securities of any class of any publicly-traded securities of
any publicly held Company listed on a well-recognized national securities
exchange or on an interdealer quotation system of the National Association
of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt
to do any of the foregoing, in each case within the Restricted Area, with
respect to the Purchaser's, the Surviving Corporation's, the Company's or
any of their respective Related Companies' (A) customers or distributors or
prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser, the
Company, or any of their respective Related Companies, (B) suppliers or
vendors or prospective suppliers or vendors (wherever located) to supply
materials, resources or services to be used in connection with goods or
services that are competitive with those of the Purchaser, the Surviving
Corporation, the
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Company or any of their respective Related Companies, (C) distributors,
consultants, agents, or independent contractors to terminate or modify any
contract, arrangement or relationship with the Purchaser, the Surviving
Corporation, the Company or any of their respective Related Companies or
(D) employees (other than family members) to leave the employ of the
Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach or threatened breach
by him or her of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Surviving Corporation, the Company and
their respective Related Companies for which monetary damages would not be an
adequate remedy. Accordingly, the Purchaser, the Surviving Corporation, the
Company and any of their respective Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Sellers shall, in any action or proceeding to so enforce
any provision of this Article 8, assert the claim or defense that an adequate
remedy at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser, the Surviving
Corporation, the Company and any of their respective Related Companies set forth
in this Section 8.3 are in addition to any other rights or remedies to which the
Purchaser, the Company or any of their respective Related Companies may be
entitled, whether existing under this Agreement, at law or in equity, all of
which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Sellers may, directly or indirectly, breach or
threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the
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particular jurisdiction in which such adjudication is made; provided that, if
any provision contained in this Article 8 shall be adjudicated to be invalid or
unenforceable because such provision is held to be excessively broad as to
duration, geographic scope, activity or subject, then such provision shall be
deemed amended by limiting and reducing it so as to be valid and enforceable to
the maximum extent compatible with the applicable laws and public policy of such
jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or any of their respective Related
Companies, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits to justify such restrictions. Each
of the Sellers also acknowledges and understands that these restrictions are
reasonably necessary to protect the Purchaser's, the Surviving Corporation's,
the Company's and their respective Related Companies' interests, and each Seller
does not believe that such restrictions will prevent him from earning a living
in businesses that are not competitive with those of the Purchaser, the Company
or any of their respective Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company and the Purchaser contained in this
Agreement shall survive until the second anniversary of the Closing Date, except
that the representations and warranties set forth in each of Section 3.11,
Section 3.20, Section 3.23 and Section 3.28 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Sellers, the Company and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Sellers or the Company in this Agreement
or any written information furnished or caused to be furnished by
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any of the Sellers or the Company to the Purchaser that is incorporated in, or
is the basis for omitting information from, the Registration Statement,
prospectus or other document, or any amendment or supplement thereof in
connection with any Purchaser Financing Transaction shall survive until the
expiration of all applicable statutes of limitations regarding claims brought by
investors in such Purchaser Financing Transaction alleging material
misstatements or omissions in such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in connection with the transactions
contemplated by this Agreement shall run to the benefit of any Underwriter of
the Purchaser's common stock subject to the Initial Public Offering in addition
to the benefit of the Purchaser. Accordingly, any such Underwriter, and each
person, if any, who controls any such Underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder, shall be (i) an intended
beneficiary of this Agreement and (ii) deemed to be an Indemnified Party for the
purposes of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal and accounting representatives, from and against all Indemnifiable Losses
that may be imposed upon, incurred by or asserted against any of them resulting
from, related to, or arising out of (i) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by the Company or
any of the Sellers under this Agreement or any document, instrument, certificate
or other item required to be furnished to the Purchaser or Newco pursuant hereto
or thereto or in connection with the transactions contemplated by this
Agreement; (ii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or
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Newco (provided that the Sellers hereby acknowledge that the information
concerning the Sellers and the Company in the Registration Statement shall be
deemed to be provided to the Purchaser and Newco for the purposes hereof); (iii)
any liability or obligation of any of the Sellers, the Company or any of its
Subsidiaries other than Debt for which an adjustment to the Base Purchase Price
has been made under Section 2.2(b) and Debt which does not constitute an
Adjusted Current Liability; (iv) any liability for payment of Taxes that accrued
or relates to a period of time ending on or prior to the Closing Date (without
regard to any information provided on the Disclosure Schedule or otherwise
disclosed to or known by any Indemnified Party); (v) any non-compliance with
applicable Requirements of Law relating to bulk sales, bulk transfers and the
like or to fraudulent conveyances, fraudulent transfers, preferential transfers
and the like; (vi) any action, claim or demand by any holder of the Company's
securities, whether debt or equity, in such holder's capacity as such, whether
now existing or hereafter arising or incurred; (vii) any non-compliance with the
Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended,
and the rules and regulations promulgated thereunder and any similar Requirement
of Law; and (viii) any Legal Proceeding or Order arising out of any of the
foregoing even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco and the Surviving Corporation shall indemnify and hold harmless
the Sellers and each of their respective legal and accounting representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.2(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; and (iv) any
Legal Proceeding or Order
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arising out of any of the foregoing even though such Legal Proceeding or Order
may not be filed, become final, or come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall promptly, and in any event, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Promptly, but in any event within sixty (60) days
after the amount of such claim shall be finalized, resolved, or liquidated, the
Indemnified Party shall give the Indemnifying Party an Indemnity Notice, and the
Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
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(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or fourteen (14) days after receiving notice of the existence of a
claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Governmental Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing, but which is reasonably
satisfactory to the Indemnified Party; provided, that if the applicable claim or
demand is against, or if the defendants in any such Legal Proceeding shall
include, both the Indemnified Party and the Indemnifying Party and the
Indemnified Party reasonably concludes that there are defenses available to it
that are different or additional to those available to the Indemnifying Party or
if the interests of the Indemnified Party may be reasonably deemed to conflict
with those of the Indemnifying Party, then the Indemnified Party shall have the
right to select separate counsel and to assume the Indemnified Party's defense
of such claim, demand or Legal Proceeding, with the reasonable fees, expenses
and disbursements of such counsel to be reimbursed by the Indemnifying Party as
incurred. The Indemnifying Party shall give the Indemnified Party notice in
writing within ten (10) days after receiving the Claim Notice from the
Indemnified Party in the event of litigation, or otherwise within thirty (30)
days, of its intent to do so. In the case of any claim resulting from, relating
to or arising out of any Purchaser Financing Transaction or the provisions of
Section 3.23, the Purchaser shall have right to control the defense thereof at
the Indemnifying Party's expense. Whenever the Indemnifying Party is entitled to
defend any claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the claim or the litigation; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party; otherwise, the Indemnified Party shall have the right to control the
defense of the claim or the litigation. Notwithstanding any other provision
contained in this Agreement, the party controlling the defense of the claim or
the litigation shall not settle any such claim or litigation without the written
consent of the other party; provided, that if the Indemnified Party is
controlling the defense of the claim or the litigation and shall have, in good
faith, negotiated a settlement thereof, which proposed settlement contains terms
that are reasonable under the circumstances, then the Indemnifying Party shall
not withhold or delay the giving of such consent (and in the event the
Indemnifying Party and Indemnified Party are unable to agree as to whether the
proposed settlement terms are reasonable, the Indemnifying Party and Indemnified
Party will request that the disagreement be resolved by a neutral third party
designated by the President of the Philadelphia office of the American
Arbitration
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Association). In the event that the Indemnifying Party is controlling the
defense of the claim or the litigation and shall have negotiated a settlement
thereof, which proposed settlement is substantively final and unconditional as
to the parties thereto (other than the consent of the Indemnified Party required
under this Section 10.3(c)) and contains an unconditional release of the
Indemnified Party and does not include the taking of any actions by, or the
imposition of any restrictions on the part of, the Indemnified Party and the
Indemnified Party shall refuse to consent to such settlement, the liability of
the Indemnifying Party under this Article 10, upon the ultimate disposition of
such litigation or claim, shall be limited to the amount of the proposed
settlement; provided, however, that in the event the proposed settlement shall
require that the Indemnified Party make an admission of liability, a confession
of judgment, or shall contain any other non-financial obligation which, in the
reasonable judgment of the Indemnified Party, renders such settlement
unacceptable, then the Indemnified Party's failure to consent shall not give
rise to the limitation of Indemnifying Party's liability as provided for in this
Section 10.3(c), and the Indemnifying Party shall continue to be liable to the
full extent of such litigation or claim and provided further, that
notwithstanding any provision to the contrary, no Indemnifiable Losses with
respect to Taxes shall be settled without the prior written consent of the
Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation, and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed $15,000 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. Sellers shall
not assert any claim for indemnification hereunder against Purchaser, Newco, the
Surviving Corporation or the Company until such time as the aggregate of all
claims which Sellers may have against Purchaser or the Company shall exceed
$15,000, whereupon such claims shall be indemnified in full. The limitation of
assertion of claims for indemnification contained in this paragraph shall apply
only to claims based upon inaccuracies in, or breaches of, representations and
warranties contained in this Agreement or any document, instrument, certificate
or other item required to be furnished pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
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ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement
among the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to
Section 5.4(a), or if any of the Company's or any of the Sellers'
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority
of the Shares if any of the Purchaser's or Newco's representations or
warranties contained in this Agreement were materially incorrect when made
or become materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority
of the Shares, on the one hand, or by the Purchaser, on the other hand,
upon any material breach by such other party's covenants or agreements
contained in this Agreement and the failure of such other party to cure
such breach, if curable, within ten (10) days after written notice thereof
is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days after the date of
this Agreement, by the Sellers holding a majority of the Shares, on the one
hand, or by the Purchaser on the other hand, upon notification to the
non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
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(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Surviving Corporation or any such Subsidiary on or prior to
the Closing Date and shall permit the Sellers or their respective
representatives and agents access to all such books and records, and to the
Surviving Corporation's and its Subsidiaries' employees and auditors for the
purpose of obtaining information relating to periods on or prior to the Closing
Date, upon reasonable notice by the Sellers and on terms not disruptive to the
business, operation or employees of the Purchaser, the Surviving Corporation,
the Company or any of their respective Subsidiaries, to assist the Sellers in
(i) completing any tax or regulatory filings or financial statements required or
appropriate to be made by the Sellers after the Closing Date or in completing
any other reasonable and customary business objective, (ii) prosecuting or
defending on behalf of the Sellers, the Company or any of its Subsidiaries any
litigation controlled by the Sellers or (iii) complying with requests made of
any of the Sellers by any Taxing Authority or any Governmental or Regulatory
Authority conducting an audit, investigation or inquiry relating to the
Company's or any of its Subsidiaries' activities during periods prior to the
Closing Date. Each of the Sellers will hold all information provided to them
pursuant to this Section 12.1 (and any information derived therefrom) in
confidence to the same extent as required by Section 8.1 of this Agreement with
respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the Sellers
makes a payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
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12.4. Guarantees. Purchaser shall use its commercially reasonable efforts
to release Sellers from any personal guarantees in connection with the Debt.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Section 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as the Purchaser may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under
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the Securities Act or any other state securities laws, and therefore may not be
resold without compliance with the Securities Act. The DocuNet Common Stock to
be acquired by such Sellers pursuant to this Agreement is being acquired solely
for their own respective accounts, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE
SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND
ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL
BE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL
SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that their
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
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ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. At any time following the Closing,
whenever the Purchaser proposes to register any DocuNet Common Stock for its own
or others' account under the Securities Act for a public offering, other than
(i) any shelf registration of DocuNet Common Stock; (ii) registrations of shares
to be used solely as consideration for acquisitions of additional businesses by
the Purchaser and (iii) registrations relating to employee benefit plans, the
Purchaser shall give each of the Sellers prompt written notice of its intent to
do so. Upon the written request of any of the Sellers given within 30 days after
receipt of such notice, Purchaser shall cause to be included in such
registration all of the DocuNet Common Stock which any such Seller requests.
However, if the Purchaser is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 15.1 that the number of shares
to be sold by persons other than the Purchaser is greater than the number of
such shares which can be offered without adversely affecting the offering, the
Purchaser may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such persons) to a number
deemed satisfactory by such managing underwriter or such managing underwriter
can eliminate the participation of all such persons in the offering, provided
that, for each such offering made by the Purchaser after the Initial Public
Offering, a reduction shall be made first by reducing the number of shares to be
sold by persons other than the Purchaser, the Sellers, the Founding Companies
and the stockholders of the Founding Companies and other stockholders (the
"Other Stockholders") of the Company immediately prior to the Initial Public
Offering, and thereafter, if a further reduction is required, by reducing the
number of shares to be sold by the Sellers, the Founding Companies and the
stockholders of the Founding Companies, and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Sellers) shall be borne by the Purchaser. In connection with registrations under
Section 15.1, the Purchaser shall (i) prepare and file with the Securities and
Exchange Commission as soon as reasonably practicable, a registration statement
with respect to the DocuNet Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 90
days (or such shorter period during which holders shall have sold all DocuNet
Common Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the DocuNet Common Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the DocuNet Common Stock; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
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15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
CodaLex Microfilming Corporation
104 Vantage Point Drive
Cayce, SC 29033
Attn: Mr. Theodore J. Solomon
with a copy to:
John Kersh, Jr.
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
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(b) If to any of the Sellers, to their attention:
c/o CodaLex Microfilming Corporation
104 Vantage Point Drive
Cayce, SC 29033
with a copy to:
John Kersh, Jr.
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Attn: Bruce Gillis
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
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16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Arthur Anderson LLP incurred in auditing the Company's financial
statements in connection with the transactions contemplated hereby shall be the
responsibility of Purchaser.
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his, her or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Sellers, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Sellers deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Sellers shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving Corporation, any Underwriter or any auditor reasonably deems necessary
or desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
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16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
IN WITNESS WHEREOF, each of the Sellers, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
CODALEX MICROFILMING
CORPORATION
By: /s/ Theodore J. Solomon, Jr.
_______________________________
Theodore J. Solomon, Jr.
President
Witness: /s/ Madeline Solomon
______________________ _______________________________
Madeline Solomon, Individually
Witness: /s/ David C. Yezbak
______________________ _______________________________
David C. Yezbak, Individually
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Schedule 6.1(k)
Form of Opinion of Seller's Counsel
________________ __, 1997
DocuNet Inc.
715 Matson's Ford Road
Vi11anova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to _______________, a ________________________
corporation (the "Company"), in connection with the transactions contemplated by
that certain [Purchase Agreement] dated as of _________________, 1997 (the
"Purchase Agreement"), among the Company, DocuNet Inc., a Pennsylvania
corporation (the "Purchaser"), and __________________("Stockholders"). This
opinion is furnished to you pursuant to Section _________________ of the
Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Certificate] [Articles] of Incorporation and Bylaws
of the Company. We have also made such examinations of laws, certificates of
public officials, instruments, documents and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Company and the Stockholders, (ii) the accuracy, completeness and
authenticity of all records and documents submitted to us as originals, (iii)
the conformity to the original of all documents submitted to us as certified,
conformed or photostatic copies, and (iv) the legal capacity of all natural
persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
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Our opinion 1imlted to the laws of the State of ________________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected _______________ law,
without regard for principles of choice of law, and that such documents are
being executed and delivered and will be performed in, and that the applicable
property is and wi11 be held in, the State of ______________.
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
16.11.1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of __________ and has all necessary
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
16.11.2. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Company.
16.11.3. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
16.11.4. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the [Certificates] [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions where such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
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This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of
the addressees, their successors and assigns, and unless we give our prior
written consent, neither our opinion nor this opinion letter may be quoted in
whole or in part or be relied upon by any other person.
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Schedule 6.1(l)
Related Party Agreements
------------------------
None.
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Schedule 6.1(m)
Employment Agreements
---------------------
None.
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Schedule 6.2(i)
Form of Opinion of Purchaser's Counsel
--------------------------------------
[__________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"], in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _____________, 1997 (the "Purchase Agreement"),
among the Purchaser, __________________, a ____________ corporation (the
"Seller"), and __________________("Stockholders"). This opinion is furnished to
you pursuant to Section ____________ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
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16.11.5. The Purchaser is a corporation duly organized, validly existing
and presently subsisting under the laws of the Commonwealth of Pennsylvania and
has all necessary corporate power and authority to enter Into the Transaction
Documents and to consummate the transactions contemplated thereby.
16 11.6. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all requisite corporate action on the
part of the Purchaser.
16.11.7. The Transaction Documents have been duly and validly executed by
the Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
16.11.8. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the Articles of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency reorgaruzation, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opimon is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
------------------------------
A Partner
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Schedule 14.2
Draft Registration Statement
----------------------------
To be provided.
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of
______, 1997, by and among Madeline Solomon and David C. Yezbak (collectively
"Sellers," and each, a "Seller"), DocuNet Inc., a Pennsylvania corporation
("Purchaser") and ______ (the "Escrow Agent"). The Purchaser, the Sellers and
the Escrow Agent are sometimes collectively referred to herein as the "Parties"
and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined),
it is a condition to the consummation of the transactions contemplated thereby
that at the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this
Agreement will have the meanings set forth in the Purchase Agreement unless such
terms are defined herein or unless the context clearly indicates to the
contrary.
(a) Common Stock shall mean the common stock, $ ____ par value,
of the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
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<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of
any shares of Common Stock (valued at the Initial Public Offering Price) which
may be on deposit in the Escrow Account and (ii) the amount of cash which may be
on deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of
Common Stock, each Seller hereby pledges for the benefit of the Purchaser, and
grants the Purchaser a security interest in, such deposited Common Stock. In
addition, each Seller depositing Common Stock in the Escrow Account has also
delivered to the Escrow Agent stock powers endorsed in blank with respect to the
deposited Common Stock registered in the name of each Seller. The Escrow Agent
shall hold all such deposited Common Stock, not as an agent of each Seller, but
rather as a pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of
Common Stock, each such certificate representing Common Stock on deposit therein
shall have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be
retained by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination
of the Purchase Price pursuant to Article 2 of the Purchase Agreement, the
Sellers and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its
receipt of the Escrow Account, the Escrow Agent shall invest any cash deposited
in the Escrow Account (the "Cash Investment") as set forth on Exhibit "A"
attached hereto, or as otherwise directed in writing from time to time by the
Sellers. All income earned on the Cash Investment will be owned by the Seller
and shall be distributed at least once every 365 days. The Escrow Agent will not
be liable or responsible for any loss resulting from any investment or
reinvestment made as provided in this Agreement at the written direction of the
Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it, and shall be fully protected in so acting
or in refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all
orders, judgments, decrees or writs entered or issued by any court, and in the
event the Escrow Agent obeys or complies with any such order, judgment, decree
or writ of any court, in whole or in part, it shall not be liable to any of the
Parties hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting
solely as an escrow agent hereunder and not as a trustee, and that the Escrow
Agent has no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the
Purchaser will indemnify and hold the Escrow Agent harmless from and against any
and all losses, costs, damages or expenses (including reasonable attorneys'
fees) the Escrow Agent may sustain by reason of its service as escrow agent
hereunder, except to the extent such loss, cost, damage or expense (including
reasonable attorneys' fees) was incurred solely by reason of such acts or
omissions for which the Escrow Agent is liable or responsible under Section 9
hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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<PAGE>
12. Designations. The Sellers and the Purchaser may each, by notice
to the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which
may be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
With a copy to:
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
Attention: John Kersh, Jr., Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all
other parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue
until the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Seller within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be executed by their respective officers hereunto duly authorized,
as of the day and year first above written.
DOCUNET INC.
By:_____________________________________
Name:
Title:
----------------------------------------
Madeline Solomon
----------------------------------------
David C. Yezbak
[ESCROW AGENT]
By:_____________________________________
Name:
Title:
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<PAGE>
Execution
DOCUNET INC.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
IMAGING INFORMATION INDUSTRIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PRELIMINARY STATEMENTS............................................................................................1
ARTICLE 1 - CERTAIN DEFINITIONS...................................................................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES....................................................................11
2.1. Agreement to Sell and Purchase Assets.............................................................11
2.2. Intentionally Omitted ............................................................................11
2.3. Consideration and Payment.........................................................................11
2.4. Payment of Purchase Price.........................................................................13
2.5. Allocation of Purchase Price......................................................................13
2.6. Assumption of Liabilities.........................................................................14
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER............................................................................15
3.1. Organization; Qualification; Good Standing........................................................15
3.2. Authorization for Agreement.......................................................................15
3.3. Ownership; Subsidiaries and Affiliates............................................................16
3.4. Enforceability....................................................................................16
3.5. Legal Proceedings and Orders......................................................................16
3.6. Title to the Purchased Assets and Related Matters.................................................17
3.7. Compliance with Laws..............................................................................17
3.8. Labor Matters.....................................................................................17
3.9. Employee Benefit Plans............................................................................18
3.10. Financial Statements.............................................................................20
3.11. Absence of Undisclosed Liabilities...............................................................21
3.12. Real Property....................................................................................22
3.13. Tangible Personal Property.......................................................................23
3.14. Contracts........................................................................................24
3.15. Insurance........................................................................................26
3.16. Proprietary Rights...............................................................................26
3.17. Environmental Matters............................................................................27
3.18. Permits..........................................................................................28
3.19. Regulatory Filings...............................................................................28
3.20. Taxes and Tax Returns............................................................................28
3.21. Affiliate Transactions...........................................................................29
</TABLE>
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3.22. Accounts.........................................................................................30
3.23. Receivables......................................................................................30
3.24. Solvency.........................................................................................30
3.25. Officers and Directors...........................................................................30
3.26. Brokers or Finders...............................................................................31
3.27. No Other Agreements to Sell Assets...............................................................32
3.28. Customers........................................................................................32
3.29. Investment Company...............................................................................32
3.30. Absence of Changes...............................................................................32
3.31. Accuracy and Completeness of Information.........................................................33
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................34
4.1. Organization......................................................................................34
4.2. Authorization for Agreement.......................................................................34
4.3. Enforceability....................................................................................34
4.4. Litigation........................................................................................34
4.5. Registration Statement............................................................................34
4.6. Brokers or Finders................................................................................34
ARTICLE 5 - COVENANTS............................................................................................35
5.1. Good Faith........................................................................................35
5.2. Approvals.........................................................................................35
5.3. Cooperation; Access to Books and Records..........................................................35
5.4. Duty to Supplement................................................................................36
5.5. Information Required for Purchaser Financing Transactions.........................................37
5.6. Performance of Conditions.........................................................................38
5.7. Conduct of Business...............................................................................38
5.8. Negative Covenants................................................................................39
5.9. Exclusive Negotiation.............................................................................41
5.10. Public Announcements.............................................................................41
5.11. Amendment of Schedules...........................................................................41
5.12. Cooperation in Preparation of Registration Statement.............................................42
5.13. Examination of Final Financial Statement.........................................................43
5.13A Audit Opinion....................................................................................43
5.14. Lock-Up Agreements................................................................................43
</TABLE>
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5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott Act").................................................................44
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................44
6.1. Conditions Precedent to Purchaser's Obligations...................................................44
6.2. Conditions Precedent to Seller's Obligations......................................................47
ARTICLE 7 - CLOSING..............................................................................................49
ARTICLE 8 - COVENANT NOT TO COMPETE..............................................................................49
8.1. Confidentiality...................................................................................49
8.2. Covenant Not To Compete...........................................................................51
8.3. Specific Enforcement; Extension of Period.........................................................52
8.4. Disclosure........................................................................................52
8.5. Interpretation....................................................................................52
8.6. Acknowledgment....................................................................................53
8.7. Applicability of Section 8.2......................................................................53
ARTICLE 9 - SURVIVAL.............................................................................................53
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................53
9.2. [Intentionally omitted.]..........................................................................54
9.3. Underwriter's Benefit.............................................................................54
ARTICLE 10 - INDEMNIFICATION.....................................................................................54
10.1. Seller and Shareholders' Indemnification.........................................................54
10.1A No Indemnification of Projected Information......................................................55
10.2. Purchaser's Indemnification......................................................................55
10.3. Payment; Procedure for Indemnification...........................................................56
10.4. Equitable Contribution Under the Securities Act..................................................58
10.5. Exclusiveness of Indemnification.................................................................58
10.6. Limitations on Indemnification...................................................................59
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................59
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11.1. Termination......................................................................................59
11.2. Effect of Termination............................................................................60
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................61
12.1. Further Cooperation..............................................................................61
12.2. Maintenance of Books and Records.................................................................61
12.3. By Seller and Shareholders.......................................................................61
12.4. Use of Name......................................................................................62
12.5. Discharge of Obligations.........................................................................62
12.6. Receivables......................................................................................62
12.7. Disclosure.......................................................................................62
12.8. Guarantees.......................................................................................62
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS..................................................................63
ARTICLE 14 - MISCELLANEOUS.......................................................................................63
14.1. Notices..........................................................................................63
14.2. No Third Party Beneficiaries.....................................................................64
14.3. Schedules........................................................................................64
14.4. Expenses.........................................................................................64
14.5. Further Assurances...............................................................................64
14.6. Entire Agreement; Amendment......................................................................65
14.7. Section and Paragraph Titles.....................................................................65
14.8. Binding Effect...................................................................................65
14.9. Counterparts.....................................................................................65
14.10. Severability....................................................................................65
14.11. Governing Law...................................................................................65
SCHEDULES
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made as of the 9th day of September, 1997 by
and among Imaging Information Industries, Inc. (the "Seller"), a North Carolina
corporation domesticated in Georgia (the "Company"), Gerald P. Gorman, Theodore
J. Solomon, Theodore J. Solomon, II, Charles P. Yezbak, III and David C. Yezbak
(each a "Shareholder" and collectively, the "Shareholders"), and DocuNet Inc., a
Pennsylvania corporation (the "Purchaser"). Theodore J. Solomon, Theodore J.
Solomon, II, Charles P. Yezbak, III and David C. Yezbak shall be referred to
herein as the "Signatory Shareholders."
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document management
services. Shareholders own one hundred percent (100%) of the issued and
outstanding shares of the Seller's capital stock. The Seller desires to sell to
the Purchaser and the Purchaser desires to purchase from the Seller all of the
Seller's assets that are used in or related to the operation of the Seller's
document management, document software and related businesses (the "Business"),
together with the goodwill related to the Business in accordance with the
provisions set forth in this Agreement. Except for those specific obligations
and liabilities of the Seller identified in this Agreement, the Purchaser is
assuming none of the Seller's obligations or liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Intentionally Omitted.
1.2. Accounts shall have the meaning set forth in Section 3.22.
1.3. Accrued Expenses shall mean, as of any date of determination, accrued
payroll and benefits deferred revenue under service and maintenance agreements
and other accrued expenses as would appear on a balance sheet of the Business as
of such date prepared in accordance with GAAP and incurred in the ordinary
course of business consistent with past practices, but specifically excluding
any amounts payable to any of the Seller's or the Shareholder's Affiliates or to
any of the Seller's directors, officers or employees that is contingent upon or
payable as a result of the transactions contemplated by this Agreement.
<PAGE>
1.4. Acquired Liabilities shall mean, as of the applicable date, Seller's
Payables, Accrued Expenses and deferred revenues under service and maintenance
agreements, as would appear on a balance sheet of the Company as of such date
prepared in accordance with GAAP and incurred in the ordinary course of business
consistent with past practices.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable date, the
Seller's fixed assets as categorized on the Seller Balance Sheet reported in
accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable date,
the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current Assets,
minus Seller's Acquired Liabilities, reported on the Seller Balance Sheet in
accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable date,
the Seller's Current Assets minus its Acquired Liabilities, as reported on the
Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in Section
3.21.
1.10. Allocation Schedule shall have the meaning set forth in Section 2.6.
1.11. Assignment and Assumption Agreement shall mean the Assignment and
Assumption Agreement to be executed and delivered by and between the Purchaser
and the Seller in the form attached to this Agreement as Exhibit A.
1.12. Assumed Liabilities shall have the meaning set forth in Section 2.7.
1.13. Balance Sheet Date shall mean June 30, 1997.
1.14. Bill of Sale shall mean the Bill of Sale to be executed and delivered
by the Seller to the Purchaser in the form attached to this Agreement as Exhibit
B.
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1.15. Books and Records shall mean all records, documents, lists and files,
relating to either or both of the Purchased Assets or the Business including,
without limitation, price lists, lists of accounts, customers, suppliers and
personnel, all product, business and marketing plans, historical sales data and
all books, ledgers, files and business records (including, without limitation,
all financial records and books of account) of or relating to either or both of
the Purchased Assets or the Business; in any of the foregoing cases, whether in
electronic form or otherwise.
1.16. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.17. Cash Purchase Price shall have the meaning set forth in Section 2.4.
1.18. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.19. Closing shall have the meaning set forth in Article 7.
1.20. Closing Balance Sheet shall mean the unaudited balance sheet
delivered by the Seller to the Purchaser as of the date immediately prior to the
Closing Date, in accordance with Section 3.10(d).
1.20A Closing Consolidating Balance Sheet shall mean the Consolidating
Balance Sheet of the Company and Codalex, prepared in the same manner as the
Seller Balance Sheet, prepared as of the date immediately prior to the Closing
Date.
1.21. Closing Date shall mean the date on which the Closing actually takes
place.
1.22. Intentionally Omitted
1.22A. CodaLex shall mean CodaLex Microfilming Corporation.
1.23. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.24. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in
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<PAGE>
connection with the transactions contemplated by this Agreement and (ii) each of
the terms, conditions and other provisions contained in this Agreement and in
the agreements or documents to be delivered pursuant to this Agreement.
Notwithstanding the preceding sentence, the definition of Confidential
Information shall not include any information that (i) is in the public domain
at the time of disclosure to the Recipient or becomes part of the public domain
after such disclosure through no fault of the Recipient, (ii) is possessed in
writing by the Recipient at the time of disclosure to such Recipient, (iii) is
contained in the Registration Statement on Form S-1 to be filed by Purchaser in
connection with the Initial Public Offering, or (iv) is disclosed to a party or
Potential Founding Company by any Person other than a party to this Agreement or
a Potential Founding Company; provided, that the party to whom such disclosure
has been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall not
include disclosure of information to a Potential Founding Company or (except as
otherwise provided herein) to any other person in connection with the
transactions contemplated hereby.
1.25. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.26. Current Assets shall mean, as of the applicable date, the Seller's
Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.27. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person or such
Person's properties are bound.
1.28. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et seq., together with the rules and regulations promulgated thereunder,
(iii) the Telephone Consumer Protection Act of 1991, together with the rules and
regulations promulgated thereunder, and (iv) any Requirement of Law of any
jurisdiction relating to the subject matter covered by any of the foregoing, all
as amended and supplemented from time to time, or any successors thereto.
1.29. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc., the sole shareholder of Purchaser.
1.30. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all
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vacation pay, severance pay, incentive compensation, consulting, bonus and other
employee benefit or fringe benefit plans or arrangements maintained by the
Seller or any ERISA Affiliate (including, without limitation, health insurance,
life insurance and other benefit plans maintained for retirees) within the
previous six plan years or with respect to which contributions are or were
(within such six year period) made or required to be made by the Seller or any
ERISA Affiliate or with respect to which the Seller has any liability.
1.31. Encumbrances shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, mortgages, conditional or installment
sales Contracts, title retention Contracts, transferability restrictions and
other claims or burdens of any nature whatsoever attached to or adversely
affecting such asset other than liens arising in the ordinary course of business
which are not incurred in connection with the borrowing of money and which, in
the aggregate, are not material.
1.32. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.33. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.34. ERISA Affiliate shall mean any Person that is included with the
Seller in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.35. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.36. Escrow Agreement shall mean the Escrow Agreement between the Seller,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.4, substantially in the
form attached hereto as Exhibit C.
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1.37. Escrow Amount shall have the meaning set forth in Section 2.4(c).
1.38. Excluded Assets shall mean those assets listed on Schedule 2.1(b)
attached to this Agreement.
1.39. Intentionally Omitted
1.40. Financial Statements shall have the meaning set forth in Section
3.10(a).
1.41. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition agreements with the Purchaser in anticipation
of a simultaneous acquisition by Purchaser and Initial Public Offering.
1.42. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.43. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.44. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
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1.48. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.50. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth in
Section 3.10(b).
1.52. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor organization
thereto.
1.54. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or, in the case of an entity,
the actual knowledge of any officer or director of such entity, and, in the case
of any such officer or director that knowledge that a reasonably prudent officer
or director should have if such person duly performed his or her duties as an
officer or director of such party or made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.55. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.56. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.57. Obligations and liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
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1.58. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.59. Payables shall mean, as of any date of determination, the Seller's
accounts payable associated with the Business as of such date in accordance with
GAAP consistently applied, other than amounts that are payable to any Affiliate
of the Seller or any of the Shareholders.
1.60. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.61. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholders, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.63A Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.63B Pricing Date shall mean the date on which the Pricing takes place.
1.64. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.65. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section 2.1.
1.67. Purchase Price shall have the meaning set forth in Section 2.3.
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1.68. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.69. [Intentionally omitted.]
1.70. Real Property shall mean all real property owned or leased by Seller.
1.71. Receivables shall mean, as of any date of determination, the Seller's
accounts receivable, notes receivable and other miscellaneous receivables
associated with the Business at such date.
1.72. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.73. Related Companies shall have the meaning set forth in Section 8.2(a).
1.74. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.75. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.76. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.77. Restricted Period shall mean, with respect to the Seller and the
Shareholders, the period commencing on the Closing Date and ending on the later
of (i) the first anniversary of the date on which such Shareholder's employment
with the Purchaser, if any, expires, is not renewed, or is otherwise terminated,
and (ii) the fifth anniversary of the Closing Date, as such period may be
extended pursuant to Section 8.3(b); provided that (with respect to the
Shareholders) the reference to "fifth anniversary" in this clause (ii) shall be
automatically changed to "fourth anniversary" if the average closing price of
the DocuNet Common Stock during any 20-trading day period within the 60-day
period prior to or following the date on which such Shareholder's employment
with the Purchaser terminates is less than 50% of the Initial Public Offering
Price (as adjusted proportionately for any stock splits, stock dividends or
reverse stock splits).
1.78. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
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1.79. Intentionally Omitted
1.80. Seller Balance Sheet shall have the meaning set forth in Section
3.11.
1.81. Intentionally Omitted.
1.82. Intentionally Omitted.
1.83. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.84. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.85. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.86. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed, with or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.87. Trade Accounts Receivable shall mean, as of the applicable date, the
Seller's trade accounts receivable associated with the Business.
1.88. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
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1.90. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.91. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Seller and the Shareholders
to the Purchaser in this Agreement, the Seller shall sell to the Purchaser and
the Purchaser shall purchase and receive from the Seller, free and clear of all
Encumbrances and all obligations and liabilities (other than the Assumed
Liabilities), all of the tangible and intangible assets of the Seller, whether
real, personal or mixed, that are incremental or relating to, or used in
connection with, the Business, wherever located, including, without limitation
(i) the assets included on the Seller Balance Sheet, (ii) the assets listed on
Schedule 2.1(a) attached to this Agreement, and (iii) all assets acquired by the
Seller after June 30, 1997 and on or prior to the Closing Date, but excluding
the Excluded Assets and any assets disposed of in the ordinary course of
business consistent with past practice (collectively, the "Purchased Assets").
2.2. Intentionally Omitted
2.3. Consideration and Payment. As full consideration for the Purchased
Assets being purchased pursuant to this Agreement (in addition to the assumption
of the Assumed Liabilities), the Purchaser shall pay, deliver or cause to be
delivered to the Seller, in the manner set forth in Section 2.4 of this
Agreement, the Base Purchase Price (as hereinafter defined), less the Debt
Adjustment (as hereinafter defined), on the terms and conditions set forth below
(the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.4(c), the Purchaser
shall pay to the Seller at the Closing the sum of Nine Hundred Twenty-One
Thousand Five Hundred Fifty Dollars ($921,550), subject to adjustments as
set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 of Debt reflected on the Seller's Closing
Consolidating Balance Sheet (the "Closing Debt Amount"). The Seller's Debt
shall mean all of the Seller's liabilities, contingent or otherwise, except
Adjusted Current Liabilities, in accordance
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with GAAP. The Seller's Adjusted Current Liabilities shall mean all of the
Seller's liabilities which would be classified as current liabilities in
accordance with GAAP, except current amounts owing: (i) under promissory
notes or lines of credit to lending institutions; (ii) to an employee or an
Affiliate of the Seller, or the Shareholders; (iii) to a lessor under a
capital lease, or (iv) on account of Taxes or earned insurance premiums.
Promptly following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by
the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the Seller's
objection(s) to the Accountants' CDA Report and the Seller's calculation of
the Closing Debt Amount. Within ten (10) days after receipt of the Seller's
CDA Objection, the Purchaser will notify the Seller whether it accepts or
disputes the Seller's adjustments, which notification shall set forth in
reasonable detail the adjustments, if any, made by the Seller which the
Purchaser continues to dispute (the "Purchaser's CDA Response Notice"). If
the Seller does not object to the Accountants' CDA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants' CDA
Report, then the adjustment based on the then final Closing Debt Amount
(the "Final Debt Amount"), if any, shall be paid by Seller to the Purchaser
in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amounts shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value (as defined below) equal to such amount. The term "Value"
in respect of a share of DocuNet Common Stock shall mean the lower of the
Initial Public Offering Price and the average closing price of the DocuNet
Common Stock during the 20 trading-day period ending immediately prior to
the applicable payment date. If the Seller objects to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Seller's
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Seller and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by Purchaser within such time period, such
amounts shall be paid from the
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Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. The
parties hereto agree to cooperate fully with such independent accountants
at their own cost and expense, including, but not limited to, providing
such independent accountants with access to, and copies of, all books and
records that they shall reasonably request. The Purchaser and the Seller
shall each bear one-half of all of the costs and expenses of such
independent accounting firm, and if the parties hereto are unable to agree
upon an independent accounting firm, the Seller and the Purchaser will
request that one be designated by the President of the Philadelphia office
of the American Arbitration Association.
(c) Shareholder Obligation. The Shareholders hereby agree that the
Shareholders will be jointly and severally liable for all obligations of
Seller under the Purchase Price adjustments set forth in this Section 2.3
of this Agreement including, but not limited to, the obligation to
replenish the Escrow Amount.
2.4. Payment of Purchase Price.
(a) Cash Purchase Price. Subject to 2.4 (b), an amount equal to the Base
Purchase Price less the reductions, if any, to be made at Closing pursuant to
Section 2.3(b), shall be payable at the Closing in cash to the Seller ("Cash
Purchase Price"), as reduced by the Escrow Amount (as described below). The
specific amount of the Cash Purchase Price shall be payable to the Seller by a
bank check payable to the order of Seller in immediately available funds, or a
wire transfer to an account to be designated by Seller in writing not less than
three (3) business days prior to the Closing, such method of payment to be at
the sole discretion of Purchaser.
(b) Delivery into Escrow. Notwithstanding the foregoing, an amount in cash
equal to $46,000 shall be delivered at Closing to the Escrow Agent pursuant to
the Escrow Agreement (the "Escrow Amount"). The Escrow Amount shall be available
to fund (but shall not be the sole source of funding) any obligations of Seller
and Shareholders cash under this Agreement pursuant to the terms of the Escrow
Agreement; provided, however, if the amount of cash in the Escrow Amount falls
below $46,000 (the "Threshold Value") due to payment from the Escrow Amount
pursuant to Section 2.3 hereof, the Seller or Shareholders shall contribute
additional cash to the Escrow Amount in an amount necessary so that the amount
of cash in the Escrow Amount would equal the Threshold Value.
2.5. Allocation of Purchase Price. Seller shall on or before thirty (30)
days after the Closing Date initially determine and send to Purchaser a schedule
containing the allocation of the Purchase Price and the Assumed Liabilities
among the Purchased Assets as is required by Section 1060 of the Code (the
"Allocation Schedule"). The Allocation Schedule will be deemed to be accepted by
Purchaser unless Purchaser provides a written notice of disagreement to Seller
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within five (5) business days after receipt of the Allocation Schedule. If
Purchaser provides such written notice, Seller and Purchaser shall proceed to
negotiate in good faith to create a mutually acceptable Allocation Schedule. If
no mutually acceptable Allocation Schedule is created within ten (10) business
days of Seller's receipt of the written notice of disagreement, then an
independent accountant mutually satisfactory to the Seller and Purchaser (the
"Independent Accountant") shall be engaged to determine the Allocation Schedule.
The fees for such determination shall be borne by Purchaser, unless the
Independent Accountant disagrees materially with the Allocation Schedule
originally submitted by Seller, in which case such fees shall be borne by
Seller. Such determination by the Independent Accountant, or the original
Allocation Schedule if not objected to by the Purchaser, shall be binding and
conclusive to all parties to the Agreement and all parties shall file all
relevant tax returns consistent with such final determination, unless otherwise
required by applicable law; provided, however, that if the Purchase Price or the
Assumed Liabilities is adjusted in accord with Section 2.3 of this Agreement,
the Allocation Schedule otherwise determined shall be adjusted in accord with
the requirements of Section 1060 of the Code.
2.6. Assumption of Liabilities. At the Closing, the Purchaser will assume
only the Seller's obligations and liabilities expressly listed on Schedule 2.6
attached to this Agreement, if any (collectively, the "Assumed Liabilities").
Except for the Assumed Liabilities, the Purchaser shall not, by virtue of its
purchase of the Purchased Assets or otherwise, acquire, assume or become
responsible for any obligations or liabilities of the Seller. Nothing contained
in this Agreement shall be construed as an assumption of any specific Assumed
Liability until any required Consent shall have been obtained.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Except as set forth on the disclosure schedule delivered by the Seller and
the Shareholders to the Purchaser on the date hereof (the "Disclosure
Schedule"), the numbers of which are numbered to correspond to the section
numbers of this Agreement to which they refer, the Seller and the Shareholders
hereby, jointly and severally, represent and warrant to the Purchaser as
follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation or
organization, (ii) has the power and authority to own and operate its properties
and assets and to transact the Business and (iii) is duly qualified and
authorized to do business and is in good standing in all jurisdictions where the
failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon the Seller's Business, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
either of the Seller or the Shareholders, threatened against or affecting the
Seller revoking, limiting or curtailing, or seeking to revoke, limit or curtail
the Seller's power, authority or qualification to own, lease or operate its
properties or assets or to transact the Business.
(c) True and complete copies of the Seller's articles or certificate of
incorporation, bylaws and other constitutive documents are attached to this
Agreement as part of the Disclosure Schedule. Except as set forth in the
Disclosure Schedule, the minute books of the Seller, as heretofore made
available to the Purchaser, are correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Seller: (i) are within the Seller's corporate powers and duly authorized by all
necessary corporate and shareholder action on the part of the Seller and (ii) do
not (A) require any action by or in respect of, or filing with, any Governmental
or Regulatory Authority (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or default
under, any Requirement of Law applicable to the Seller or any of its properties
or any Contract to which the Seller or any of its properties is bound or subject
or (C) result in the creation of any Encumbrance or any obligation and liability
on any of the Purchased Assets.
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(b) The Shareholders. The Shareholders' execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Shareholders (i) are within the powers and authority, corporate or
otherwise, of the Shareholders and are duly authorized by all necessary
corporate and Shareholder action on the part of a corporate Shareholder and (ii)
do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, or (B) contravene, violate or constitute,
whether with or without the passage of time or the giving of notice or both, a
breach or default under, any Requirement of Law applicable to the Shareholders,
any of his or its properties or any Contract to which the Shareholders or any of
his or its properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than the Shareholders own record,
beneficial or equitable ownership of any of the Seller's securities, whether
debt or equity.
(b) No Interest in Other Entities. Seller does not own, directly or
indirectly, any debt, equity or other ownership or financial interest in any
other Person. No shares or other ownership or other interests, either of record,
beneficially or equitably, in any Person are included in the Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete and accurate
list of all Persons (other than the Shareholders or any of the Persons described
in the first sentence of Section 1.8, subpart (iii)) that are Affiliates of the
Seller, detailing the nature of the relationship between the Seller and each
such Person that causes such Person to be an Affiliate of the Seller.
(d) No Acquisitions. Since the Balance Sheet Date, the Seller has not
acquired, or agreed to acquire, whether by merger or consolidation, by purchase
of equity interests or assets, or otherwise, any business or any other Person,
or otherwise acquired, or agreed to acquire, any assets other than in the
ordinary course of business that are material, either individually or in the
aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Seller and the Shareholders and constitutes the legal, valid and binding
obligation of the Seller and the Shareholders, enforceable against each of them
in accordance with its terms.
3.5. Legal Proceedings and Orders. Except as set forth in the Disclosure
Schedule there is no Legal Proceeding or Order pending against, or to either of
the Seller's or the Shareholders' knowledge, threatened against or affecting,
the Seller, the Business, the Purchased Assets or the Assumed Liabilities that
could reasonably be expected to have a Material Adverse Effect or to adversely
affect or restrict the ability of the Seller to consummate fully the
transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. Neither the Seller nor any of the
Shareholders has knowledge of any
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fact, event, condition or circumstance that may give rise to the commencement of
any Legal Proceeding or the entering of any Order against the Seller or any of
the Seller's properties including, without limitation, any Legal Proceeding or
Order that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
3.6. Title to the Purchased Assets and Related Matters. Except for the
items of Tangible Personal Property leased by the Seller and disclosed in the
Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance with all
Requirements of Law applicable to it or any of its properties or to which the
Seller or its properties is bound or subject including, without limitation, the
Credit Acts. Except as set forth on the Disclosure Schedule attached to this
Agreement, since January 1, 1992, none of the Seller or the Shareholders has
received any notice from any Person concerning alleged violations of, or the
occurrence of any events or conditions resulting in alleged noncompliance with,
any Requirement of Law applicable to the Seller or any of its properties or to
which the Seller or any of its properties is bound or subject including, without
limitation, any of the Credit Acts. None of the Seller, the Shareholders, any of
their respective Affiliates (other than a Person who is an Affiliate solely by
virtue of clause (iii) of the definition thereof), or any of such Affiliates'
respective Affiliates (other than a Person who is an Affiliate solely by virtue
of clause (iii) of the definition thereof) has made any illegal kickback, bribe,
gift or political contribution to or on behalf of any customer, or to any
officer, director, employee of any customer, or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Seller is a party or may
otherwise be bound or subject, and the compensation to which each consultant is
entitled under its respective Contract. The Seller has delivered or caused to be
delivered to the Purchaser true and complete copies of all such Contracts, each
of which is attached to the Disclosure Schedule. Since the Balance Sheet Date,
the Seller has not increased the compensation payable to its consultants or the
rate of compensation payable to its consultants. No individuals retained by the
Seller as an independent contractor or consultant would be reclassified by the
IRS, the U.S. Department of Labor or any
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other Governmental or Regulatory Authority as an employee of the Seller for any
purpose whatsoever.
(b) Attached to the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Seller, together with such employee's position
or function, the rate of hourly, monthly or annual compensation (as the case may
be) paid or to be paid to such employee in 1995, 1996 and, to the extent known,
1997, any accrued sick leave or pay or vacation and any incentive or bonus
arrangement with respect to any such employee. Except as is set forth on the
Disclosure Statement, since the Balance Sheet Date, the Seller has not increased
the compensation payable to its employees or the rate of compensation payable to
its employees. The Disclosure Schedule also identifies those employees with whom
the Seller has entered into an employment Contract or a Contract obligating the
Seller to pay severance or similar payments to any employee. The Seller and the
Shareholders have delivered or caused to be delivered to the Purchaser true and
complete copies of such Contracts, all of which are attached or listed on the
Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such employees
is currently being negotiated. To the knowledge of either of the Seller or the
Shareholders, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Seller.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the Seller's employees or former employees. In
addition, no dispute with or claim against the Seller relating to any labor or
employment matter including, without limitation employment practices,
discrimination, terms and conditions of employment, or wages and hours is
outstanding or, to either of the Seller's or the Shareholders' knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment Opportunity Commission against the
Seller with respect to any labor or employment matter.
3.9. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Seller and the Shareholders have delivered or caused to be delivered
to the Purchaser true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
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(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Seller has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such in the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Seller has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan" covering
employees of the Seller within the meaning of Section 3(35) of ERISA subject to
Title IV of ERISA or any "Multiemployer Plan" within the meaning of Section
401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Seller with respect thereto.
(f) The Seller has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser or, the Seller to any Tax, penalty or other liability
under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of either of the Seller or the Shareholders
threatened, and to the knowledge of the Seller or any of the Shareholders, there
are no facts, events, conditions or circumstances that could give rise to any
such Legal Proceeding or claim (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course).
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(i) Neither the Seller or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Seller who are on leave
of absence under either of the Uniformed Services Employment or Reemployment
Rights Act or the Family Medical Leave Act.
(l) None of the Seller or any of its respective officers, directors or
significant employees (as such term is defined in Regulation S-K of the
Securities Act), or any other Person has made any statement or communication or
provided any materials to any employee or former employee of the Seller that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Seller.
3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused to be
delivered to the Purchaser a copy of the combined balance sheets of the Seller
and Codalex as of June 30, 1995, 1996 and 1997 and the related statements of
operations, shareholders' equity and cash flows for the years then ended,
together with all proper exhibits, schedules and notes thereto, (collectively,
the "Financial Statements"). A true and complete copy of the Financial
Statements is attached to in the Disclosure Schedule. The Financial Statements
have been prepared in accordance with GAAP consistently applied throughout the
periods involved (except for changes required or permitted by GAAP and noted
thereon) and fairly represent the combined financial position of the Seller and
Codalex as of the date of such Financial Statements and the combined results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
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(c) Since the Balance Sheet Date: (i) the Seller has operated, and the
Shareholders have caused the Seller to operate, the Businesses in the normal and
ordinary course in a manner consistent with past practices; (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon the Seller; (iii)
there has not been any change in the accounting methods or practices followed by
the Seller, except as required by GAAP and disclosed on the Disclosure Schedule;
(iv) the Seller has not sustained any material damage, destruction, theft, loss
or interference with the Purchased Assets or the Business, whether or not
covered by insurance; (v) the Seller has not (x) paid or declared any dividends
or made any distributions or payment in respect of, or made any payment on
account of, or set apart assets for a sinking or another analogous fund for, the
purchase redemption, defeasance, retirement or other acquisition of, the
Seller's securities, whether debt or equity, and whether in cash or in property
or in obligations of the Seller or (y) paid any management or similar fee to any
Person; (vi) no development, event, condition or circumstance that constitutes,
whether with or without the passage of time or the giving of notice or both, a
default under any of the Seller's outstanding debt obligations has occurred;
(vii) the Seller has not created, incurred, assumed or guaranteed any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business) other than (x) for trade indebtedness incurred in the normal and
ordinary course of the Business and (y) as described in the Disclosure Schedule;
(iv) the Seller has not made or committed to make any capital expenditure or
capital addition or betterments in excess of an aggregate of $10,000; and (v)
the Seller has not made a gift or contribution (charitable or otherwise) to any
Person (other than gifts made since the Balance Sheet Date which, in the
aggregate, do not exceed $5,000).
(d) On the Closing Date, the Seller and the Shareholders will also deliver
or caused to be delivered to the Purchaser a true and complete copy of the
Closing Balance Sheet. The Closing Balance Sheet will be prepared in accordance
with the books and records of the Seller, Codalex and their Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, and will be prepared in accordance with
GAAP applied on a consistent basis (except for the absence of notes and subject
to normal year-end audit adjustments).
3.11. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Seller set
forth in the Adjusted Balance Sheet at June 30, 1997, including without
limitation, all notes thereto, prepared in accordance with GAAP and attached
hereto as Schedule 3.11 (the "Seller Balance Sheet"), the Seller has no
liabilities or obligations, whether direct or indirect, matured or unmatured,
contingent or otherwise as of such date required to be disclosed in the Seller
Balance Sheet in accordance with GAAP, and has incurred no such liabilities or
obligations since such date, except for liabilities or obligations that were
incurred consistently with past business practice in or as a result of the
normal and ordinary course of business since June 30, 1997.
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3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The Disclosure
Schedule includes a complete and accurate list of all the locations of all Real
Property and the name and address of the lessor and, if a Person different than
such lessor, the manager thereof. The Seller and the Shareholders have delivered
or caused to be delivered to the Purchaser true and complete copies of all
Contracts relating to Real Property (including, without limitation, all leases
and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Seller is a party or
is otherwise bound or subject, and all certificates of occupancy required to be
obtained and maintained with respect to any of such Real Property, and, in each
case, all amendments thereof, which relate to or affect any of the Real
Property. Except for the leases pertaining to the Real Property identified in
and attached to the Disclosure Schedule, neither the Seller nor any of the
Shareholders is a party to any Contract that commits or purports to commit the
Seller to purchase or otherwise acquire or lease any real property including,
without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Seller peaceful, undisturbed and exclusive
possession of the applicable Real Property, (iii) is free of all Encumbrances,
and (iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(c) The Seller has performed the obligations required to be performed by it
to date under all Contracts relating to or affecting the Real Property and is
not in default or breach thereof. In addition, no party to any such Contract (i)
has provided any notice to the Seller of its intent to terminate or not renew
any such Contract, (ii) to the knowledge of the Seller and the Shareholders, has
threatened to terminate or not renew any such Contract or (iii) is to the
knowledge of the Seller and the Shareholders, in breach or default under any
provision thereof, and to the knowledge of the Seller and the Shareholders, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(d) The Real Property is in good condition and repair (ordinary wear and
tear excepted) and there has been no damage, destruction or loss to any of the
Real Property that remains unremedied to date, and the Real Property is suitable
to carry out the Business as conducted thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of either the
Seller or any of the Shareholders, threatened, against any of the Real Property.
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(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any obligation and liability upon the Seller or any
Encumbrance upon any of the Purchased Assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Seller has made any
expenditure in the two-years prior to the date of this Agreement in excess of
$10,000, or which if pursued by the Seller would require additional expenditures
of capital in excess of $10,000.
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are presently used
in the conduct of the Businesses and the Seller's operations. The Seller and the
Shareholders have delivered or caused to be delivered to the Purchaser true and
complete copies of all Contracts (including, without limitation, leases and
service, supply, maintenance and similar Contracts) to which the Seller is a
party or is otherwise bound or subject, and all amendments thereto, which relate
to or affect any of the tangible personal property owned, possessed or used by
the Seller (the "Tangible Personal Property"). A complete and accurate list of
all such Contracts set forth in, and true and complete copies of such Contracts
are attached to the Disclosure Schedule. Except (i) for those assets disposed of
in the normal and ordinary course of business since the Balance Sheet Date, (ii)
with respect to Tangible Personal Property that is leased or rented by the
Seller, and (iii) as otherwise set forth on the Disclosure Schedule, the Seller,
as the case may be, has good and valid title to all of its Tangible Personal
Property, including all items of Tangible Personal Property reflected on the
Seller Balance Sheet, free of all Encumbrances.
(b) Since the Balance Sheet Date, the Seller has not incurred or suffered
any material physical damage, destruction, theft or loss of their respective
tangible items of material personal property, whether owned or leased. All
material Tangible Personal Property including, without limitation, all computer
hardware and software (including all operating and application systems), is in
good working order, condition and repair (ordinary wear and tear excepted) and
suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Tangible Personal Property, (iii) is
free of all Encumbrances and (iv) constitutes
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a valid and binding obligation of, and is enforceable in accordance with its
terms against, the respective parties thereto.
(d) The Seller has performed the obligations required to be performed by it
to date under all Contracts relating to or affecting the Tangible Personal
Property and is not in default or breach thereof. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
and Shareholders, threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Seller and Shareholders, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrances upon any of the Purchased Assets under the terms of
any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which the Seller or any of its properties is
party or is otherwise bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either Seller's right to engage in, or compete with any Person in, any
business;
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(iv) any Contract involving a pledge or encumbering of Seller's assets
or the incurrence by the Seller of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either Seller has created,
incurred, assumed or guaranteed any indebtedness other than for trade
indebtedness incurred in the normal and ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of the Purchased
Assets; and
(viii) any Contract that (A) either (x) does not fit within one of the
foregoing categories described in (i) through (vii) above or (y) is not
otherwise identified in the Disclosure Schedule and (B) would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by the Seller under the Act if the Seller were to file such a
registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Seller or any of its properties is
a party or is otherwise bound or subject (i) is valid and binding on each of the
parties thereto in accordance with its terms, (ii) was made in the normal and
ordinary course of the Business and (iii) contains no provision or covenant
prohibiting or limiting the ability of the Seller or any Subsidiary to operate
their respective Businesses.
(c) No party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) has provided any
notice to the Seller of its intent to terminate or withdraw its participation in
any such Contract, (ii) has, to the knowledge of the Seller and Shareholders,
threatened to terminate or withdraw from participation in any such Contract or
(iii) is, to the knowledge of the Seller and Shareholders, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Seller or any of its properties is a party
or is otherwise bound or subject is required in connection with the transactions
contemplated by this Agreement.
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(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its properties is a party or is otherwise
bound or subject, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Contract or (iii) result in the creation or imposition of any
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes a complete and accurate
list of all insurance policies held by the Seller identifying all of the
following for each such policy: (i) the type of insurance; (ii) the insurer;
(iii) the policy number; (iv) the applicable policy limits, (v) the applicable
periodic premium; and (vi) the expiration date. Each such insurance policy is
valid and binding and is and has been in effect since the date of its issuance.
All premiums due thereunder have been paid, and the Seller has not received any
notice of any cancellation, non-renewal or termination in respect of any such
policy. The Seller is not in default under any such policy. To the knowledge of
either the Seller or any of the Shareholders, no such insurer is the subject of
insolvency proceedings. Neither the Seller nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. The
Seller has notified its insurance carriers of all litigation, claims and facts
which could reasonably be expected to give rise to a claim, all of which are
disclosed in the Disclosure Schedule (including worker's compensation claims).
The liability insurance maintained by the Seller is and has at all times prior
to the date of this Agreement been on an "occurrence" basis.
3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and accurate list and
full description of each item of the Seller's Intellectual Property together
with, in the case of registered Intellectual Property: the (i) applicable
registration number; (ii) filing, registration, issue or application date; (iii)
record owner; (iv) country; (v) title or description; and (vi) remaining life.
In addition, the Disclosure Schedule identifies whether each item of
Intellectual Property is owned by the Seller or possessed and used by the Seller
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but not owned by the Seller, such representation and warranty is given solely to
the knowledge of the Seller and Shareholders.
(b) There is neither pending, nor to either the Seller's or any of the
Shareholders knowledge, threatened, any Legal Proceeding against the Seller
contesting the validity or right of the Seller to use any of the Intellectual
Property, and the Seller has not received any notice of infringement upon or
conflict with any asserted right of others nor, to
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either the Seller's or any of the Shareholders knowledge, is there a basis for
such a notice. To either the Seller's or any of the Shareholders' knowledge, no
Person is infringing the Seller's rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, the Seller
does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided on the
Disclosure Schedule, the Seller has not granted any license or other right to
use, in any manner, any of the Intellectual Property, whether or not requiring
the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any obligation and liability upon the Seller or
any Encumbrances upon any of the Purchased Assets under the terms of any such
Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business is and has been in
compliance with all applicable Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Seller or Shareholders (or to the knowledge of the Seller or
Shareholders, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Seller, based upon or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substance or wastes.
(c) To the knowledge of the Seller and Shareholders, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Seller
and Shareholders, no polychlorinated byphenyls (PCBs) are present, in use or
stored on any of the Real Property. No radon gas or the presence of radioactive
decay products of radon are present on, or underground at any of the Real
Property at levels beyond the minimum safe levels for such gas or products
prescribed by applicable Environmental Laws.
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3.18. Permits.
(a) Each of the Seller and its employees, independent contractors and
agents has obtained and holds in full force, and the Disclosure Schedule sets
forth a complete and accurate list of, all Permits that are necessary for the
operation of their respective Businesses. Neither the Seller nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit. Any Permits that cannot be transferred to the Purchaser are
identified as such on the Disclosure Schedule.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
(c) Except as set forth in the Disclosure Schedule there is no Order
outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholders' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Seller.
3.19. Regulatory Filings. The Seller has filed all registrations, filings,
reports, or submissions that are required by any Requirement of Law. All such
filings were made in compliance with applicable Requirements of Law when filed
and no deficiencies have been asserted by any Governmental or Regulatory
Authority with respect to such filings and submissions that have not been
finally resolved.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Each such Tax
Return is true, accurate and complete. The Seller has paid in full all Taxes for
the period covered by such Tax Return. All Taxes not yet due and payable have
been withheld or reserved for or, to the extent that they relate to periods on
or prior to the date of the Seller Balance Sheet, are reflected as a liability
thereon. The Seller duly and properly filed an election to be an S corporation
and such election is currently in effect, under section 1362 of the Code and the
rules and regulations promulgated thereunder. Such election has been in effect
without interruption, including without limitation any inadvertent termination
which has been reinstated, since the Seller was incorporated. Since the Seller
was incorporated, all of the current and former stockholders of the Seller are
and have been permitted stockholders under Section 1362 of the Code and the
rules and regulations promulgated thereunder. The Seller has never had a taxable
year in which it was other than an S corporation. The Seller's federal S
election is recognized and given effect or the Seller has made an appropriate
and timely election to be treated as an S
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corporation for state income taxation purposes in North Carolina. Such election
has been effective since the date of incorporation of the Company.
(b) The Seller has complied with all applicable Requirements of Law
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Section 1441 and 1442 of the Code, or similar
provisions under any foreign Requirements of Law) and have, within the time and
in the manner prescribed by applicable Requirements of Law, withheld from
employee wages and paid over, in a timely manner, to the proper Taxing
Authorities all amounts required to be so withheld and paid over under
applicable Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Seller that has not been resolved and paid in full or fully reserved for and
identified on the Seller Balance Sheet and, to the knowledge of the Seller and
Shareholders, no deficiency for any Taxes has been proposed that has not been
fully reserved for and identified on the Seller Balance Sheet. The Seller has
not received any outstanding and unresolved notices from the IRS or any other
Taxing Authority of any proposed examination or of any proposed change in
reported information relating to the Seller. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns is outstanding, nor, to the knowledge of the Seller and the
Shareholders, is any request for any such waiver or consent pending.
(e) None of the Purchased Assets is required to be treated as owned by any
other person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(f) No state of facts exists or has existed that would constitute grounds
for the assessment of Tax liability with respect to period that have not been
audited by the IRS or any other Taxing Authority.
3.21. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.8, 3.9 and 3.25), pursuant to which
the Seller is, or, at any time during the previous five (5) years has been, a
party or otherwise bound with any Affiliate of any or all of the Seller and the
Shareholders (an "Affiliate Transaction"). Each Affiliate Transaction (i) has
been entered into the normal and ordinary course of the Business.
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3.22. Accounts. The Disclosure Schedule attached to this Agreement
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Seller maintains any account (whether checking,
savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto.
3.23. Receivables. Except as disclosed in the Disclosure Schedule, since
the Balance Sheet Date, the Seller has not written-off, nor under GAAP is it
appropriate to write off, any Receivables. All Receivables currently owing to
the Seller are completely and accurately listed and aged in the Disclosure
Schedule. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Seller has good, valid and marketable title to its Receivables,
free and clear of all Encumbrances. The Seller has not sold, factored,
securitized, or consummated any similar transaction with respect to any of its
Receivables. Subject to proper reserves taken into account in accordance with
GAAP as reflected in the Disclosure Schedule, each Receivable is fully
collectable in the normal and ordinary course of business (i.e., without resort
to litigation or assignment to a collection agency), and is not subject to any
dispute, counterclaim, defense, set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after giving
effect to the Closing and any other transactions contemplated by this Agreement,
(i) the sum of the Seller's obligations and liabilities is not greater than all
of the assets of the Seller at a fair valuation, (ii) the present fair salable
value of the Seller's assets is not less than that will be required to pay the
probable liability of the Seller on its obligations and liabilities (excluding
those to be assumed by the Purchaser) as they become absolutely mature, (iii)
the Seller has not incurred, will not incur, does not intent to incur and does
not believe that it will incur, obligations and liabilities beyond the Seller's
ability to pay such obligations and liabilities as they mature, (iv) the Seller
is not engaged in, and is not about to engage in, a business or transaction for
which the Seller's assets constitutes or would constitute unreasonably small
capital, and (v) the Seller is not insolvent as defined in, or otherwise in a
condition which could in any circumstances then or subsequently render any
transfer or conveyance made by it voidable or fraudulent pursuant to, any
Requirements of Law pertaining to bankruptcy, insolvency or creditors' rights
generally including, without limitation the Bankruptcy Code of 1978, 11 U.S.C.
ss.101, et. seq., as amended, or any other applicable Requirements of Law
relating to fraudulent conveyances, fraudulent transfers or preferences. The
Seller is receiving reasonably equivalent value and consideration from the
Purchaser for the Purchased Assets and is not selling the Purchased Assets to
the Purchaser with intent to hinder, delay or defraud any of its creditors.
3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Seller's directors, executive officers, and any of the Seller's significant
employees (as such
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terms are defined in Regulation S-K under the Securities Act) (a "significant
employee"), and the compensation payable to each of them to serve as such.
(b) Except as set forth in the Disclosure Schedule, none of the
Shareholders or any of the current directors, current executive officers or
current significant employees (as such term is defined in Section 3.25(a)) of
the Seller or any Shareholder has, within the past five (5) years:
(i) (x) filed or had filed against it, him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual or
corporation, or any partnership in which it, he or she was a general
partner or any other Person of which he or she was a director or an
executive officer or had a position having similar powers and authority at
or within two (2) years of the date of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
it, him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.26. Brokers or Finders. Except as set forth in the Disclosure Letter,
neither the Seller nor the Shareholders has engaged the services of any broker
or finder with respect to the transactions contemplated by this Agreement, and
no Person has or will have, as a result of the consummation of the transaction
contemplated by this Agreement, any right, interest or valid claim against or
upon the Purchaser for any commission, fee or other compensation as a finder or
broker thereof on account of any action on the part of the Seller or
Shareholders. Without degradation to any of the foregoing, the Seller and the
Shareholders are solely responsible for the
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payment of the commissions, fees and other compensation payable to the Person
having any such right, interest or claim on account of any action on the part of
the Seller or Shareholders.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor any of the
Shareholders have granted, and there is not outstanding any option, right,
agreement, Contract or other obligation or commitment pursuant to which any
other Person could reasonably claim a right to acquire in any way the Purchased
Assets or any ownership or other material interest in either the Seller or the
Business.
3.28. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar volume of
purchases) of the Seller and details the Seller's total revenue attributable to
each such customer for the fiscal years ended 1994, 1995 and 1996 and the
current fiscal year to date. Except as set forth in the Disclosure Schedule,
there has been no adverse change in the Seller's business relationship with any
such customer that, in the aggregate, would have a Material Adverse Effect upon
the Seller or the Business.
3.29. Investment Company. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder, as amended from time to time, or any successors thereto.
3.30. Absence of Changes. Since the Balance Sheet Date, except as set forth
on the Disclosure Schedule there has not been with respect to the Seller:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments.
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by the Seller.
(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 business to
any person, including, without limitation, the Shareholders and their
Affiliates, other than distributions, sales or transfers in the ordinary
course of business to persons other than the Shareholders and their
Affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of the Shareholders or any
Affiliate thereof, other than the negotiation and adjustment of bills in
the course of good faith disputes with customers in a manner consistent
with past practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by the Seller outside the ordinary course of its
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.31. Accuracy and Completeness of Information. To the knowledge of the
Seller and Shareholders, all information furnished, to be furnished or caused to
be furnished to the Purchaser by either the Seller or the Shareholders with
respect to the Purchased Assets, the Assumed Liabilities, the Business, the
Seller or the Shareholders for the purposes of or in connection with this
Agreement, or any transaction contemplated by this Agreement is or, if furnished
after the date of this Agreement, will be true and complete in all material
respects and does not, and, if furnished after the date of this Agreement, will
not, contain any untrue statement of material fact or fail to state any material
fact necessary to make such information not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1. Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's businesses,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser (i) are within the Purchaser's corporate powers and duly
authorized by all necessary corporate action on the part of the Purchaser and
(ii) do not (A) require any action by or in respect of, or filing with, any
governmental body, agency or official, except as set forth in this Agreement or
(B) contravene, violate or constitute, whether with or without the passage of
time or the giving of notice or both, a breach or default under, any Requirement
of Law applicable to Purchaser or any of its properties or any Contract to which
the Purchaser or any of its properties is bound, except filings and approvals in
connection with the Initial Public Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser, threatened against or affecting, the
Purchaser or any of its properties or otherwise that could adversely affect or
restrict the ability of the Purchaser to consummate fully the transactions
contemplated by this Agreement or that in any manner draws into question the
validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Seller, the Shareholders or any of the other Founding Companies, such
representation and warranty shall be deemed based on the knowledge of the
Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this
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Agreement, any right, interest or valid claim against or upon the Seller or
Shareholders for any commission, fee or other compensation as a finder or broker
thereof on account of any action on the part of the Purchaser. Without
degradation to any of the foregoing, the Purchaser is solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Seller, the Shareholders and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract, Permit or Requirement
of Law, that are necessary or advisable in connection with the consummation of
the transactions contemplated by this Agreement. The Shareholders shall use
their commercially reasonably best efforts to cause the Seller to cooperate with
the Purchaser to the fullest extent practicable in seeking to obtain all such
Regulatory Approvals and Consents, and shall provide, and shall cause the Seller
to provide, such information and communications to all Governmental or
Regulatory Authorities as they or the Purchaser may request from time to time in
connection therewith. Nothing contained herein shall require either of the
Seller or the Purchaser to amend the provisions of this Agreement, to pay or
cause any of its Affiliates to pay any money, or to provide or cause any of its
Affiliates to provide any guaranty to obtain any such Regulatory Approvals or
Consents.
5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholders will and will cause the Seller
to, cooperate with the Purchaser in connection with the transactions
contemplated by this Agreement and any Purchaser Financing Transaction,
including, without limitation, cooperating in the determination of which
Regulatory Approvals and Consents are required or advisable to be obtained prior
to the Closing Date. Until the Closing Date, the Seller will, and the
Shareholders will and will cause the Seller to, afford to the Purchaser, its
agents, legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Seller (including
those in the possession or control or their accountants, attorneys and any other
third party), as the case may be, for the purpose of permitting the Purchaser to
make such investigation and examination of the business and properties of the
Seller as the Purchaser, in its discretion,
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shall deem necessary, appropriate or desirable. Any such investigation, access
and examination shall be conducted upon reasonable prior notice under the
circumstances. The Seller will, and the Shareholders will cause the Seller to,
cause each of their respective directors, officers, employees and
representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser's sole benefit, and shall not (i) impair or
reduce any representation or warranty made by any or all of the Seller or the
Shareholders in this Agreement, (ii) relieve the Seller or the Shareholders from
its or their obligations with respect to such representations and warranties
(including, without limitation, the indemnification obligations under Article
10), or (iii) mitigate the Seller's or the Shareholders' obligations to disclose
all material facts to the Purchaser with respect to the Seller and the Business.
(b) The Purchaser will cooperate with the Seller in connection with the
transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Seller and its agents, legal advisors and accountants reasonable access to
all of the properties and books and records of the Purchaser (including those in
the possession or control or their accountants, attorneys and any other third
party), as the case may be, for the purpose of permitting the Seller to make
such investigation and examination of the business and properties of the
Purchaser and any of its Subsidiaries as the Seller, in its discretion, shall
deem necessary, appropriate, or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. Purchaser will cause each of its directors, officers, employees
and representatives, including, without limitation, its counsel and accountants,
to cooperate fully with the Seller, in connection with such investigation,
access and examination. The results of such investigation and examination is for
the Seller's sole benefit, and shall not (i) impair or reduce any representation
or warranty made by the Purchaser in this Agreement, (ii) relieve the Purchaser
from its obligations with respect to such representations and warranties
(including, without limitation, the Purchaser's obligations under Article 10),
or (iii) mitigate the Purchaser's obligations to otherwise disclose all material
facts to the Seller with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholders' discovery of the
occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Purchased Assets, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller, the
Shareholders shall, and shall cause the Seller to, as the case may be, notify
the Purchaser of such development, event, circumstance or condition. In the
event that the Purchaser receives such notice or otherwise discovers the fact of
any such development, event, circumstance or condition, the Purchaser shall be
entitled, in its sole discretion, to terminate this
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Agreement within ten (10) days after so discovering without further obligation
or liability upon the delivery of written notice to the Seller to that effect;
provided, however, that before Purchaser may exercise its termination right, it
must afford the Seller the opportunity to cure the matter giving rise to the
termination right (but for no longer than five days following the date Purchaser
notifies the Seller of its intent to terminate) unless, in the judgement of the
managing underwriter of the Initial Public Offering, any such cure period might
adversely affect the Initial Public Offering.
(b) Promptly upon the Seller's or the Shareholders' discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by any or all of the Seller or the Shareholders to the Purchaser in this
Agreement to become untrue or inaccurate at any time after the date of this
Agreement, the Shareholders shall, and shall cause the Seller to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required for Purchaser Financing Transactions. The Seller
shall, and the Shareholders shall and shall cause the Seller to, furnish the
Purchaser with the following information:
(a) the Seller's audited balance sheet as of December 31, 1994, 1995 and
1996 and the related statements of operations, shareholders' equity and cash
flows for the year then ended, together with all proper exhibits, schedules and
notes thereto, audited by Arthur Andersen LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Seller for the years ended December 31,
1994, 1995 and 1996 and the results of operations and changes in shareholders'
equity and cash flows for the periods covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser
or any Underwriter to be included in any registration statement, prospectus,
document or other item, or any amendment or supplement thereof, relating any
Purchaser Financing Transaction, all of which shall (i) be in accordance with
the Books and Records maintained in accordance with good business practice and
in the normal and ordinary course of business, (ii) be prepared in accordance
with GAAP applied on a consistent basis (except for the absence of notes and
subject to normal year-end audit adjustments), (iii) present fairly the
financial position of the Seller as of the date thereof and the results of
operations and changes in shareholders' equity and cash flows for the periods
covered thereby, and (iv) include comparable interim financial statements for
the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
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5.6. Performance of Conditions. The Seller, the Shareholders and the
Purchaser shall, and the Shareholders shall cause the Seller to, take all
reasonable steps necessary or appropriate and use all commercially reasonable
efforts to effect as promptly as practicable the fulfillment of the conditions
required to be obtained that are necessary or advisable for the Seller and the
Purchaser to consummate the transactions contemplated by this Agreement
including, without limitation, all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Seller shall, and the Shareholders
shall cause the Seller to, operate the Business in the normal and ordinary
course in a manner consistent with past practice including, without limitation,
to do the following:
(a) to maintain the Seller's corporate existence and all Permits, bonds,
franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to preserve intact the
Seller's business relationships with its agents, customers, employees, creditors
and others with whom the Seller has a business relationship;
(d) to preserve the Seller's assets, properties and rights (including,
without limitation, the Purchased Assets) necessary or advisable to the
profitable conduct of the Business;
(e) to pay when due all Taxes lawfully levied or assessed against the
Seller before any penalty or interest accrues on any unpaid portion thereof and
to file all Tax Returns when due (including after applicable extensions)
provided that no such payment shall be required which is being contested in good
faith and by proper proceedings and for which appropriate reserves as may be
required by GAAP have been established;
(f) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(g) to perform all material obligations under all Contracts to which the
Seller is a party or by which it or its properties are bound or subject;
(h) to 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 the Purchaser, which consent shall not be unreasonably withheld; and
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(i) to collect Receivables and pay Accrued Expenses in a manner consistent
with past practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Seller shall not, and the Shareholders
shall not cause the Seller to do, and shall not permit the Seller to do,
directly or indirectly, any of the following without the express prior written
consent of the Purchaser, which consent shall not be unreasonably withheld:
(a) make or adopt any changes to or otherwise alter the Seller's
certificate or articles of incorporation, by-laws or any other governing or
constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance;
(d) make any borrowings or otherwise create, incur, assume or guaranty any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business), issue any commercial paper or refinance any existing borrowings or
indebtedness other than in the ordinary course of business;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or an encumbrance on any
of the Seller's assets or the incurrence by the Seller of liabilities (other
than in the performance of services for customers in the ordinary course of
business) in any one transaction or series of related transactions in excess of
($10,000) and cause the aggregate commitment under all such new Contracts to
exceed ($100,000), or (ii) involve a term of more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) except for arms-length transactions with and between (a) Laser Graphics
Systems and Services, Inc., (b) Codalex Microfilming Corporation and (c),
subject to the limitation in Article 8 hereof, Microfilm World, Inc., enter into
any transaction with any Affiliate of either or both of the Seller or the
Shareholders including, without limitation
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the purchase, sale or exchange of property with, the rendering of any service
to, or the making of any loans to, any such Affiliate;
(i) declare or pay any dividend, distribution or payment in respect of, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any of the Seller's securities, whether debt or equity, and
whether in cash or property or in obligations of the Seller, or (ii) pay any
royalty or management fee;
(j) grant or issue any subscription, warrant, option or other right to
acquire any of the Seller's securities, whether debt or equity, and whether by
conversion or otherwise, or make any commitment to do so;
(k) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(l) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the Purchased
Assets;
(m) sell, lease, exchange, transfer or otherwise dispose of, or agree to
sell, lease, exchange, transfer or otherwise dispose of, any of the Seller's
assets with an individual fair market value of $5,000 or more, except for the
disposition of obsolete or worn-out assets in the normal and ordinary course of
business, which assets do not exceed, in the aggregate, 5% of the Seller's
assets as reflected on the Seller Balance Sheet;
(n) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended December 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(p) cause or permit the Seller or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them
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in ERISA, and the term "prohibited transaction" shall have the meaning assigned
to it in the Code and ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business; or
(r) enter into any Contract or make any commitment to do any of the
foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholders shall not: (i)
provide any information about the Seller or the Business to any Person (other
than the Purchaser or its representatives) with a view to sell, exchange or
dispose or solicit an offer for the acquisition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; (ii)
solicit or accept any other offers for the sale, exchange or other disposition
of any of the Purchased Assets or any ownership or other material interest in
the Seller or the Business; (iii) negotiate or discuss with any Person (other
than the Purchaser or any of its representatives) the possible sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; or (iv) sell, exchange or
otherwise dispose of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business, in any of the foregoing cases,
whether by equity sale, merger, consolidation, equity exchange, sale of assets
or otherwise. The Seller shall, and the Shareholders shall and shall cause the
Seller to, advise the Purchaser promptly of its or his receipt of any written
offer or written proposal concerning any of the Purchased Assets, the Seller, or
the Business or any material interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller nor
any Shareholder shall issue any public report, statement, press release or
similar item or make any other public disclosure with respect to the substance
of this Agreement prior to the consultation with and approval of the Purchaser.
In addition, prior to Closing, before the Purchaser issues a public statement
that refers to the Seller or Shareholders (other than in the Registration
Statement) the Purchaser will endeavor to consult with the Seller to the extent
time permits. Nothing contained herein shall restrict the ability of the Seller
from contacting a third party in order to obtain a Consent to the transactions
contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedule 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 Seller that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect shall be effective unless
the Purchaser consents to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of
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determining whether the conditions set forth in Sections 6 and 7 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 5.11. Except as otherwise provided
herein, no amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement in
connection with the Initial Public Offering (the "Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Seller and the Shareholders shall furnish or cause to be furnished
to the Purchaser and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Seller or the Shareholders
reasonably requested by the Purchaser and the Underwriters, and will cooperate
with the Purchaser and the Underwriters in the preparation of, any registration
statement (or similar document) relating to the Purchaser Financing Transaction
and the prospectus (or similar document) included therein (including audited
financial statements, prepared in accordance with generally accepted accounting
principles). The Seller and the Shareholders agree promptly to advise the
Purchaser if at any time during the period in which a prospectus relating to the
Purchaser Financing Transaction is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Seller or the
Shareholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. The Purchaser agrees
to use its commercially reasonable best efforts to prepare and file the
Registration Statement as promptly as practicable, to furnish the Seller with a
copy thereof and each amendment thereto in substantially the form in which it is
to be filed as promptly as practicable prior to such filing (it being understood
that neither the Seller nor any of the Shareholders has any obligation to review
the same other than with respect to information regarding the Company, the
Seller or the Shareholders) and to diligently seek to cause the Registration
Statement to be declared effective and the Initial Public Offering to be
completed. The Purchaser agrees that neither the Seller nor any of the
Shareholders shall have any responsibility for pro forma adjustments that may be
made to the Financial Statements.
(b) The Seller and each of the Shareholders acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Shareholders, the Seller or any other person
affiliated or associated with the Seller for any failure of the Registration
Statement to become effective, the Initial Public Offering to occur at a
particular price or within a particular range of prices or occur at all, and
(iii) the decision of the Shareholders and the Seller to enter into this
Agreement and, if applicable, to vote in favor of or
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consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller or the Shareholders with
respect to any disclosure contained in the Registration Statement and neither
Seller nor any Shareholder may assert any claim against the Underwriters
relating to the Registration Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall provide to
Purchaser prior to the Closing Date, the unaudited consolidated balance sheets
of the Seller for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and the unaudited consolidated statements of
income, cash flows and retained earnings of the Seller for such subsequent
fiscal months and quarters. In addition, the Seller shall prepare and deliver to
the Purchaser at Closing, the Closing Balance Sheet. Such financial statements,
which shall be deemed to be Financial Statements (as defined herein) shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except for the
absence of notes and subject to normal year-end audit adjustments).
5.13A Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.10(a) have been received by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Seller and each Shareholder hereby
irrevocably agrees that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. None of the Seller or the
Shareholders, without the prior written consent of the Underwriters, shall
exercise any demand, mandatory, piggyback, optional or any other registration
rights, if any such rights exist, for a period of 180 days from the Effective
Date. The Seller and the Shareholders agree that the foregoing shall be binding
upon their transferees, successors, assigns, heirs and personal representatives
and shall benefit and be enforceable by the underwriters in the Initial Public
Offering. In furtherance of the foregoing, the Purchaser and its
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transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act, (ii) such compliance by the Seller and the Stockholder shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement, and such compliance by Purchaser shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Article 6 of this Agreement, and (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott Act to be
made. If filings under the Hart-Scott Act are required, the costs and expenses
thereof (including filing fees) shall be borne by Purchaser. The obligation of
each party to consummate the transactions contemplated by this Agreement is
subject to the expiration or termination of the waiting period under the
Hart-Scott Act, if applicable.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's Obligations. The Purchaser's
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of, or waiver in writing by the Purchaser of, prior
to or at the Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Seller and the Shareholders contained in this Agreement shall
be true and correct on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date except for those representations and warranties that by their terms
relate to an earlier date, which representations and warranties shall be true
and correct in all material respects with regard to such earlier date. The
Seller and each of the Shareholders shall execute and deliver to the Purchaser a
certificate dated the Closing Date, certifying that all of the Seller's and the
Shareholders' representations and warranties contained in this Agreement are
true and correct on and as of the Closing Date as though such representations
and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Seller and the
Shareholders shall have each performed and complied in all material respects
with each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Seller and the Shareholders, as the case may
be, at or prior to the Closing Date. Each of the Seller and the Shareholders
shall execute and deliver to the Purchaser a certificate dated as of
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the Closing Date, certifying that the Seller and the Shareholders have fully
performed and complied in all material respects with all the duties, obligations
and conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholders shall have each
delivered to the Purchaser all documents, certificates, instruments and items
required to be delivered by him or it at or prior to the Closing Date pursuant
to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Closing Balance Sheet The Seller shall have delivered to the Purchaser
a true and complete copy of the Closing Balance Sheet together with a
certificate dated the Closing Date, signed by the Seller's chief financial
officer that the Closing Balance Sheet is in accordance with the Books and
Records and with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments) and presents fairly the
financial position of the Seller as of the Closing Date.
(g) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Purchased Assets, or
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Seller.
(h) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of the Purchaser to combine and
operate the business, operations and assets of the Seller with the Purchaser's
business, operations and assets; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the transactions contemplated
by this Agreement on the Purchaser or any of the Purchaser's directors, officers
or employees; (iv) requiring or seeking to require divestiture by the Purchaser
of all or any material portion of the business, assets or property of the
Seller; or (v) restraining, enjoining or prohibiting or seeking to restrain,
enjoin or prohibit the consummation of transactions contemplated by this
Agreement.
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(i) Secretary's Certificate. The Seller shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and signed
on its behalf by its Secretary to the effect that (i)(A) the copy of the
Seller's articles or certificate of incorporation attached to the certificate is
true, correct and complete, (B) no amendment to such articles or certificate of
incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Seller's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Seller's board of directors and shareholders authorizing the actions taken in
connection with the sale of the Purchased Assets, including, without limitation,
the execution, delivery and performance of this Agreement, were duly adopted and
continue in force and effect (a copy of such resolutions to be annexed to such
certificate); (ii) setting forth the Seller's incumbent officers and including
specimen signatures on such certificate or certificates as their genuine
signatures; and (iii) the Seller is in good standing in all jurisdictions where
the ownership or lease of property or the conduct of its business requires it to
qualify to do business, except for those jurisdictions where the failure to be
duly qualified, authorized and in good standing would not have a material
adverse effect upon the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller. The
certification referred to above in (iii) shall attach certificates of good
standing certified by the Secretaries of State or other appropriate officials of
such states, dated as of a date not more than a five (5) days prior to the
Closing Date.
(j) Opinion of Counsel of Seller. Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A., counsel for the Seller and the Shareholders, shall have
delivered to the Purchaser their favorable opinion, dated the Closing Date and
in form and substance reasonably satisfactory to the Purchaser and its counsel.
In rendering such opinion, counsel may rely to the extent recited therein on
certificates of public officials and of the Seller's officers as to matters of
fact, and as to any matter that involves other than federal or North Carolina
law, such counsel may rely upon the opinion of local counsel reasonably
satisfactory to the Purchaser and its counsel.
(k) Termination of Related Party Agreements. All existing agreements
between the Seller and the Shareholders or Affiliates of the Seller or
Shareholders, other than those set forth on Schedule 6.1(k), shall have been
canceled.
(l) Employment Agreements. Each of the persons listed on Schedule 6.1(l)
shall have entered into an employment or consulting agreement (collectively, the
"Employment Agreements") with the Purchaser substantially in the form of Exhibit
E attached hereto.
(m) Repayment of Indebtedness. Prior to the Closing Date, the Shareholders
shall have repaid the Seller in full all amounts owing by the Shareholders or
employees of the Seller to the Purchaser.
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(n) FIRPTA Certificate. Each Shareholder shall have delivered to the
Purchaser a certificate to the effect that he is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
(o) Escrow Agreement. Shareholders and the Seller shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
6.2. Conditions Precedent to Seller's Obligations. The Seller's obligation
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of, or waiver in writing by the Seller of, prior to or at the
Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the date of the Closing Date with
the same force as though such representations and warranties had been made on
and as of the Closing Date except for those representations and warranties that
by their terms relate to an earlier date, which representations and warranties
shall be true and correct in all material respects with regard to such earlier
date. The Purchaser shall execute and deliver to the Seller a certificate dated
as of the Closing Date, certifying that all of its representations and
warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser shall have
performed and complied in all material respects with each and every covenant,
agreement and condition required by this Agreement to be performed or satisfied
by the Purchaser at or prior to the Closing Date. The Purchaser shall execute
and deliver to the Seller a certificate dated as of the Closing Date, certifying
the Purchaser has fully performed and complied in all material respects with all
the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser shall have delivered to the
Shareholders all documents, certificates, instruments and items required to be
delivered by it at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Seller to sell any of the Purchased Assets;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Seller or
any of its directors, officers or employees or on the Shareholders; or (iv)
restraining, enjoining or
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prohibiting or seeking to restrain, enjoin or prohibit the consummation of
transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser shall have executed the Escrow
Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into an
employment agreement (collectively, the "Employment Agreements") with each of
the persons listed on Schedule 6.1(l).
(g) Secretary's Certificate. The Purchaser shall have delivered to the
Seller a certificate or certificates dated as of the Closing Date and signed on
its behalf by its Secretary to the effect that (i)(A) the copy of the
Purchaser's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Purchaser's bylaws as
in effect on the date thereof and at all times since the adoption of the
resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Purchasers's board of directors authorizing the actions taken
in connection with the purchase of the Purchased Assets including, without
limitation, the execution, delivery and performance of this Agreement were duly
adopted and continue in force and effect (a copy of such resolutions to be
annexed to such certificate) and (ii) setting forth the incumbent officers of
the Purchaser and including specimen signatures on such certificate or
certificates of such officers executing this Agreement on behalf of the
Purchaser as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Seller and Shareholders its
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(i). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of Purchaser as to
matters of fact, and such opinion may be limited to federal laws and the laws of
the Commonwealth of Pennsylvania.
(j) Related Transactions. The purchase by Purchaser or its Affiliates of
all of the outstanding stock of Codalex Microfilming Corporation pursuant to
that certain stock purchase agreement dated as of the date hereof and the
purchase by Purchaser or its Affiliates of all of the outstanding stock of Laser
Graphics Systems and Services, Inc. pursuant to that certain stock purchase
agreement dated as of the date hereof
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to effect the sale of the Purchased Assets and the
assumption of the Assumed Liabilities referred to herein; provided, that such
actions shall not include the actual completion of the sale and purchase of the
Purchased Assets and the assumption of the Assumed Liabilities, the delivery of
the Bill of Sale and the Assignment and Assumption Agreement, and the delivery
of the check(s) (or wire transfers) referred to in Section 2 hereof, each of
which actions shall only be taken upon the Closing Date as herein provided. In
the event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Seller advises Purchaser are required by
applicable laws of the State of North Carolina in order to rescind any actions
taken in furtherance of the sale of the Purchased Assets and the assumption of
the Assumed Liabilities as described in this Section. The taking of the actions
described above shall take place on the Pricing Date at the offices of Pepper,
Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets,
Philadelphia, PA 19103. On the Closing Date (i) (a) the Seller's duly executed
Bill of Sale, (b) the Seller's duly executed counterpart to the Assignment and
Assumption Agreement and (c) all such endorsements, assignments and other
instruments of transfer and conveyance including, without limitation, waivers or
consents of lessors and other third Persons, and releases, satisfactions and
termination statements from secured parties, as may be necessary to vest in the
Purchaser indefeasible and marketable legal and beneficial title to the
Purchased Assets, free and clear of all Encumbrances, to effect the assignment
and assumption of the Assumed Liabilities and to consummate the transactions
contemplated by this Agreement, all of which shall be in form and substance
reasonably satisfactory to the Purchaser, (ii) all transactions contemplated by
this Agreement, including the delivery of shares of DocuNet Common Stock to the
Seller, the delivery of the shares of DocuNet Common Stock to the Escrow Agent
on account of the Escrow Agreement, the delivery of a bank check or checks or a
wire transfer in an amount equal to the cash portion of the consideration which
the Seller shall be entitled to receive pursuant to Section 2 hereof, and the
delivery of the documents contemplated to be delivered by Purchaser, Seller and
Shareholders pursuant to Section 6 hereof, and (iii) the closing with respect to
the Initial Public Offering shall occur and be deemed to be completed. The date
on which the actions described in the preceding clauses (i), (ii) and (iii)
occurs shall be referred to as the "Closing Date." Except as otherwise provided
in Section 11 hereof, during the period from the Pricing Date to the Closing
Date, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1. Confidentiality.
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(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person, including, but not limited to, any employees, agents
or representatives of Microfilm World, Inc. ("Microfilm World"), or other
employees, agents or representatives of Microfilm World to the extent such party
is employed by Microfilm World, unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Seller and
the Shareholders dated April 17, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to
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acquire or merge with, any Purchaser Targets until the later of 300 days after
the date of this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Seller to enter into a provision similar to this Section 8.1 requiring each such
Founding Company to keep confidential any information obtained by such Founding
Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
consummation of the transactions contemplated by this Agreement, each of the
Signatory Shareholders and the Shareholders shall not, during the Restricted
Period, do any of the following, directly or indirectly, without the prior
written consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or any of its
Affiliates or Subsidiaries, or any of their respective successors or assigns,
whether now existing or hereafter created or acquired (collectively, the
"Related Companies"), or otherwise engage or participate, directly or
indirectly, in the business conducted by Purchaser or a Subsidiary (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
provided, however, that the parties hereby acknowledge that Gerald P. Gorman and
Theodore J. Solomon may continue to be involved in the operation and management
of Microfilm World;
(b) become interested (whether as owner, stockholder, lender, partner, co-
venturer, director, officer, employee, agent, consultant or otherwise), directly
or indirectly, in any Person that engages in the Restricted Business within the
Restricted Area; provided, however, that the parties hereby acknowledge that
Theodore J. Solomon and Gerald P. Gorman, who currently are stockholders of
Microfilm World, may continue to own stock in Microfilm World; and provided
further, that nothing contained in this Section 8.2(b) shall prohibit the
Signatory Shareholders from owing, as a passive investor, not more than five
percent (5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's or any of the Related Companies' (A) customers or distributors
or prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser or any of the
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related
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Companies or (D) employees to leave the employ of the Purchaser or any of the
Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and each of the Shareholders acknowledges that any breach or
threatened breach by it or him of any provision of Sections 8.1 or 8.2, to the
extent such Section is applicable to such Seller, will cause continuing and
irreparable injury to the Purchaser and the Related Companies for which monetary
damages would not be an adequate remedy. Accordingly, the Purchaser and any of
the Related Companies shall be entitled to injunctive relief from a court of
competent jurisdiction, including specific performance, with respect to any such
breach or threatened breach. In connection therewith, none of the Seller nor any
of the Shareholders shall, in any action or proceeding to so enforce any
provision of this Article 8, assert the claim or defense that an adequate remedy
at law exists or that injunctive relief is not appropriate under the
circumstances. The rights and remedies of the Purchaser and any of the Related
Companies set forth in this Section 8.3 are in addition to any other rights or
remedies to which the Purchaser or any of the Related Companies may be entitled,
whether existing under this Agreement, at law or in equity, all of which shall
be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
Seller's or the Shareholders' as applicable, first breach of the provisions of
Sections 8.1 or 8.2 or service of process upon the Seller or the Shareholders,
as applicable, through the expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and each of the Shareholders acknowledge that
the Purchaser or any of the Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Seller or the Shareholders may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the parties that the
provisions of this Article 8 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if any
provision of this Article 8 shall be determined to be invalid, unenforceable or
illegal for any reason, then the validity and enforceability of all of the
remaining provisions of this Article 8 shall not be affected thereby. If any
particular provision of this Article 8 shall be adjudicated to be invalid or
unenforceable, then such provision shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such amendment to
apply only to the operation of such provision in the particular jurisdiction in
which such adjudication is made; provided that, if any provision contained in
this Article 8 shall be adjudicated to be invalid or unenforceable because such
provision is held to be excessively broad as to duration, geographic scope,
activity or subject, then such provision shall be deemed
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amended by limiting and reducing it so as to be valid and enforceable to the
maximum extent compatible with the applicable laws and public policy of such
jurisdiction, such amendment only to apply with respect to the operation of such
provision in the applicable jurisdiction in which the adjudication is made.
8.6. Acknowledgment. The Seller and each of the Shareholders acknowledges
that it or he has carefully read and considered the provisions of this Article
8. The Seller and each of the Shareholders acknowledges and understands that the
restrictions contained in this Article 8 may limit their respective ability to
conduct a business similar to that of the Purchaser or any of the Related
Companies, but the Seller and each of the Shareholders nevertheless believes
that it and he has received and will receive sufficient consideration and other
benefits to justify such restrictions. The Seller and each of the Shareholders
also acknowledges and understands that these restrictions are reasonably
necessary to protect the Purchaser's and the Related Companies' interests, and
the Seller and each of the Shareholders does not believe that such restrictions
will prevent it or him from conducting businesses that are not competitive with
those of the Purchaser or any of the Related Companies during the term of such
restrictions in the Restricted Area.
8.7. Applicability of Section 8.2. Nothwithstanding anything to the
contrary, the parties hereto acknowledge that Section 8.2 hereof shall not apply
to Gerald P. Gorman.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Seller and the Shareholders on the one hand, and the
Purchaser on the other hand, contained in this Agreement shall survive until the
second anniversary of the Closing Date, except that the representations and
warranties set forth in each of Section 3.9, Section 3.17, Section 3.20 and
Section 3.25 shall survive until the expiration of the statute of limitations
applicable to the subject matter addressed thereunder. The covenants and
agreements of the Seller and the Shareholders on the one hand, and of the
Purchaser on the other hand, contained in this Agreement will survive the
Closing until, by their own respective terms, they have been fully performed.
Any representation, warranty, covenant or agreement that would otherwise
terminate in accordance with this Article 9 will continue to survive if an
Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under Article 10 on or prior to the date on
which such representation, warranty, covenant or agreement would have otherwise
terminated, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article 10. Any breach of representation or
warranty contained in this Agreement made by any party or any written
information furnished by any party that was made by such party fraudulently or
with intent to defraud or mislead or with gross negligence shall indefinitely
survive the Closing. Any representation or warranty made by any or all of the
Seller or the Shareholders in
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this Agreement or any information furnished or caused to be furnished by any or
all of the Seller or the Shareholders to the Purchaser that is incorporated in,
or is the basis for omitting information from, the Registration Statement,
prospectus or other document, or any amendment or supplement thereof in
connection with any Purchaser Financing Transaction shall survive until the
expiration of all applicable statutes of limitations regarding claims brought by
investors in such Purchaser Financing Transaction alleging material
misstatements or omissions in such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by any or all of the Seller or the Shareholders contained in this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to Purchaser pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement shall run to the benefit of any
Underwriter of the Purchaser's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser. Accordingly, any such
Underwriter, and each person, if any, who controls any such Underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, shall be
(i) an intended beneficiary of this Agreement, and (ii) deemed to be an
Indemnified Party for the purposes of the indemnification provided for in
Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholders' Indemnification. From and after the Closing
Date, the Seller and the Shareholders shall, jointly and severally, indemnify
and hold harmless the Purchaser and any of its Affiliates, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or any such
Affiliate, and each of their respective directors, officers, employees, agents,
successors and assigns and legal representatives, from and against all
Indemnifiable Losses that may be imposed upon, incurred by or asserted against
any of them resulting from, related to, or arising out of (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by any or all of the Seller or the Shareholders under this
Agreement or any document, instrument, certificate or other item required to be
furnished to the Purchaser pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) any untrue statement of any
material fact contained in any registration statement, prospectus, document or
other item, or any amendment or supplement thereof, prepared, filed, distributed
or executed in connection with any Purchaser Financing Transaction, or any
omission to state in any such registration statement, prospectus, document,
item, amendment or supplement a material fact required to be stated therein or
necessary to make the statements therein not misleading, that is based upon any
misrepresentation or breach of any warranty made by any or all of the Seller or
the Shareholders pursuant to this Agreement or upon any untrue statement or
omission contained in any information furnished or caused to be
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furnished by any or all of the Seller or the Shareholders to the Purchaser
(provided that the Seller and Shareholders shall not be liable with respect to a
prospectus that is distributed after they have notified the Purchaser in writing
to correct a misstatement or omission; and provided further that the Seller
hereby acknowledges that the information concerning the Sellers and the company
in the Registration Statement shall be deemed to be provided to the Purchaser
for the purposes hereof); (iii) any obligation and liability of the Seller or
the Shareholders of any nature whatsoever, whether now existing or hereafter
arising or incurred, except for the Assumed Liabilities; (iv) any non-compliance
with applicable Requirements of Law relating to bulk sales, bulk transfers and
the like or to fraudulent conveyances, fraudulent transfers, preferential
transfers and the like by the Seller; (v) any liability or claim for Taxes that
accrued or relates to a period of time ending on or prior to the Closing Date
(without regard to any information provided on the Disclosure Statement or
otherwise disclosed to or known by any Indemnified Party); (vi) any action,
claim or demand by any holder of the Seller's securities, whether debt or
equity, in such holder's capacity as such, whether now existing or hereafter
arising or incurred; (vii) any non-compliance with the Worker Adjustment and
Retraining Act, 29 U.S.C. ss.2101, et. seq., as amended, and the rules and
regulations promulgated thereunder and any similar Requirement Law; and (viii)
any Legal Proceeding or Order, arising out of any of the foregoing even though
such Legal Proceeding or Order may not be filed, become final, or come to light
until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development in an of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser shall indemnify and hold harmless the Seller and the Shareholders and
each of their respective legal representatives, successors and assigns from and
against all Indemnifiable Losses imposed upon, incurred by or asserted against,
the Seller or the Shareholders resulting from, related to, or arising out of:
(i) any misrepresentation, breach of any warranty or non-fulfillment of any
covenant to be performed by the Purchaser under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholders pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) Assumed Liabilities; (iii) any
untrue statement of any material fact contained in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
prepared, filed, distributed or executed in connection with any Purchaser
Financing Transaction, or any omission to state in any such registration
statement, prospectus, document, item, amendment or supplement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except for any untrue statement or omission contained in any
information furnished or caused to be furnished by the Seller or Shareholders;
and (iv) any Legal Proceeding or Order, arising out of any of the foregoing even
though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
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10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, within fourteen (14) days after obtaining sufficient information to
articulate such grounds, give written notice to the applicable Indemnifying
Party thereof, together with such information as is reasonably sufficient to
describe the potential or contingent claim to the extent then feasible (an
"Unliquidated Indemnity Notice"). The failure of an Indemnified Party to give
the Indemnifying Party the Unliquidated Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Unliquidated Indemnity Notice.
Within sixty (60) days after the amount of such claim shall be finalized,
resolved, or liquidated, the Indemnified Party shall give the Indemnifying Party
an Indemnity Notice, and the Indemnifying Party's obligations under this Article
10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action, or threatened claim or demand by
any third Person against the Indemnified Party, the Indemnified Party, within
the earlier of, as applicable, ten (10)
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days after receiving notice of the filing of a lawsuit or sixty (60) days after
receiving notice of the existence of a claim or demand giving rise to the claim
for indemnification (which shall include a notice from any Government Authority
of an intent to audit with respect to Taxes), shall send written notice of such
claim to the Indemnifying Party (the "Claim Notice"). The failure of the
Indemnified Party to give the Indemnifying Party the Claim Notice shall not
release the Indemnifying Party of liability under this Article 10; provided,
however, that the Indemnifying Party shall not be liable for Indemnifiable
Losses incurred by the Indemnified Party that would not have been incurred but
for the delay in the delivery of, or the failure to deliver, the Claim Notice.
Subject to the provision contained in the third sentence immediately following
this sentence, and except for claims resulting from, relating to or arising out
of any Purchaser Financing Transaction or the provisions of Section 3.20, the
Indemnifying Party shall be entitled to defend such claim in the name of the
Indemnified Party at its own expense and through counsel of its own choosing;
provided, that if the applicable claim or demand is against, or if the
defendants in any such Legal Proceeding shall include, both the Indemnified
Party and the Indemnifying Party and the Indemnified Party reasonably concludes
that there are defenses available to it that are different or additional to
those available to the Indemnifying Party or if the interests of the Indemnified
Party may be reasonably deemed to conflict with those of the Indemnifying Party,
then the Indemnified Party shall have the right to select separate counsel and
to assume the Indemnified Party's defense of such claim, demand or Legal
Proceeding, with the reasonable fees, expenses and disbursements of such counsel
to be reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within ten (10) days after
receiving the Claim Notice from the Indemnified Party in the event of
litigation, or otherwise within thirty (30) days, of its intent to do so. In the
case of any claim resulting from, relating to or arising out of any Purchaser
Financing Transaction or the provisions of Section 3.20, the Purchaser shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party (i) retains counsel
reasonably satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which
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proposed settlement is substantively final and unconditional as to the parties
thereto (other than the consent of the Indemnified Party required under this
Section 10.3(c)) and contains an unconditional release of the Indemnified Party
and does not include the taking of any actions by, or the imposition of any
restrictions on the part of, the Indemnified Party and the Indemnified Party
shall refuse to consent to such settlement, the liability of the Indemnifying
Party under this Article 10, upon the ultimate disposition of such litigation or
claim, shall be limited to the amount of the proposed settlement; provided,
however, that in the event the proposed settlement shall require that the
Indemnified Party make an admission of liability, a confession of judgment, or
shall contain any other non-financial obligation which, in the reasonable
judgment of the Indemnified Party, renders such settlement unacceptable, then
the Indemnified Party's failure to consent shall not give rise to the limitation
of Indemnifying Party's liability as provided for in this Section 10.3(c), and
the Indemnifying Party shall continue to be liable to the full extent of such
litigation or claim and provided further, that notwithstanding any provision to
the contrary, no Indemnifiable Losses with respect to Taxes shall be settled
without the prior written consent of the Purchaser.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser or any controlling Person of the Purchaser (within
the meaning of the Securities Act) makes a claim for indemnification pursuant to
Section 10.1(ii) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
Section 10.1(ii) provides for indemnification in such case, then, the Purchaser,
each controlling Person, the Seller and the Shareholders will contribute to the
aggregate Indemnifiable Losses to which the Purchaser or any such controlling
Person may be subject (after contribution from others) as is appropriate to
reflect the relative fault of the Purchaser, such controlling Person, the
Seller, and the Shareholders in connection with the statements or omissions
which resulted in such Indemnifiable Losses, as well as the relative benefit
received by the Purchaser, such controlling Person, the Seller and the
Shareholders as a result of the issuance of the securities to which such
Indemnifiable Losses relate, it being understood that the parties acknowledge
that the overriding equitable consideration to be given effect in connection
with this provision is the ability of one party or the other to correct the
statement or omission which resulted in such Indemnifiable Losses, and that it
would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
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10.6. Limitations on Indemnification. Purchaser and the other Persons or
entities indemnified pursuant to Section 10.1 shall not assert any claim for
indemnification hereunder against the Seller or the Shareholders until such time
as the aggregate of all claims which such persons may have against the Seller or
the Shareholders shall exceed $15,000 (the "Indemnification Threshold"),
whereupon such claims shall be indemnified in full. None of the Seller or the
Shareholders shall assert any claim for indemnification hereunder against
Purchaser until such time as the aggregate of all claims which Seller or the
Shareholders may have against Purchaser shall exceed $15,000, whereupon such
claims shall be indemnified in full. The limitation on assertion of claims for
indemnification contained in this paragraph shall apply only to claims based
upon inaccuracies in, or breaches of, representations and warranties contained
in this Agreement or any document, instrument, certificate or other item
required to be furnished pursuant to this Agreement or in connection with the
transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, the Seller and the
Shareholders shall not be liable under this Article 10 for an amount which
exceeds the aggregate amount of proceeds received by each Shareholder in
connection with the transactions contemplated herein. For purposes of
calculating the value of the DocuNet Stock received by Seller, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period, if applicable.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Seller, the Shareholders and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Seller's or any of the Shareholders' representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
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(c) at any time before the Closing, by the Seller if any of the Purchaser's
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one hand, or by
the Purchaser, on the other hand, upon any material breach by other(s) of such
other party's covenants or agreements contained in this Agreement and the
failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non- breaching party to the
breaching party; or
(e) at any time after the date which is 270 days after the date of this
Agreement, by the Seller on the one hand, or by the Purchaser on the other hand,
upon notification to the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Seller, the Shareholders or the
Purchaser and all rights and obligations of each party to this Agreement shall
cease; provided, that (i) the provisions with respect to expenses in Section
17.4 shall indefinitely survive any such termination, (ii) the provisions with
respect to confidentiality of Section 8.1 shall survive any such termination
until it, by its own terms, is no longer operative; (iii) the provisions with
respect to exclusivity of negotiations of Section 5.9 shall survive for 180 days
after such termination, but only if the termination is made by Purchaser
pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
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ARTICLE 12
POST-CLOSING COVENANTS
12.1. Further Cooperation. From and after the Closing Date, the Seller
shall, and the Shareholders shall and shall cause the Seller to, assist and
cooperate with the Purchaser in effecting the orderly transfer of the Purchased
Assets to the Purchaser. In addition, at the Purchaser's request from time to
time, the Seller shall, and the Shareholders shall and shall cause the Seller
to, execute and deliver to the Purchaser such further endorsements, assignments
and instruments of transfer and conveyance and take such other actions as the
Purchaser reasonably requests to transfer, vest or perfect the Purchaser's
rights in and to the Purchased Assets free and clear of all Encumbrances and
otherwise to accomplish the orderly transfer of the Purchased Assets to the
Purchaser and to consummate the transactions contemplated by this Agreement. In
addition, the Seller and each of the Shareholders shall (i) provide or cause to
be provided such written information with respect to themselves, (ii) execute
and deliver or cause to be executed and delivered such other documents,
certificates or instruments, and (iii) take or cause to be taken such actions,
in each of the foregoing cases, as the Purchaser, any Underwriter or any auditor
reasonably deems necessary or desirable to complete any audit of the Seller's
financial statements (including, but not limited to, the execution of management
representation letters to any auditor by the Seller's management or the
Shareholders) or in connection with any Purchaser Financing Transaction;
provided, that none of the Shareholders shall be required to execute any
guaranty of any indebtedness obtained by the Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3) years
after the Closing Date, the Purchaser shall maintain all Books and Records
maintained by the Seller on or prior to the Closing Date which are transferred
to the Purchaser and shall permit any or all of the Seller or the Shareholders
or their respective representatives and agents access, at the Seller's or the
Shareholders' sole cost and expense, to all such Books and Records, upon
reasonable notice by the Seller or the Shareholders, as applicable, and on terms
not disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholders, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by any or all of the Seller or the
Shareholders after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of any or
all of the Seller or the Shareholders any litigation controlled by any or all of
the Seller or the Shareholders under Section 10.3(c) of this Agreement or (iii)
complying with requests made of any or all of the Seller or the Shareholders by
any Taxing Authority or any Governmental or Regulatory Authority conducting an
audit, investigation or inquiry relating to the Seller's activities during
periods prior to the Closing Date. The Seller and the Shareholders will hold all
information provided to them pursuant to this Article 12 (and any information
derived therefrom) in confidence to the same extent as required by Section 8.1
of this Agreement with respect to Confidential Information.
12.3. By Seller and Shareholders. For a period of three (3) years after the
Closing Date, the Seller shall, and the Shareholders shall and shall cause the
Seller to, maintain all Books
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and Records possessed or to be possessed by any or all of the Seller and the
Shareholders that relate to the Business prior to the Closing Date. The Seller
shall, and the Shareholders shall and shall cause the Seller to, permit the
Purchaser or its representatives and agents access, at the Purchaser's sole cost
and expense, to all of such Books and Records upon reasonable prior written
notice for any reasonable business purpose.
12.4. Use of Name. From and after the Closing Date, the Seller shall, and
the Shareholders shall cause the Seller to: (i) sign such consents and take such
other actions as the Purchaser shall reasonably request to permit the Purchaser
to use the name Imaging Information Industries and all variants thereof (the
"Name"); (ii) cease to use the Name; and (iii) take all necessary action to
change its corporate and trade names by to such name or names that are
substantially different from and not confusingly similar to the Name.
12.5. Discharge of Obligations. From and after the Closing Date, the Seller
shall, and the Shareholders shall cause the Seller to, pay and discharge
diligently, in accordance with past practice but not less than on a timely
basis, all of the Seller's obligations and liabilities (other than the Assumed
Liabilities) including, without limitation, any obligations and liabilities to
employees, trade creditors and customers.
12.6. Receivables. If, at any time after the Closing Date, the Seller or
the Shareholders shall receive any payments on account of any of the Receivables
or other rights to payment constituting a part of the Purchased Assets, then the
Seller or the Shareholders, as applicable, shall hold such funds in trust for,
and shall promptly remit (and the Shareholders shall cause the Seller to remit
promptly) such funds to the Purchaser immediately upon receipt thereof. The
Seller hereby, effective from and after the Closing Date, authorizes and grants
to the Purchaser (acting through any one or more of the Purchaser's authorized
representatives or agents) a power of attorney to endorse the Seller's name on
any check or any other remittances received by the Purchaser on account of the
Receivables. The foregoing power of attorney is coupled with an interest and is
irrevocable.
12.7. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Shareholders or the Seller become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of Seller or the Shareholders in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the Seller and the Shareholders shall promptly give notice of such fact
or circumstance to Purchaser.
12.8. Guarantees. Purchaser shall use its commercially reasonable efforts
to release Shareholders from any personal guarantees in connection with the
Assumed Liabilities.
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ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller shall, and the Shareholders shall cause the Seller to pay, and
the Seller and the Shareholders shall jointly and severally indemnify and hold
harmless the Purchaser from and against all Transfer Taxes. All Taxes on the
ownership or use of the Purchased Assets (specifically excluding Taxes measured
by the net income of any party) that accrue on or prior to the Closing Date
shall be paid by the Seller, and all such Taxes that accrue after the Closing
Date shall be paid by the Purchaser; provided, that all such Taxes shall be
prorated to the Closing Date. Should Purchaser pay any such Taxes, Seller shall,
immediately upon request, pay to Purchaser that portion of such Taxes that
accrued prior to the Closing Date.
ARTICLE 14
MISCELLANEOUS
14.1. Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 14.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Seller:
Imaging Information Industries
1818 Lower Roswell Road
Marietta, GA 30068
Attn: Gerald P. Gorman
with a copy to:
Gray, Layton, Kersh, Solomon,
Sigmon, Furr & Smith, P.A.
316 South New Hope Road
Gastonia, NC 28053
(b) If to the Shareholders:
Gerald P. Gorman
Theodore J. Solomon, Jr.
Charles Yezbak, III
David C. Yezbak
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c/o Imaging Information Industries
1818 Lower Roswell Road
Marietta, GA 30068
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attn: Barry M. Abelson
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
14.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
14.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
14.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel.
14.5. Further Assurances. Any or all of the Seller or the Shareholders on
the one hand, and the Purchaser on the other hand, shall, at their own
respective expense, from time to time upon the request of the other party,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by such other party, such other documents, certificates
and instruments and take such actions as such other party deem reasonably
necessary to consummate more fully the transactions contemplated by this
Agreement.
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14.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
14.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
14.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Seller, the Shareholders nor the Purchaser shall have the right to assign this
Agreement without the prior written consent of the others, except that Purchaser
may assign its rights and obligations under this Agreement prior to the Closing
to any wholly-owned Subsidiary of the Purchaser or entity owning all of the
capital stock of Purchaser, provided that such assignment shall not relieve the
Purchaser of any of its obligations hereunder.
14.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
14.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
IN WITNESS WHEREOF, the Shareholders, the Purchaser and the Seller have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce Gillis
_______________________________
Bruce Gillis
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IMAGING INFORMATION INDUSTRIES,
INC.
By: /s/ David C. Yezbak
_______________________________
David C. Yezbak
Witness: /s/ Gerald P. Gorman
_______________________ _______________________________
Gerald P. Gorman, Individually
Witness: /s/ Theodore J. Solomon
_______________________ _______________________________
Theodore J. Solomon, Individually
Witness: /s/ Theodore J. Solomon, II
_______________________ _______________________________
Theodore J. Solomon, II, Individually
Witness: /s/ Charles P. Yezbak, III
_______________________ _______________________________
Charles P. Yezbak, III, Individually
Witness: /s/ David C. Yezbak
_______________________ _______________________________
David C. Yezbak, Individually
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Schedule 6.1(j)
Form of Opinion of Seller's Counsel
________ __, 1997
DocuNet Inc
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to ________ , a ________ corporation (the
"Company"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of __________, 1997 (the "Purchase Agreement"),
among the Company, DocuNet Inc., a Pennsylvania corporation (the "Purchaser"),
and __________ ("Stockholders"). This opinion is furnished to you pursuant to
Section ____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Certificate] [Articles] of Incorporation and Bylaws
of the Company. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Company and the Stockholders, (ii) the accuracy, completeness and
authenticity of all records and documents submitted to us as originals, (iii)
the conformity to the original of all documents submitted to us as certified,
conformed or photostatic copies, and (iv) the legal capacity of all natural
persons who are parties to the Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of ____________ and the
federal laws of the United States and we do not purport to express any opinion
herein with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that
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such clauses selected ______ law, without regard for principles of choice of
law, and that such documents are being executed and delivered and will be
performed in, and that the applicable property is and will be held in, the State
of _________.
Based on the foregoing and subject to the qualifications set forth herein,
it is our opinion that:
A. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of ________ and has all
necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
B. The execution, delivery and performance of the Transaction
Documents have been duly afforded by all requisite corporate action on the
part of the Company.
C. The Transaction Documents have been duly and validly executed by
the Company and the Stockholders and constitute the legal, valid and
binding obligations of the Company and the Stockholders, respectively, and
are enforceable against them in accordance with their respective terms.
D. Neither the execution and the delivery of the Transaction
Documents, nor the consummation of the transactions contemplated thereby,
violate the [Certificates] [Articles] of corporation or Bylaws of the
Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provision of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
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Our opinion, as expressed herein is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
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Schedule 6.1 (k)
Related Party Agreements
None.
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<PAGE>
Schedule 6.1(l)
Employment Agreements
David C. Yezbak
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Schedule 6.2(i)
Form of Opinion of Purchaser's Counsel
[__________] _____, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _________ , 1997 (the "Purchase Agreement"),
among the Purchaser, _________, a __________ corporation (the "Seller"), and
__________ ("Stockholders"). This opinion is furnished to you pursuant to
Section ____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such examinations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natural persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defied herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth hereby it is our opinion that:
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<PAGE>
E. The Purchaser is a corporation duly organized validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary corporate power and authority to enter into the Transaction
Documents and to consummate the transactions contemplated thereby.
F. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
G. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective terms.
H. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereinafter come to our attention, or any changes in
laws which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be relied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
------------------------------
A Partner
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EXHIBIT A
Assignment and Assumption Agreement
To be provided at a later date.
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<PAGE>
EXHIBIT B
Bill of Sale
To be provided at a later date.
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EXHIBIT C
Escrow Agreement
See attached.
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EXHIBIT E
Employment Agreement
See attached.
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Gerald P. Gorman, Theodore J. Solomon, Jr., Charles Yezbak,
III and David C. Yezbak (collectively "Sellers," and each, a "Seller"), DocuNet
Inc., a Pennsylvania corporation ("Purchaser") and ______ (the "Escrow Agent").
The Purchaser, the Sellers and the Escrow Agent are sometimes collectively
referred to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
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3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
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6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be disbursed from the Escrow Account and on
receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
With a copy to:
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
Attention: John Kersh, Jr., Esquire
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C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
----------------------------------
Gerald P. Gorman
----------------------------------
Theodore J. Solomon, Jr.
-----------------------------------
Charles P. Yezbak, III
-----------------------------------
David C. Yezbak
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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Execution
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LASER GRAPHICS SYSTEMS & SERVICES, INC.
DOCUNET INC.
AND
LASER ACQUISITION CORP.
Dated September 9, 1997
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1- CERTAIN DEFINITIONS....................................................................................2
ARTICLE 2 - THE MERGER...........................................................................................10
2.1. Delivery and Filing of Articles of Merger.........................................................10
2.2. Effective Time of the Merger......................................................................11
2.3. Certificate of Incorporation, By-laws and Board of Directors of Surviving
Corporation....................................................................................11
2.4. Certain Information with Respect to the Capital Stock of the Company, Purchaser
and Newco......................................................................................11
2.5. Effect of Merger..................................................................................12
2.6. Manner of Conversion..............................................................................12
2.7. Delivery of Shares................................................................................13
2.8. Merger Consideration..............................................................................13
2.9. Delivery of Merger Consideration..................................................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................16
3.1. Organization; Qualification; Good Standing........................................................16
3.2. Authorization for Agreement.......................................................................16
3.3. Capitalization; Subsidiaries and Affiliates.......................................................17
3.4. Enforceability....................................................................................18
3.5. Matters Affecting Shares; Title to Shares.........................................................18
3.6. Predecessor Status; etc...........................................................................18
3.7. Spin-off by the Company...........................................................................19
3.8. Legal Proceedings.................................................................................19
3.9. Compliance with Laws..............................................................................19
3.10. Labor Matters.....................................................................................20
3.11. Employee Benefit Plans............................................................................21
3.12. Financial Statements..............................................................................23
3.13. Distributions.....................................................................................23
3.14. Absence of Undisclosed Liabilities................................................................24
3.15. Real Property.....................................................................................24
3.16. Tangible Personal Property........................................................................25
3.17. Contracts.........................................................................................26
3.18. Insurance.........................................................................................28
3.19. Proprietary Rights................................................................................28
3.20. Environmental Matters.............................................................................29
3.21. Permits...........................................................................................30
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3.22. Regulatory Filings................................................................................30
3.23. Taxes and Tax Returns.............................................................................31
3.24. Investment Portfolio..............................................................................33
3.25. Affiliate Transactions............................................................................33
3.26. Accounts, Power of Attorney.......................................................................33
3.27. Receivables.......................................................................................33
3.28. Officers and Directors............................................................................34
3.29. Corporate Records.................................................................................35
3.30. Broker's or Finders...............................................................................35
3.31. Customers.........................................................................................35
3.32. Investment Company................................................................................35
3.33. Absence of Changes................................................................................35
3.34. Accuracy and Completeness of Information..........................................................37
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND NEWCO....................................................................................37
4.1. Organization......................................................................................37
4.2. Authorization for Agreement.......................................................................37
4.3. Enforceability....................................................................................37
4.4. Litigation........................................................................................37
4.5. Registration Statement............................................................................38
4.6. Brokers or Finders................................................................................38
ARTICLE 5 - COVENANTS............................................................................................38
5.1. Good Faith........................................................................................38
5.2. Approvals.........................................................................................38
5.3. Cooperation; Access to Books and Records..........................................................39
5.4. Duty to Supplement................................................................................40
5.5. Information Required For Purchase Financing Transactions..........................................40
5.6. Performance of Conditions.........................................................................41
5.7. Conduct of Business...............................................................................41
5.8. Negative Covenants................................................................................42
5.9. Exclusive Negotiation.............................................................................44
5.10. Public Announcements..............................................................................45
5.11. Amendment of Schedules............................................................................45
5.12. Cooperation in Preparation of Registration Statement..............................................45
5.13. Examination of Final Financial Statement..........................................................47
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5.13A.Audit Opinion.....................................................................................47
5.14. Lock-Up Agreements................................................................................47
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").............................................................47
5.16. Reorganization Status.............................................................................48
ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................48
6.1. Conditions Precedent to the Purchaser and Newco's Obligations.....................................48
6.2. Conditions Precedent to Company's and Sellers' Obligations........................................51
ARTICLE 7 - CLOSING..............................................................................................53
ARTICLE 8 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE..........................................................53
8.1. Confidentiality...................................................................................53
8.2. Covenant Not To Compete...........................................................................54
8.3. Specific Enforcement; Extension of Period.........................................................55
8.4. Disclosure........................................................................................56
8.5. Interpretation....................................................................................56
8.6. Sellers' Acknowledgment...........................................................................56
ARTICLE 9 - SURVIVAL.............................................................................................57
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................57
9.2. Intentionally Omitted.............................................................................57
9.3. Underwriter's Benefit.............................................................................57
ARTICLE 10 - INDEMNIFICATION.....................................................................................58
10.1. Sellers' Indemnification..........................................................................58
10.1A.No Indemnification of Projected Information.......................................................59
10.2. Purchaser's Indemnification.......................................................................59
10.3. Payment; Procedure for Indemnification............................................................59
10.4. Equitable Contribution Under the Securities Act...................................................62
10.5. Exclusiveness of Indemnification..................................................................62
10.6. Limitations on Indemnification....................................................................62
10.7. Value of DocuNet Common Stock.....................................................................63
</TABLE>
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ARTICLE 11 - TERMINATION AND REMEDIES............................................................................63
11.1. Termination.......................................................................................63
11.2. Effect of Termination.............................................................................64
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................64
12.1. Maintenance and Access to Records.................................................................64
12.2. Disclosure........................................................................................65
12.3. Accounts Receivable...............................................................................65
12.4. Guarantees. ......................................................................................65
ARTICLE 13 - TRANSFER RESTRICTIONS...............................................................................65
13.1. Transfer Restrictions.............................................................................65
ARTICLE 14 - SECURITIES LAWS REPRESENTATIONS.....................................................................66
14.1. Compliance with Law...............................................................................66
14.2. Economic Risk; Sophistication.....................................................................67
ARTICLE 15 - REGISTRATION RIGHTS.................................................................................67
15.1. Piggyback Registration Rights.....................................................................67
15.2. Registration Procedures...........................................................................68
15.3. Underwriting Agreement............................................................................68
15.4. Availability of Rule 144..........................................................................68
15.5. Survival..........................................................................................68
ARTICLE 16 - MISCELLANEOUS.......................................................................................69
16.1. Notices...........................................................................................69
16.2. No Third Party Beneficiaries......................................................................70
16.3. Schedules.........................................................................................70
16.4. Expenses..........................................................................................70
16.5. Further Assurances................................................................................70
16.6. Entire Agreement; Amendment.......................................................................71
16.7. Section and Paragraph Titles......................................................................71
16.8. Binding Effect....................................................................................71
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16.9. Counterparts....................................................................................71
16.10. Severability....................................................................................71
16.11. Governing Law...................................................................................71
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 9th day of September, 1997, by and among DOCUNET INC., a Pennsylvania
corporation ("Purchaser"), LASER ACQUISITION CORP., a Pennsylvania corporation
("Newco"), Laser Graphics Systems & Services, a Tennessee corporation (the
"Company"), Jodi S. Gorman, Theodore J. Solomon, Theodore J. Solomon, Jr.,
Charles P. Yezbak III and David C. Yezbak (individually, a "Seller", and
together, the "Sellers,").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the Commonwealth of Pennsylvania, having been incorporated solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Purchaser, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that the Company
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the Commonwealth of Pennsylvania and the State of
Tennessee;
WHEREAS, Purchaser is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), with each
of the other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional document management and related
services companies;
WHEREAS, this Agreement, the Other Agreements and the Initial Public
Offering of DocuNet Common Stock (as defined herein) constitute the
"DocuNet Plan of Reorganization;"
WHEREAS, in consideration of the agreements of the Potential Founding
Companies (as defined herein) pursuant to the Other Agreements, the Board
of Directors of the Company has approved this Agreement as part of the
DocuNet Plan of Reorganization in order to transfer the capital stock of
the Company to Purchaser;
WHEREAS, the parties hereto intend for the merger transaction
contemplated herein to qualify as a reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
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IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. Accounts shall have the meaning set forth in Section 3.26.
1.2. Adverse Claims shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, trusts, charges, proxies, conditional
sales, title retention agreements, rights under any Contracts, liabilities and
any other burdens of any nature whatsoever attached to or adversely affecting
such asset.
1.3. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.4A. Accountants' CDA Report shall have the meaning set forth in Section
2.8(b).
1.4B. Adjusted Current Liabilities shall have the meaning set forth in
Section 2.8(b).
1.4. Affiliate Transaction shall have the meaning set forth in Section
3.25.
1.5. Articles of Merger shall mean those Articles or Certificates of Merger
with respect to the Merger substantially in the forms attached as Annex I hereto
or with such other changes therein as may be required by applicable state laws.
1.6. Balance Sheet Date shall mean June 30, 1997.
1.7A. Base Purchase Price shall have the meaning set forth in Section
2.8(a).
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1.7. Business shall mean the business of the Company or any of its
Subsidiaries as conducted as of the date hereof.
1.8. Capitalization Table shall mean the capitalization table set forth in
Section 2.7.
1.9. Cash Purchase Price shall have the meaning set forth in Section 2.9.
1.10. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.11. Closing shall have the meaning set forth in Article 7.
1.12. [Intentionally omitted.]
1.13. Closing Date shall mean the date on which the Closing actually takes
place.
1.14. Closing Balance Sheet shall mean the balance sheet delivered by the
Company to the Purchaser as of the date immediately prior to the Closing Date in
accordance with Section 3.12(d).
1.15. Closing Debt Amount shall have the meaning set forth in Section
2.8(b).
1.16. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.17. Common Stock shall mean the common stock, no par value per share, of
the Company.
1.18. Company Balance Sheet shall have the meaning set forth in Section
3.14.
1.19. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the definition of
Confidential Information shall not include any information that (i) is in the
public domain at the time of disclosure to the Recipient or becomes part of the
public domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the
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time of disclosure to such Recipient, (iii) is contained in the Registration
Statement on Form S-1 to be filed by Purchaser in connection with the Initial
Public Offering or (iv) is disclosed to a party or Potential Founding Company by
any Person other than a party to this Agreement or a Potential Founding Company;
provided, that the party to whom such disclosure has been made does not have
actual knowledge that such Person is prohibited from disclosing such information
(either by reason of contractual, or legal or fiduciary duty or obligation). For
the purposes hereof, public domain shall not include disclosure of information
to a Potential Founding Company or (except as otherwise provided herein) to any
other person in connection with the transactions contemplated hereby.
1.20. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.21. Constituent Corporations has the meaning set forth in the second
recital of this Agreement.
1.22. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are, bound.
1.23. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et. seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et.
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et. seq., together with the rules and regulations promulgated
thereunder, (iii) the Telephone Consumer Protection Act of 1991, together with
the rules and regulations promulgated thereunder, and (iv) any Requirement of
Law of any jurisdiction relating to the subject matter covered by any of the
foregoing, all as amended and supplemented from time to time, or any successors
thereto.
1.23A. Debt shall have the meaning set forth in Section 2.8.
1.24. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc.
1.25. Effective Time of the Merger shall mean the time as of which the
Merger becomes effective, which shall, in any case, occur on the Closing Date.
1.26. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Company or any ERISA
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Affiliate (including, without limitation, health insurance, life insurance and
other benefit plans maintained for retirees) within the previous six plan years
or with respect to which contributions are or were (within such six year period)
made or required to be made by the Company or any ERISA Affiliate or with
respect to which the Company has any liability.
1.27. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.28. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.29. Escrow Agreement shall mean the Escrow Agreement between the Sellers,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.9, substantially in the
form attached hereto as Exhibit A.
1.30. Escrow Amount shall mean the amount of cash and/or the Value of the
DocuNet Common Stock deposited pursuant to the Escrow Agreement.
1.31. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.32. ERISA Affiliate shall mean any Person that is included with the
Company in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.33. Final Debt Amount shall have the meaning set forth in Section 2.8(b).
1.34. Financial Statements shall have the meaning set forth in Section
3.12(a).
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1.35. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition or merger agreements or asset purchase
agreements with the Purchaser in anticipation of a simultaneous acquisition by
Purchaser and Initial Public Offering.
1.36. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean that the accounting principles observed in a current period
are comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.37. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.38. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs,
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.39. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.40. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.41. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.42. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.43. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
1.44. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how
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relating to the Business, in each case together with any amendments,
modifications and supplements thereto.
1.45. Interim Financial Statements shall have the meaning set forth in
Section 3.12(b).
1.46. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work in process and finished goods.
1.47. IRS means the Internal Revenue Service or any successor organization
thereto.
1.48. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or of any officer or director of
such party, or (i) in the case of any such officer or director, that knowledge
that a reasonably prudent officer or director should have if such person duly
performed his or her duties as an officer or director of such party or any of
such party's Subsidiaries, or made reasonable and diligent inquiry and exercised
due diligence with respect thereto, of the matter to which such qualification
applies, and (ii) in the case of any of the Sellers, that knowledge that such
Seller should have if such Seller made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.48A. Lease shall mean the lease of Real Property with the material terms
and conditions set forth on Exhibit D attached hereto.
1.49. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.50. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Company.
1.51. Merger means the merger of the Company with and into Newco pursuant
to this Agreement and the applicable provisions of the laws of the Commonwealth
of Pennsylvania and other applicable state laws.
1.52. [Intentionally omitted.]
1.53. Newco Stock shall mean the common stock, $.01 par value per share, of
Newco.
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1.54. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or body whose finding, ruling or holding is legally binding or
is enforceable as a matter of right (in any case, whether preliminary or final).
1.55. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.56. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to the Business of the Company or
any of its Subsidiaries.
1.57. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.58. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser, or its Affiliates, to participate in
the simultaneous acquisition by Purchaser and Initial Public Offering.
1.59. Pricing shall mean the determination by Purchaser and the
Underwriters of the public offering price of the shares of DocuNet Common Stock
in the Initial Public Offering.
1.59A. Pricing Date shall mean the date on which the Pricing takes place.
1.60. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.61. Purchase Price shall have the meaning set forth in Section 2.8.
1.62. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Purchaser or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Purchaser or any of its Subsidiaries.
1.63. [Intentionally omitted.]
1.62A. Purchaser's CDA Response Notice shall have the meaning set forth in
Section 2.8(b).
1.64. Real Property shall mean all real property leased to the Company or
any of its Subsidiaries.
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1.65. Receivables shall have the meaning set forth in Section 3.27.
1.66. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.67. Related Companies shall have the meaning set forth in Section 8.2(a).
1.68. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.69. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.70. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.71. Restricted Period shall mean, with respect to each Seller, the period
commencing on the Closing Date and ending on the later of (i) the first
anniversary of the date on which such Seller's employment with the Purchaser, if
any, expires, is not renewed, or is otherwise terminated, and (ii) the fifth
anniversary of the Closing Date, as such period may be extended pursuant to
Section 8.3(b); provided that the reference to "fifth anniversary" in this
clause (ii) shall be automatically changed to "fourth anniversary" if the
average closing price of the DocuNet Common Stock during any 20-trading day
period within the 60-day period prior to or following the date on which such
Seller's employment with the Purchaser terminates is less than 50% of the
Initial Public Offering Price (as adjusted proportionately for any stock splits,
stock dividends or reverse stock splits).
1.72. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.73. [Intentionally omitted.]
1.74. Sellers' CDA Objection shall have the meaning set forth in Section
2.8(b).
1.75. Shares shall mean shares of Common Stock of the Company.
1.76. Stock Purchase Price shall have the meaning set forth in Section 2.9.
1.77. Surviving Corporation shall mean Newco as the surviving party in the
Merger.
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1.78. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.79. Tangible Personal Property shall have the meaning set forth in
Section 3.16.
1.80. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.81. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed with, or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.82. Trade Accounts Receivable shall mean, as of the applicable date, the
Company's trade accounts receivable associated with the Business.
1.83. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.84. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
1.85. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.86. [Intentionally omitted.]
1.84A. Value shall have the meaning set forth in Section 2.8(b).
ARTICLE 2
THE MERGER
2.1. Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the
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Commonwealth of Pennsylvania and the Secretary of State of the State of
Tennessee and stamped receipt copies of each such filing to be delivered to
Purchaser on or before the Closing Date.
2.2. Effective Time of the Merger. At the Effective Time of the Merger, the
Company shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of the Company shall cease, Newco shall be the
surviving party in the Merger and Newco is sometimes hereinafter referred to as
the Surviving Corporation. The Merger will be effected in a single transaction.
2.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of Newco then in effect shall be
the Certificate of Incorporation of the Surviving Corporation until changed
as provided by law;
(ii) the By-laws of Newco then in effect shall become the By- laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such Bylaws shall be the By-laws of the Surviving Corporation until
they shall thereafter be duly amended;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the following persons: David C. Yezbak, Andy Bacas, Rex Lamb,
Mark Creglow and S. David Model. The Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
Commonwealth of Pennsylvania and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(iv) the officers of the Surviving Corporation shall be the persons
set forth on Schedule 2.3 hereto, each of such officers to serve, subject
to the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
2.4. Certain Information with Respect to the Capital Stock of the Company,
Purchaser and Newco. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, Purchaser and Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 2.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of Purchaser will consist of 40 million shares of DocuNet Common
Stock, of which the number of issued and outstanding shares will be set
forth in the Registration Statement, and
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10 million shares of preferred stock, no par value, of which no shares will
be issued and outstanding;
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
2.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Pennsylvania
Business Corporation Law and the law of the State of Tennessee. Except as herein
specifically set forth, the identity, existence, purposes, powers, objects,
franchises, privileges, rights and immunities of the Company shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into the Newco, and Newco, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of the Company shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
Company and Newco shall be taken and deemed to be transferred to, and vested in,
the Surviving Corporation without further act or deed; and all property, rights
and privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the Company and Newco, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the Company and Newco and any claim existing, or action or
proceeding pending, by or against the Company or Newco may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in their place. Neither the rights of creditors nor any liens upon the property
of the Company or Newco shall be impaired by the Merger, and all debts,
liabilities and duties of the Company and Newco shall attach to the Surviving
Corporation, and may be enforced against the Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2.6. Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) DocuNet Common Stock and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
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As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of DocuNet Common Stock provided in Section 2.9 hereof
with respect to such holder and (2) the right to receive the amount of cash
provided in Section 2.9 hereof with respect to such holder (collectively,
the "Merger Consideration");
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of DocuNet
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Purchaser, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time of the Merger.
All DocuNet Common Stock received by the Sellers pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 13
and 14 hereof, have the same rights as all the other shares of outstanding
DocuNet Common Stock. All voting rights of such DocuNet Common Stock received by
the Sellers shall be fully exercisable by the Sellers and the Sellers shall not
be deprived nor restricted in exercising those rights.
2.7. Delivery of Shares. The Sellers shall deliver to Purchaser at the
Closing the certificates representing Company Stock in the amount set forth
opposite their name (with the appropriate pro rata percentage of aggregate
Shares outstanding indicated) on the Capitalization Table on Schedule 2.7
attached hereto, duly endorsed in blank by the Sellers, or accompanied by blank
stock powers, and with all necessary transfer tax and other revenue stamps,
acquired at the Sellers' expense, affixed and canceled. The Sellers agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
2.8. Merger Consideration. As full consideration for the Merger and the
Common Stock, the Purchaser shall pay and deliver or cause to be paid and
delivered to the Sellers, in the manner set forth in this Section 2, the Merger
Consideration consisting of the Base Purchase Price (as hereinafter defined),
less the Debt Adjustment (as hereinafter defined), on the terms and conditions
set forth below (the "Purchase Price"):
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(a) Base Purchase Price. Subject to Section 2.9(c), the Base Purchase Price
shall be Six Hundred Sixty Seven Thousand dollars ($667,000), subject to
adjustments as set forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at Closing,
by $1.00 for each $1.00 of Debt reflected on the Company's Closing Balance Sheet
(the "Closing Debt Amount"). The Company's Debt shall mean all of the Company's
liabilities, contingent or otherwise, except Adjusted Current Liabilities, in
accordance with GAAP. The Company's Adjusted Current Liabilities shall mean all
of the Company's liabilities which would be classified as current liabilities in
accordance with GAAP, except current amounts owing: (i) under promissory notes
or lines of credit to lending institutions; (ii) to an employee or an Affiliate
of the Company, or the Sellers; (iii) to a lessor under a capital lease; or (iv)
on account of Taxes or earned insurance premiums. Promptly following the Closing
and in order to verify the accuracy of the adjustment made at Closing, the
Purchaser agrees to cause the internal accounting staff and the independent
certified public accountant of the Purchaser (the "Accountants") to verify the
Closing Debt Amount. The Accountants shall issue a report as to their
determination of the Closing Debt Amount (the "Accountants' CDA Report")
promptly after their determination of such amount and the Purchaser shall
deliver the Accountants' CDA Report to the Sellers not later than sixty (60)
days following the Closing Date. The determination of the Closing Debt Amount by
the Accountants shall be conclusive and binding upon the parties hereto unless
the Sellers shall object to the Accountants' CDA Report within fifteen (15) days
following their receipt of the Accountants' CDA Report. The Sellers' objection,
if any, to the Accountants' CDA Report (the "Sellers' CDA Objection") shall set
forth in reasonable detail the Sellers' objection(s) to the Accountants' CDA
Report and the Sellers' calculation of the Closing Debt Amount. Within ten (10)
days after receipt of the Sellers' CDA Objection, the Purchaser will notify the
Sellers whether it accepts or disputes the Sellers' adjustments, which
notification shall set forth in reasonable detail the adjustments, if any, made
by the Sellers which the Purchaser continues to dispute (the "Purchaser's CDA
Response Notice"). If the Sellers do not object to the Accountants' CDA Report,
or if the Purchaser agrees to accept the Sellers' adjustments to the
Accountants' CDA Report, then the adjustment based on the then final Closing
Debt Amount (the "Final Debt Amount"), if any, shall be paid by Sellers to the
Purchaser in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time period,
such amount shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Sellers shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like amount
or a number of shares of DocuNet Common Stock having an aggregate Value (as
defined below) equal to such amount. The term "Value" in respect of a share of
DocuNet Common Stock shall mean the lower of the Initial Public Offering Price
and the average closing price of the DocuNet Common Stock during the 20 trading-
day period ending immediately prior to the applicable payment date. If the
Sellers object to the Accountants' CDA Report as set forth above and the
Purchaser does not accept the Sellers' proposed adjustments, then an independent
accounting firm mutually satisfactory to the Sellers and the Purchaser shall be
engaged to determine the amount of the Closing Debt Amount and the Final Debt
Amount, based upon the calculations of the independent accountants, and any
adjustments of Base
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Purchase Price based on the amount determined as provided above shall be paid to
the Purchaser in immediately available funds within five (5) business days of
the determination of such amount by such accounting firm. If such amount is not
received by Purchaser within such time period, such amount shall be paid from
the Escrow Amount pursuant to the Escrow Agreement and Sellers shall be
obligated to replenish the Escrow Amount by depositing with the Escrow Agent
upon such payment either cash in a like amount or a number of shares of DocuNet
Common Stock having an aggregate Value equal to such amount. The parties hereto
agree to cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent accountants
with access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Sellers shall each bear one-half of all of the
costs and expenses of such independent accounting firm, and if the parties
hereto are unable to agree upon an independent accounting firm, the Sellers and
the Purchaser will request that one be designated by the President of the
Philadelphia office of the American Arbitration Association.
2.9. Delivery of Merger Consideration. On the Closing Date the Sellers, who
are the holders of all outstanding certificates representing shares of Company
Stock, shall, upon surrender of such certificates, receive the Merger
Consideration payable as follows:
(a) Stock Purchase Price. Subject to Section 2.3(c), a number of shares of
DocuNet Common Stock, equal to (i) $320,000 (the "Stock Purchase Price") divided
by (ii) the Initial Public Offering Price, shall be issued at Closing to Sellers
in the individual amount for each Seller as indicated on Schedule 2.4 attached
hereto.
(b) Cash Purchase Price. In addition, an aggregate amount equal to the Base
Purchase Price less (i) the Stock Purchase Price and (ii) the reductions, if
any, to be made at Closing pursuant to Section 2.8(b), shall be payable at the
Closing in cash to the Sellers ("Cash Purchase Price"). The specific amount of
the Cash Purchase Price shall be payable to each of the Sellers by a check
payable to the order of the applicable Seller, or a wire transfer to an account
to be designated by such Seller in writing not less than three (3) business days
prior to the Closing, such method of payment to be determined in the sole
discretion of Purchaser, in the individual amount for each Seller set forth on
Schedule 2.4 attached hereto.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of shares
of DocuNet Common Stock equal to (a) $6,670 in cash and (b) (i) $26,680 divided
by (ii) the Initial Public Offering Price shall be delivered at Closing to the
Escrow Agent pursuant to the Escrow Agreement (the "Escrow Amount"), in the
individual amount for each Seller as indicated on Schedule 2.4 attached hereto.
The Escrow Amount shall be available to fund (but shall not be the sole source
of funding) any obligations of the Sellers under this Agreement pursuant to the
terms of the Escrow Agreement; provided, however, if the amount of cash plus the
value of the shares of DocuNet Common Stock valued at the Initial Public
Offering Price in the Escrow Amount falls below $33,350 (the "Threshold Value")
due to payment from the Escrow Account pursuant to Section 2.8 hereof, the
Sellers shall contribute additional cash or shares of DocuNet Common Stock to
the Escrow Account in an amount necessary so that the amount of cash plus
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the value of the shares of DocuNet Common Stock (valued at the Initial Public
Offering Price) in the Escrow Amount would equal the Threshold Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule delivered by the Company and
Sellers to the Purchaser on the date hereof (the "Disclosure Schedule"), the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer, the Company and the Sellers hereby, jointly
and severally, represent and warrant to the Purchaser and Newco as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Company and each of its Subsidiaries (i) are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their respective incorporation or organization, (ii) have the power and
authority to own and operate their respective properties and assets and to
transact their respective Businesses and (iii) are duly qualified and authorized
to do business and are in good standing in all jurisdictions where the failure
to be duly qualified, authorized and in good standing would have a Material
Adverse Effect upon their respective Businesses, prospects, operations, results
of operations, assets, liabilities or condition (financial or otherwise). Listed
in the Disclosure Schedule is a true and complete list of all jurisdictions in
which the Company or any of its Subsidiaries is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
the Company or any of the Sellers, threatened against or affecting the Company
or any of its Subsidiaries revoking, limiting or curtailing, or seeking to
revoke, limit or curtail the Company's or any of its Subsidiaries' power,
authority or qualification to own, lease or operate their respective properties
or assets or to transact their respective Businesses.
(c) True and complete copies of the Company's and each of its Subsidiaries'
articles or certificate of incorporation, bylaws and other constitutive
documents are attached as part of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries, as heretofore made available to the Purchaser and Newco, are
correct and complete in all material respects.
3.2. Authorization for Agreement.
(a) The Company. The Company's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and duly authorized by
all necessary corporate and shareholder action on the part of the Company and
(ii) do not (A) require
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any action by or in respect of, or filing with, any Governmental or Regulatory
Authority, (B) contravene, violate or constitute, with or without the passage of
time or the giving of notice or both, a breach or default under, any Requirement
of Law applicable to the Company or any of its properties or any Contract to
which the Company or any of its properties is bound or subject or (C) result in
the creation of any Adverse Claim on any of the Shares.
(b) Individual Sellers. Each Seller's execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by each of the Sellers (i) are within the powers and authority of each of the
Sellers and (ii) do not (A) require any action by or in respect of, or filing
with, any Governmental or Regulatory Authority, (B) except as set forth in the
Disclosure Schedule, contravene, violate or constitute, with or without the
passage of time or the giving of notice or both, a breach or default under, any
Requirement of Law applicable any of them or any of their respective properties
or any Contract to which any of them or any of their respective properties is
bound or subject or (C) result in the creation of any Adverse Claim on any of
the Shares.
3.3. Capitalization; Subsidiaries and Affiliates.
(a) The Company. The authorized capital stock of the Company consists of
2,000 shares of a single class of common stock, having no par value per share,
of which 670 shares are issued and outstanding. All of the Shares are
collectively owned by the Sellers in the proportions set forth in the
Capitalization Table. The Company does not have any other authorized class or
classes of securities of any kind, whether debt or equity. All of the Shares are
validly issued, fully paid and non-assessable and have not been issued in
violation of applicable securities laws or of any preemptive rights or other
rights to subscribe for, purchase or otherwise acquire securities. The Company
does not hold any shares of its capital stock in its treasury or otherwise, and
no shares of the Company's capital stock are reserved by the Company for
issuance.
(b) Subsidiaries. Attached as part of the Disclosure Schedule is a complete
and accurate list of all the Company's Subsidiaries, showing the percentage of
Company's ownership or control of, as well as the identity of any other owners
and the percentage of each such other owner's ownership of, the outstanding
capital stock of, or other ownership interest in, each Subsidiary. The
authorized capital stock of each Subsidiary currently consists of a single class
of common stock, the number of authorized shares and par value of which are set
forth opposite each such Subsidiary's name in the Disclosure Schedule. No
Subsidiary has any other authorized class or classes of securities of any kind,
whether debt or equity. All of the outstanding capital stock of each Subsidiary
has been validly issued, is fully paid and nonassessable, is free of any Adverse
Claims, and has not been issued in violation of applicable securities laws or of
any preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. No Subsidiary holds any shares of its capital stock in its
treasury or otherwise, and no shares of any Subsidiary's capital stock are
reserved by such Subsidiary for issuance. Except as set forth in the Disclosure
Schedule, neither the Company nor any
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Subsidiary owns or controls, directly or indirectly, any debt, equity or other
financial or ownership interest in any other Person.
(c) Affiliates. Included in the Disclosure Schedule is a complete and
accurate list of all Persons (other than the Sellers or any of the Persons
described in the first sentence of Section 1.3, subpart (iii)) that are
Affiliates of the Company, detailing the nature of the relationship between the
Company and each such Person that causes such Person to be an Affiliate of the
Company.
(d) No Acquisitions. Since the Balance Sheet Date, neither the Company nor
any of its Subsidiaries has acquired, or agreed to acquire, whether by merger or
consolidation, by purchase of equity interests or assets, or otherwise, any
business or any other Person, or otherwise acquired, or agreed to acquire, any
assets that are material, either individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole.
(e) No Other Securities. There are (i) no outstanding subscriptions,
warrants, options, rights, agreements, convertible securities or other
commitments or instruments pursuant to which the Company or any of its
Subsidiaries is or may become obligated to issue, sell, repurchase or redeem any
shares of capital stock or other securities, whether debt or equity, of the
Company or any of its Subsidiaries and (ii) no preemptive, contractual or
similar rights to purchase or otherwise acquire shares of capital stock of the
Company or of any of its Subsidiaries pursuant to any Requirement of Law
applicable to the Company or any such Subsidiary, as applicable, or any Contract
to which the Company or any such Subsidiary is a party or may otherwise be bound
or subject.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Company and each of the Sellers and constitutes the legal, valid and binding
obligation of the Company and each of the Sellers, enforceable against each of
them in accordance with its terms.
3.5. Matters Affecting Shares; Title to Shares. Each Seller has full legal
and beneficial title to his or her Shares and has full power, right and
authority to sell and deliver such Shares in accordance with this Agreement,
free of any Adverse Claims. There are no existing agreements, subscriptions,
options, warrants, calls, commitments, conversion rights or other rights of any
character to purchase or otherwise acquire from any Seller at any time, or upon
the happening of any event, any of the Shares.
3.6. Predecessor Status; etc. Included in the Disclosure Schedule is a
listing of all names of all predecessor companies for the past five years of the
Company, including the names of any entities from whom the Company previously
acquired material assets outside the ordinary course of business. Except as
disclosed in the Disclosure Schedule, the Company has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
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3.7. Spin-off by the Company. Except as set forth in the Disclosure
Schedule, there has not been any sale, spin-off or split-up of material assets
or subsidiaries of the Company or any other Affiliate, other than in the
ordinary course of business, within the preceding two years.
3.8. Legal Proceedings.
(a) Sellers. There is no Legal Proceeding or Order pending against, or to
the knowledge of any Seller, threatened against or affecting, any Seller or any
of his or her properties or otherwise, that could adversely affect or restrict
the ability of any Seller to consummate fully the transactions contemplated by
this Agreement or that in any manner could draw into question the validity of
this Agreement. None of the Sellers has knowledge of any fact, event, condition
or circumstance that could reasonably be expected to give rise to the
commencement of any Legal Proceeding or the entering of any Order against any of
the Sellers that could adversely affect or restrict the ability of any Seller to
consummate fully the transactions contemplated by this Agreement or that in any
manner could draw into question the validity of this Agreement.
(b) The Company and Subsidiaries. The Disclosure Schedule completely and
accurately lists and fully describes all Orders outstanding against the Company
or any of its Subsidiaries. In addition, the Disclosure Schedule completely and
accurately lists and fully describes each pending, and, to the Company's or any
of the Seller's knowledge, each threatened, Legal Proceeding that has been
commenced, brought or asserted by (i) the Company or any of its Subsidiaries, as
the case may be, against any Person or (ii) any Person against the Company or
any of its Subsidiaries, as the case may be. Neither the Company nor any of the
Sellers have knowledge of the existence of any fact, event, condition or
circumstance that could reasonably be expected to give rise to the commencement
of any Legal Proceeding or the entering of any Order against either the Company
or any of its Subsidiaries by any Person.
3.9. Compliance with Laws. Each of the Company and its Subsidiaries is
operating in compliance with all Requirements of Law applicable to it or any of
its respective properties or to which the Company or any of its Subsidiaries or
any of their respective properties is bound or subject including, without
limitation, the Credit Acts. Except as set forth in the Disclosure Schedule,
since January 1, 1992, neither the Company or any of its Subsidiaries nor any of
the Sellers has received any notice from any Person concerning alleged
violations of, or the occurrence of any events or conditions resulting in
alleged noncompliance with, any Requirement of Law applicable to the Company or
any of its Subsidiaries or any of their respective properties or to which the
Company or any of its Subsidiaries or any of their respective properties is
bound or subject including, without limitation, any of the Credit Acts. None of
the Company, any of the Sellers, any of their respective Affiliates (other than
a Person who is an Affiliate solely by virtue of clause (iii) of the definition
thereof), or any of such Affiliates' respective Affiliates (other than a Person
who is an Affiliate solely by virtue of clause (iii) of the definition thereof)
has made any illegal kickback, bribe, gift or political contribution
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to or on behalf of any customer, or to any officer, director, employee of any
customer, or to any other Person.
3.10. Labor Matters.
(a) Included in the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Company or any of its
Subsidiaries is a party or may otherwise be bound or subject, and the
compensation to which each consultant is entitled under its respective Contract.
The Company and the Sellers have delivered or caused to be delivered to the
Purchaser and Newco true and complete copies of all such Contracts, each of
which is included in the Disclosure Schedule. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has increased the compensation
payable to its consultants or the rate of compensation payable to its
consultants. To the knowledge of the Company and the Sellers, no individuals
retained by the Company or any of its Subsidiaries as an independent contractor
or consultant would be reclassified by the IRS, the U.S. Department of Labor or
any other Governmental or Regulatory Authority as an employee of the Company or
of any of its Subsidiaries for any purpose whatsoever.
(b) Included in the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Company and of each of its Subsidiaries,
together with such employee's position or function, the rate of hourly, monthly
or annual compensation (as the case may be) paid or to be paid to such employee
in 1995, 1996 and, to the extent known, 1997, any accrued sick leave or pay or
vacation and any incentive or bonus arrangement with respect to any such
employee. Except as is set forth in the Disclosure Schedule, since the Balance
Sheet Date, neither the Company nor any of its Subsidiaries has increased the
compensation payable to its employees or the rate of compensation payable to its
employees. The Disclosure Schedule also identifies those employees with whom the
Company or any of its Subsidiaries has entered into an employment Contract or a
Contract obligating the Company or any such Subsidiary to pay severance or
similar payments to any employee. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
such Contracts, all of which are attached to the Disclosure Schedule.
(c) To the knowledge of the Company or any of the Sellers, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement and no collective bargaining agreement covering any of such
employees is currently being negotiated.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the employees of the Company or any of its
Subsidiaries. In addition, no dispute with or claim against the Company relating
to any labor or employment matter including, without limitation employment
practices, discrimination, terms and conditions of employment, or wages and
hours, is outstanding or, to either of the Company or the Sellers' knowledge, is
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threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without limitation, the National Labor
Relations Board or the Equal Employment Opportunity Commission against the
Company or any of its Subsidiaries with respect to any labor or employment
matter.
3.11. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco true and complete copies of (i) the plan document, trust
agreement and any other document governing such Employee Benefit Plan, (ii) the
summary plan description, (iii) all Form 5500 annual reports and attachments,
and (iv) the most recent IRS determination letter, if any, for such plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Company has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such on the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Company has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Company does not maintain any "defined benefit plan" covering
employees of the Company or any of its Subsidiaries within the meaning of
Section 3(35) of ERISA subject to Title IV of ERISA or any "Multiemployer Plan"
within the meaning of Section 401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Company or any of its Subsidiaries with respect
thereto.
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<PAGE>
(f) The Company has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary duty with respect to any of the Employee Benefit Plans that could
subject the Purchaser, the Company or any of their respective Subsidiaries to
any tax, penalty or other liability under the Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of the Company or any of the Sellers threatened,
and to the knowledge of the Company or any of the Sellers, there are no facts,
events, conditions or circumstances that could give rise to any such Legal
Proceeding or claim (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course).
(i) Neither the Company or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Company or any of its
Subsidiaries who are on leave of absence under either of the Uniformed Services
Employment or Reemployment Rights Act or the Family Medical Leave Act.
(l) None of the Company, any of its Subsidiaries, or any of their
respective officers, directors or significant employees (as such term is defined
in Regulation S-K of the Securities Act), or any other Person has made any
statement or communication or provided any materials to any employee or former
employee of the Company of any of its Subsidiaries that provides for or could be
construed as a contract, agreement or commitment by the Purchaser or any of its
Affiliates to provide for any pension, welfare, or other employee benefit or
fringe benefit plan or arrangement to any such employee or former employee,
whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Company or any of its
Subsidiaries.
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<PAGE>
3.12. Financial Statements.
(a) The Company and the Sellers have delivered or caused to be delivered to
the Purchaser and Newco a copy of the Company's consolidated balance sheets as
of July 31, 1995, 1996 and 1997 and the related statements of operations,
shareholders' equity and cash flows for the years then ended, together with all
proper exhibits, schedules and notes thereto (collectively, the "Financial
Statements"). A true and complete copy of the Financial Statements is attached
to the Disclosure Schedule. The Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for changes required or permitted by GAAP and noted thereon) and fairly
represent the financial position of the Company and its Subsidiaries as of the
date of such Financial Statements and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Company and such other information as is
contained therein.
(c) Since the Balance Sheet Date, (i) the Company and each of its
Subsidiaries have operated, and each of the Sellers has caused the Company and
each of its Subsidiaries to operate, their respective Businesses in the normal
and ordinary course in a manner consistent with past practices, (ii) there has
been no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon the Company or
any of its Subsidiaries, except as disclosed on the Disclosure Schedule, (iv)
neither the Company nor any of its Subsidiaries has made or committed to make
any capital expenditure or capital addition or betterments in excess of an
aggregate of $10,000; and (v) neither the Company nor any of its Subsidiaries
has made any gift or contribution (charitable or otherwise) to any Person (other
than gifts made since the Balance Sheet Date which, in the aggregate, do not
exceed $5,000).
(d) On the Closing Date, the Company and the Sellers will also deliver or
caused to be delivered to the Purchaser and Newco a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be in accordance with
the books and records of the Company and its Subsidiaries, all of which have
been maintained in accordance with good business practice and in the normal and
ordinary course of business, and will be prepared in accordance with GAAP
applied on a consistent basis (except for the absence of notes and subject to
normal year-end audit adjustments).
3.13. Distributions. The Disclosure Schedule completely and accurately
lists and fully describes (i) all dividends, distributions, redemptions or
payments declared, accrued, accumulated or made in respect to any of the
Company's or any of its Subsidiaries' securities, whether debt or equity
(including, without limitation, the Shares), since January 1, 1992, (ii) any
other amounts paid or distributed since January 1, 1992 or required to be paid
or distributed to any Person in respect of any ownership, indebtedness or other
economic interest in the Company
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or any of its Subsidiaries, and (iii) any other amounts to which any Person is
entitled to receive pursuant to any dividend or distribution right in respect of
any such interest.
3.14. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Company and
its Subsidiaries at October 31, 1996 including, without limitation, all notes
thereto, prepared in accordance with GAAP (the "Company Balance Sheet"), neither
the Company nor any of its Subsidiaries has any liabilities or obligations,
whether direct or indirect, matured or unmatured, contingent or otherwise,
except for liabilities or obligations that were incurred consistently with past
business practice in or as a result of the normal and ordinary course of
business since October 31, 1996.
3.15. Real Property.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The Disclosure Schedule contains a complete and accurate list of all the
locations of all Real Property leased by the Company or any of the Subsidiaries
and the name and address of the lessor and, if a Person different than such
lessor, the manager thereof. The Company and the Sellers have delivered or
caused to be delivered to the Purchaser and Newco true and complete copies of
all Contracts relating to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Company or any of its
Subsidiaries is a party or is otherwise bound or subject, and, in each case, all
amendments thereof, which relate to or affect any of the Real Property. Except
for the leases pertaining to the Real Property identified in and attached to the
Disclosure Schedule, none of the Sellers, the Company or any of its Subsidiaries
is a party to any Contract that commits or purports to commit the Company or any
of its Subsidiaries to purchase or otherwise acquire or lease any real property
including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Company or such Subsidiary, as the case may
be, peaceful, undisturbed and exclusive possession of the applicable Real
Property, (iii) is free of all Adverse Claims, and (iv) constitutes a valid and
binding obligation of, and is enforceable in accordance with its terms against,
the respective parties thereto.
(c) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Real Property and is not in default or breach thereof. In
addition, no party to any such Contract (i) has provided any notice to the
Company or any of its Subsidiaries of its intent to terminate or not renew any
such Contract, (ii) to the knowledge of the Company and the Sellers, has
threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
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(d) The Real Property is (i) in good condition and repair and there has
been no damage, destruction or loss to any of the Real Property that remains
unremedied to date (ordinary wear and tear excepted) and (ii) suitable to carry
out each of the Company's and its Subsidiaries' respective Business as conducted
thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of the Company or
any of the Sellers, threatened, against any of the Real Property.
(f) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Real Property, (ii) result in or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed rent or payments under any such Contract or (iii) result in the
creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Company or any
Subsidiary has made any expenditure in the two-years prior to the date of this
Agreement in excess of $10,000, or which if pursued by the Company would require
additional expenditures of capital in excess of $10,000.
3.16. Tangible Personal Property.
(a) The Company and each of its Subsidiaries owns or leases all such
properties as are presently used in the conduct of their respective Businesses
and operations. The Company and the Sellers have delivered or caused to be
delivered to the Purchaser and Newco true and complete copies of all material
Contracts (including, without limitation, leases and service, supply,
maintenance and similar Contracts) to which the Company and any of its
Subsidiaries is a party or is otherwise bound or subject, and all amendments
thereto, which relate to or affect any of the tangible personal property owned,
possessed or used by the Company or any of its Subsidiaries (the "Tangible
Personal Property"). A complete and accurate list of all such Contracts is set
forth in, and true and complete copies of such Contracts are attached to, the
Disclosure Schedule. Except (i) for those assets disposed of in the normal and
ordinary course of business since the Balance Sheet Date, (ii) with respect to
Tangible Personal Property that is leased or rented by the Company or any of its
Subsidiaries, and (iii) as otherwise set forth on the Disclosure Schedule, the
Company and each such Subsidiary, as the case may be, has good and valid title
to all of its Tangible Personal Property, including all items of Tangible
Personal Property reflected on the Company Balance Sheet, free of all Adverse
Claims.
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<PAGE>
(b) Since the Balance Sheet Date, neither the Company nor any of its
Subsidiaries has incurred or suffered any material physical damage, destruction,
theft or loss of their respective tangible items of material personal property,
whether owned or leased. All material Tangible Personal Property including,
without limitation, all computer hardware and software (including all operating
and application systems), is in good working order, condition and repair and
suitable to carry out each of the Company's and its Subsidiaries' respective
Businesses as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Company or such Subsidiary, as
the case may be, peaceful, undisturbed and exclusive possession of the
applicable Tangible Personal Property, (iii) is free of all Adverse Claims and
(iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(d) The Company and each of its Subsidiaries has performed the obligations
required to be performed by it to date under all Contracts relating to or
affecting the Tangible Personal Property and is not in default or breach
thereof. In addition, no party to any such Contract (i) has provided any notice
to the Company or any of its Subsidiaries of its intent to terminate or not
renew any such Contract, (ii) to the knowledge of the Company and the Sellers,
has threatened to terminate or not renew any such Contract or (iii) is, to the
knowledge of the Company and the Sellers, in breach or default under any
provision thereof, and, to the knowledge of the Company and the Sellers, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.17. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which either the Company or any of its
Subsidiaries or any of their respective properties is party or is otherwise
bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such
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vendors are among the Company's twenty-five highest, in terms of dollar
value of sales, for the twelve-month period ending on the Balance Sheet
Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either the Company's or any such Subsidiaries' right to engage in, or
compete with any Person in, any business;
(iv) any Contract involving a pledge or encumbering of either
Company's or any of its Subsidiaries' assets or the incurrence by either
Company or any of its Subsidiaries of liabilities (other than liabilities
to render services to customers in the ordinary course of business) in any
one transaction or series of related transactions in excess of $10,000, or
that extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either the Company or any
of its Subsidiaries has created, incurred, assumed or guaranteed any
indebtedness other than for trade indebtedness incurred in the normal and
ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Company's or Subsidiary's Business; and
(vii) any Contract that either (y) does not fit within one of the
foregoing categories described in (i) through (vi) above or (z) is not
otherwise identified in the Disclosure Schedule and that would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by either the Company or any of its Subsidiaries under the Act if the
Company were to file such a registration statement under the Act on the
date on which this representation and warranty is made.
(b) Each material Contract to which the Company or any of its Subsidiaries
or any of their respective properties is a party or is otherwise bound or
subject (i) is valid and binding on each of the parties thereto in accordance
with its terms, (ii) was made in the normal and ordinary course of the Business
and (iii) contains no provision or covenant prohibiting or limiting the ability
of the Company or any Subsidiary to operate their respective Businesses.
(c) No party to any material Contract to which the Company or any of its
Subsidiaries or any of their respective properties is a party or is otherwise
bound or subject (i) has provided any notice to the Company or any of its
Subsidiaries of its intent to terminate or withdraw its participation in any
such Contract, (ii) has, to the knowledge of the Company and
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the Sellers, threatened to terminate or withdraw from participation in any such
Contract or (iii) is, to the knowledge of the Company and the Sellers, in breach
or default under any provision thereof, and, to the knowledge of the Company and
the Sellers, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Company or any of its Subsidiaries or any
of their respective properties is a party or is otherwise bound or subject is
required in connection with the transactions contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Company or any of its Subsidiaries or any of their
respective properties is a party or is otherwise bound or subject, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Contract or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
such Contract.
3.18. Insurance. Attached to the Disclosure Schedule is a complete and
accurate list of all insurance policies held by the Company and by each of its
Subsidiaries identifying all of the following for each such policy: (i) the type
of insurance; (ii) the insurer; (iii) the policy number; (iv) the applicable
policy limits, (v) the applicable periodic premium; and (vi) the expiration
date. Each such insurance policy is valid and binding and is and has been in
effect since the date of its issuance. All premiums due thereunder have been
paid, and neither the Company nor any of its Subsidiaries has received any
notice of any increase in premiums or of any cancellation, non-renewal or
termination in respect of any such policy. None of the Company or any of its
Subsidiaries are in default under any such policy in any respect. To the
knowledge of the Company or any of the Sellers, no such insurer is the subject
of insolvency proceedings. Neither the Company nor the Person to whom any such
insurance policy has been issued has received notice that any insurer under any
policy referred to in the Disclosure Schedule is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. Each of
the Company and its Subsidiaries has notified its insurance carriers of all
litigation and claims and facts which could reasonably be expected to give rise
to a claim, all of which are disclosed in the Disclosure Schedule (including
worker's compensation claims). The liability insurance maintained by the Company
is and has at all times prior to the date of this Agreement been on an
"occurrence" basis.
3.19. Proprietary Rights.
(a) Attached to the Disclosure Schedule is a complete and accurate list and
full description of each item of the Company's and each of its Subsidiaries
Intellectual
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Property together with, in the case of registered Intellectual Property: the (i)
applicable registration number; (ii) filing, registration, issue or application
date; (iii) record owner; (iv) country; (v) title or description; and (vi)
remaining life. In addition, the Disclosure Schedule identifies whether each
item of Intellectual Property is owned by the Company or any of its Subsidiaries
or possessed and used by the Company or such Subsidiary under any Contract. The
Intellectual Property constitutes valid and enforceable rights and does not
infringe or conflict with the rights of any other Person; provided that to the
extent the foregoing relates to Intellectual Property used but not owned by the
Company, such representation and warranty is given solely to the knowledge of
the Company and the Sellers.
(b) There is neither pending, nor to the Company's or any of the Sellers'
knowledge, threatened, any Legal Proceeding against the Company or any of its
Subsidiaries contesting the validity or right of the Company or any such
Subsidiary to use any of the Intellectual Property, and neither the Company nor
any such Subsidiary has received any notice of infringement upon or conflict
with any asserted right of others nor, to the Company's or any of the Sellers'
knowledge, is there a basis for such a notice. To the Company's and all of the
Sellers' knowledge, no Person is infringing the Company's or any of its
Subsidiaries rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any obligation to compensate others for
the use of any Intellectual Property. In addition, except as otherwise provided
on the Disclosure Schedule, neither the Company nor any of its Subsidiaries has
granted any license or other right to use, in any manner, any of the
Intellectual Property, whether or not requiring the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any Adverse Claim upon the Company or any of its
Subsidiaries or any of their respective assets under the terms of any such
Contract.
3.20. Environmental Matters.
(a) The Company and each of its Subsidiaries, and the operation of each of
their respective Businesses is and has been in compliance with all applicable
Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Company (or, to the knowledge of the Company and the Sellers,
caused by a third party) that may give rise to any common law or statutory
liability, or otherwise form the basis of any Legal
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Proceeding, Order or action involving or relating to the Company or any of its
Subsidiaries, based upon or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutants, contaminants, chemicals, or industrial, toxic or hazardous substance
or wastes.
(c) To the knowledge of the Company and the Sellers, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Company
and the Sellers, there are no polychlorinated biphenyls (PCBs) present, in use
or stored on any of the Real Property. To the knowledge of the Company and the
Sellers, no radon gas or the presence of radioactive decay products of radon are
present on, or underground at any of the Real Property at levels beyond the
minimum safe levels for such gas or products prescribed by applicable
Environmental Laws.
3.21. Permits.
(a) The Company, each of its Subsidiaries, and each of their respective
employees, independent contractors and agents has obtained and holds in full
force, and the Disclosure Schedule sets forth a complete and accurate list of,
all Permits that are necessary or advisable for the operation of their
respective Businesses. Neither the Company, any of its Subsidiaries nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any Adverse Claim upon the Company or
any of its Subsidiaries or any of their respective assets under the terms of any
Permit.
(c) Except as set forth in the Disclosure Schedule, there is no Order
outstanding against the Company or any of its Subsidiaries, nor is there now
pending, or to the Company's or any of the Sellers' knowledge, threatened, any
Legal Proceeding, which could adversely affect any Permit required to be
obtained and maintained by the Company or any of its Subsidiaries.
3.22. Regulatory Filings. The Company and each of its Subsidiaries has
filed all registrations, filings, reports, or submissions that are required by
any Requirement of Law. All such filings were made in compliance with applicable
Requirements of Law when filed and no deficiencies have been asserted by any
Governmental or Regulatory Authority with respect to such filings and
submissions that have not been finally resolved.
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3.23. Taxes and Tax Returns.
(a) The Company and each of its Subsidiaries has duly and timely filed all
Tax Returns. Each such Tax Return is true, accurate and complete. The Company
and each of its Subsidiaries has paid in full all Taxes for the period covered
by such Tax Return. All Taxes not yet due and payable have been withheld or
reserved for or, to the extent that they relate to periods on or prior to the
date of the Company Balance Sheet, are reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with all
applicable Requirements of Law relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Section 1441
and 1442 of the Code, or similar provisions under any foreign Requirements of
Law) and have, within the time and in the manner prescribed by applicable
Requirements of Law, withheld from employee wages and paid over, in a timely
manner, to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Company or any of its Subsidiaries that has not been resolved and paid in full
or fully reserved for and identified on the Company Balance Sheet and, to the
knowledge of the Company and the Sellers, no deficiency for any Taxes has been
proposed that has not been fully reserved for and identified on the Company
Balance Sheet. Neither the Company nor any of its Subsidiaries has received any
outstanding and unresolved notices from the IRS or any other Taxing Authority of
any proposed examination or of any proposed change in reported information
relating to the Company or any such Subsidiary. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Company's or any of its
Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the knowledge of the
Company and the Sellers, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
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(g) Neither the Company nor any of its Subsidiaries is a party to any
Contract providing for the allocation or sharing of Taxes. Neither of the
Company nor any of its Subsidiaries has made any election under Section 341(f)
of the Code.
(h) Neither the Company nor any of its Subsidiaries has agreed to make, nor
is any of them required to make, any adjustment under Section 481(a) of the Code
for any period ending after the Closing Date by reason of a change in accounting
method or otherwise and neither the Company nor any of its Subsidiaries has any
knowledge that the IRS has proposed such adjustment or change in accounting
method.
(i) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(j) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, Contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(k) Neither the Company nor any of its Subsidiaries has a permanent
establishment located in any tax jurisdiction other than the United States, nor
are any of them liable for the payment of Taxes levied by any jurisdiction
located outside the United States.
(l) Other than in respect of a period for which a Tax is not yet due, no
state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by the IRS or any other Taxing Authority.
(m) No power of attorney has been granted by the Company or any of its
Subsidiaries with respect to any matter relating to Taxes that is currently in
force.
(n) Neither the Company nor any of its Subsidiaries is or has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6662 of the Code or any predecessor
provision thereof) have been adequately disclosed on the Tax Returns required in
accordance with Section 6662(d)(2)(B) of the Code or any predecessor provision
thereto.
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(q) No election under Code ss.338 (or any predecessory provisions) has been
made by or with respect to the Company or any of its Subsidiaries or any of
their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is "corporate
acquisition indebtedness" within the meaning of Code ss.279(b).
3.24. Investment Portfolio. Except as set forth in the Disclosure Schedule
attached to this Agreement, the Company's and each of its Subsidiaries'
investment portfolio consists solely of investments in one or more of the
following: (i) interest bearing deposit accounts (including certificates of
deposit) that are insured by the Federal Deposit Insurance Corporation, (ii)
direct obligations of the United States of America with a maturity not greater
than one year, (iii) short term money market funds or (iv) commercial paper of
any corporation organized under the laws of any State of the United States or
any bank organized or licensed to conduct a banking business under the laws of
the United States or any State thereof having the highest short-term rating
given by Moody's Investor's Services, Inc. and Standard and Poor's Corporation.
3.25. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.10, 3.11 and 3.28, pursuant to which
the Company or any of its Subsidiaries is, or, at any time during the previous
five (5) years has been, a party or otherwise bound with any Affiliate of any
Seller, the Company, any Subsidiary of the Company (an "Affiliate Transaction").
Each Affiliate Transaction has been entered into the normal and ordinary course
of the Business.
3.26. Accounts, Power of Attorney. The Disclosure Schedule completely and
accurately states the names and addresses of each bank, financial institution,
fund, investment or money manager, brokerage house and similar institution in
which the Company or any of its Subsidiaries maintains any account (whether
checking, savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto. The Disclosure Schedule also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power.
3.27. Receivables. Except as set forth in the Disclosure Schedule, since
the Balance Sheet Date, neither the Company nor any of its Subsidiaries has
written-off, nor under GAAP is it appropriate to write off, any accounts
receivable, notes receivable or other miscellaneous receivables owing to the
Company or any of its Subsidiaries (the "Receivables"). All Receivables
currently owing to the Company or any of its Subsidiaries are completely and
accurately listed and aged in the Disclosure Schedule attached to this
Agreement. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Company and each of its Subsidiaries has
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good and valid title to their respective Receivables, free of all Adverse
Claims. Neither the Company nor any of its Subsidiaries has sold, factored,
securitized, or consummated any similar transaction with respect to any of its
Receivables. Subject to proper reserves taken into account in accordance with
GAAP as reflected on the Disclosure Schedule, each Receivable is fully
collectable in the normal and ordinary course of business (i.e. without resort
to litigation or assignment to a collection agency), and are not subject to any
dispute, counterclaim, defense, set-off or Adverse Claim.
3.28. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Company's and each of its Subsidiaries' respective directors, executive
officers, and any of their respective significant employees (as such term is
defined in Regulation S-K under the Securities Act) and the compensation payable
to each of them to serve as such.
(b) Except as set forth on the Disclosure Schedule attached to this
Agreement, none of the Sellers or any of the current directors, current
executive officers or current significant employees (as such term is defined in
Section 3.28(a)) of either the Company or any of its Subsidiaries has, within
the past five (5) years:
(i) (x) filed or had filed against him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual, or any
partnership in which he or she was a general partner or any other Person of
which he or she was a director or an executive officer or had a position
having similar powers and authority at or within two (2) years of the date
of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
him or her from engaging in any type of business activity; or
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(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.29. Corporate Records. The Company's and each of its Subsidiaries'
corporate books and records, minutes of the meetings of the stockholders or
directors, stock books, corporate seal (if any) and any other similar books and
records are complete and accurate.
3.30. Broker's or Finders. Except as set forth in the Disclosure Schedule,
neither the Company, any of its Subsidiaries nor any of the Sellers has engaged
the services of any broker or finder with respect to the transactions
contemplated by this Agreement, and no Person has or will have, as a result of
the consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or Newco for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Company, its Subsidiaries or the Sellers.
Without degradation to any of the foregoing, the Company, its Subsidiaries and
the Sellers are solely responsible for the payment of the commissions, fees and
other compensation payable to the Person having any such right, interest or
claim on account of any action on the part of the Company, its Subsidiaries or
the Sellers, including, without limitation, the Persons identified on the
Disclosure Schedule.
3.31. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar value of
purchases) of the Company and each of its Subsidiaries and details the Company's
and each such Subsidiary's total revenue attributable to each such customer for
the 1995, 1996 and 1997 fiscal years and the current fiscal year to date. Except
as set forth in the Disclosure Schedule, there has been no adverse change in the
Company's or any of its Subsidiaries' business relationship with any such
customer that, in the aggregate, would have a Material Adverse Effect upon the
Company or any such Subsidiary.
3.32. Investment Company. Neither the Company nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, as amended from time
to time, or any successors thereto.
3.33. Absence of Changes. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule there has not been with respect to the Company and
any Subsidiary:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
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(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by any Subsidiary to the Company;
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character that would have a Material
Adverse Effect;
(vi) any distribution, sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of any of its respective
business to any person, including, without limitation, the Sellers and
their affiliates, other than distributions, sales or transfers in the
ordinary course of business to persons other than the Sellers and their
affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of any Sellers or any affiliate
thereof, other than the negotiation and adjustment of bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by them outside the ordinary course of their
respective businesses; or
(xii) any cancellation or termination of a material Contract.
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3.34. Accuracy and Completeness of Information. To the knowledge of the
Company and the Sellers, all information furnished, to be furnished or caused to
be furnished to the Purchaser and Newco by the Company or any of the Sellers
with respect to the Sellers, the Company or any of its Subsidiaries for the
purposes of or in connection with this Agreement, or any transaction
contemplated by this Agreement is or, if furnished after the date of this
Agreement, shall be true and complete in all material respects and does not,
and, if furnished after the date of this Agreement, shall not, contain any
untrue statement of material fact or fail to state any material fact necessary
to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND NEWCO
The Purchaser and Newco hereby, jointly and severally, represent and
warrant to the Sellers and the Company as follows:
4.1. Organization. The Purchaser and Newco each are corporations duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon the Purchaser's or Newco's,
as the case may be, businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser and Newco (i) are within the Purchaser's and Newco's corporate
powers and duly authorized by all necessary corporate action on the part of the
Purchaser and Newco and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or a
default under, any Requirement of Law applicable to the Purchaser, Newco or any
of their properties or any Contract to which they or any of their properties are
bound, except filings and approvals in connection with the Initial Public
Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and Newco and constitutes the legal, valid and binding obligation
of the Purchaser and Newco, enforceable against the Purchaser and Newco in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Newco, threatened against or affecting, the
Purchaser, Newco or any of its properties or otherwise that could adversely
affect or restrict the ability of the Purchaser
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or Newco to consummate fully the transactions contemplated by this Agreement or
that in any manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection with the Initial Public Offering will have been prepared in all
material respects in compliance with the requirements of the Securities Act and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein; provided, however, that insofar as
the foregoing relates to information in the Registration Statement that relates
to the Company, the Sellers or any of the other Founding Companies, such
representation and warranty shall be deemed made based on the knowledge of the
Purchaser.
4.6. Brokers or Finders. The Purchaser has not engaged the services of any
broker or finder with respect to the transactions contemplated by this
Agreement, and no Person has or will have, as a result of the consummation of
the transaction contemplated by this Agreement, any right, interest or valid
claim against or upon the Sellers for any commission, fee or other compensation
as a finder or broker thereof on account of any action on the part of the
Purchaser. Without degradation to any of the foregoing, the Purchaser is solely
responsible for the payment of the commissions, fees and other compensation
payable to any Person having any such right, interest or claim on account of any
action on the part of the Purchaser.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Company, the Sellers, Newco and the Purchaser
shall perform each and every of their respective obligations under this
Agreement and shall perform the transactions contemplated by this Agreement in
good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Company, the Sellers, Newco and the Purchaser
shall use their respective commercially reasonable best efforts to obtain all
Regulatory Approvals and Consents from such other third parties including,
without limitation, Consents required under any Contract or any Requirement of
Law, that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Each of the Sellers shall use his
or its commercially reasonable best efforts to cause the Company and all of its
Subsidiaries to cooperate with the Purchaser to the fullest extent practicable
in seeking to obtain all such Regulatory Approvals and Consents, and shall
provide, and shall cause the Company and all Subsidiaries to provide, such
information and communications to all Governmental or Regulatory Authorities as
they or the Purchaser may request from time to time in connection therewith.
Nothing contained herein shall require either of the Company, Newco or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
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5.3. Cooperation; Access to Books and Records.
(a) The Company will, and each of the Sellers will and will cause the
Company and each of its Subsidiaries to, cooperate with Newco and the Purchaser
in connection with the transactions contemplated by this Agreement and any
Purchaser Financing Transaction, including, without limitation, cooperating in
the determination of which Regulatory Approvals and Consents are required or
advisable to be obtained prior to the Closing Date. Until the Closing Date, the
Company will, and each of the Sellers will and will cause the Company and each
of its Subsidiaries to, afford to the Purchaser, Newco, and their agents, legal
advisors, accountants, auditors, commercial and investment banking advisors and
other authorized representatives, agents and advisors reasonable access to all
of the properties and books and records of the Company or any of its
Subsidiaries (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Purchaser and Newco to make such investigation and examination of
the business and properties of the Company and any of its Subsidiaries as the
Purchaser or Newco, in their discretion, shall deem necessary, appropriate or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. The Company will, and each
of the Sellers will cause the Company and each of its Subsidiaries to, cause
each of their respective directors, officers, employees and representatives,
including, without limitation, their respective counsel and accountants, to
cooperate fully with the Purchaser and Newco, in connection with such
investigation, access and examination. The results of such investigation and
examination is for the Purchaser and Newco's sole benefit, and shall not (i)
impair or reduce any representation or warranty made by the Company or the
Sellers in this Agreement, (ii) relieve the Company or any Seller from its or
his or her obligations with respect to such representations and warranties
(including, without limitation, the Sellers' obligations under Article 10), or
(iii) mitigate the Company's and the Sellers' obligations to otherwise disclose
all material facts to the Purchaser and Newco with respect to the Company, each
of its Subsidiaries and their respective Businesses.
(b) The Purchaser will cooperate with the Company and Sellers in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser will afford to
the Company, Sellers and their agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser
(including those in the possession or control or their accountants, attorneys
and any other third party), as the case may be, for the purpose of permitting
the Company and Sellers to make such investigation and examination of the
business and properties of the Purchaser and any of its Subsidiaries as the
Company and Sellers, in their discretion, shall deem necessary, appropriate, or
desirable. Any such investigation, access and examination shall be conducted
upon reasonable prior notice under the circumstances. Purchaser will cause each
of its directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Company and
Sellers, in connection with such investigation, access and examination. The
results of such investigation and examination is for
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the Company's and Sellers' sole benefit, and shall not (i) impair or reduce any
representation or warranty made by the Purchaser in this Agreement, (ii) relieve
the Purchaser from its obligations with respect to such representations and
warranties (including, without limitation, the Purchaser's obligations under
Article 10), or (iii) mitigate the Purchaser's obligations to otherwise disclose
all material facts to the Company and the Sellers with respect to the Purchaser.
5.4. Duty to Supplement.
(a) Promptly upon the Company's or any Seller's discovery of the occurrence
of any development, event, circumstance or condition that, individually or in
the aggregate, may have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries,
the Sellers shall, and shall cause the Company or the applicable Subsidiary to,
as the case may be, notify the Purchaser and Newco of such development, event,
circumstance or condition. In the event that the Purchaser or Newco receives
such notice or otherwise discovers the fact of any such development, event,
circumstance or condition, the Purchaser or Newco shall be entitled, in its sole
discretion, to terminate this Agreement within ten (10) days after so
discovering without further obligation or liability upon the delivery of written
notice to the Sellers to that effect; provided, however, that before Purchaser
may exercise its termination right, it must afford the Company and Sellers the
opportunity to cure the matter giving rise to the termination right (but for no
longer than five days following the date Purchaser or Newco notifies the Company
or Seller of its intent to terminate) unless, in the judgement of the managing
underwriter of the Initial Public Offering, any such cure period might adversely
affect the Initial Public Offering.
(b) Promptly upon the Company's or any Seller's discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by the Company or the Sellers to the Purchaser and Newco in this Agreement to
become untrue or inaccurate at any time after the date of this Agreement, the
Sellers shall, and shall cause the Company and its Subsidiaries to, notify the
Purchaser of such fact, event, condition or circumstance.
5.5. Information Required For Purchase Financing Transactions. The Company
shall and shall cause its Subsidiaries to, and each of the Sellers shall and
shall cause the Company and its respective Subsidiaries to, furnish the
Purchaser and Newco with the following information:
(a) the Company's audited consolidated balance sheet as of July 31, 1996
and the related statements of operations, shareholders' equity and cash flows
for the year then ended, together with all proper exhibits, schedules and notes
thereto, audited by Arthur Andersen LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Company and its
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Subsidiaries for the year then ended and the results of operations and changes
in shareholders' equity and cash flows for the period covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser,
Newco or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating to any Purchaser Financing Transaction, all of which shall (i) be in
accordance with the books and records of the Company maintained in accordance
with good business practice and in the normal and ordinary course of business,
(ii) be prepared in accordance with GAAP applied on a consistent basis (except
for the absence of notes and subject to normal year-end audit adjustments),
(iii) present fairly the financial position of the Company and its Subsidiaries
as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Newco or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Company, each of the Sellers, Newco and
the Purchaser shall, and each of the Sellers shall cause the Company and each of
its Subsidiaries to, take all reasonable steps necessary or appropriate and use
all commercially reasonable efforts to effect as promptly as practicable the
fulfillment of the conditions required to be obtained that are necessary or
advisable for the Sellers, Newco and the Purchaser to consummate the
transactions contemplated by this Agreement including, without limitation, all
conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Company shall, and each of the
Sellers shall cause the Company and each of its Subsidiaries to, operate their
respective Businesses in the normal and ordinary course in a manner consistent
with past practice including, without limitation, to do the following:
(a) to carry on the Company's and each such Subsidiary's Business in
substantially the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(b) to maintain the Company's and each such Subsidiary's corporate
existence and all Permits, bonds, franchises and qualifications to do business;
(c) to comply with all Requirements of Law;
(d) to use its commercially reasonable best efforts to preserve intact the
Company's and each such Subsidiary's business relationships with its agents,
customers,
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employees, creditors and others with whom the Company or each such Subsidiary
has a business relationship;
(e) to preserve the Company's and each such Subsidiary's assets, properties
and rights (including, without limitation, those held under leases, the
Intellectual Property and Accounts) necessary or advisable to the profitable
conduct of their respective Businesses;
(f) to pay when due all Taxes lawfully levied or assessed against the
Company or any such Subsidiary, as the case may be, before any penalty or
interest accrues on any unpaid portion thereof and to file all Tax Returns when
due (including after applicable extensions); provided that no such payment shall
be required which is being contested in good faith and by proper proceedings and
for which appropriate reserves as may be required by GAAP have been established;
(g) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(h) to perform all material obligations under all Contracts to which the
Company or any such Subsidiary is a party or by which it or its properties are
bound or subject;
(i) to maintain present debt and lease instruments and not enter into new
or amended debt or lease instruments over Ten Thousand Dollars ($10,000),
without the knowledge and consent of the Purchaser, which consent shall not be
unreasonably withheld; and
(j) to collect accounts receivable in a manner consistent with past
practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Company shall not, and each of the Sellers
shall not cause the Company or any of its Subsidiaries to do, and shall not
permit the Company or any such Subsidiary to do, directly or indirectly, any of
the following without the express prior written consent of the Purchaser, which
consent shall not be unreasonably withheld.
(a) make or adopt any changes to or otherwise alter the Company's or any
such Subsidiary's certificate or articles of incorporation, by-laws or any other
governing or constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
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(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance;
(d) other than in the ordinary course of business, make any borrowings or
otherwise create, incur, assume or guaranty any indebtedness (except for the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the normal and ordinary course of the Business), issue any
commercial paper or refinance any existing borrowings or indebtedness; provided
that no borrowings may be made without Purchaser's consent which include
prepayment penalties or restrictions on prepayment;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or encumbrance on any of
the Company's or any of its Subsidiaries' assets or the incurrence by the
Company or any of its Subsidiaries of liabilities (other than in the performance
of services for customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of Ten Thousand Dollars
($10,000) and cause the aggregate commitment under all such new Contracts to
exceed One Hundred Thousand Dollars ($100,000), or (ii) involve a term of more
than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) form any subsidiary or issue, grant, sell, redeem, subdivide, combine,
change or purchase any of the Company's or any of its Subsidiary's shares, notes
or other securities, whether debt or equity, or make any Contract or commitments
to do so;
(i) except for arms-length transactions with and between (a) Imagining
Information Industries, Inc., (b) Codalex Microfilming Corporation and (c),
subject to the limitation in Article 8 hereof, Microfilm World, Inc., enter into
any transaction with any Affiliate of any Seller, the Company or any of its
Subsidiaries including, without limitation the purchase, sale or exchange of
property with, the rendering of any service to, or the making of any loans to,
any such Affiliate;
(j) (i) declare or pay any dividend, distribution or payment in respect of,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any of the Company's or any of its Subsidiaries' securities,
whether debt or equity, and whether in cash or property or in obligations of the
Company or any of its Subsidiaries, or (ii) pay any royalty or management fee;
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(k) grant or issue any subscription, warrant, option or other right to
acquire any of the Company's or any of its Subsidiaries' securities, whether
debt or equity, and whether by conversion or otherwise, or make any commitment
to do so;
(l) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(m) sell, lease, exchange, mortgage, pledge, hypothecate, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
hypothecate, transfer or otherwise dispose of, any of the Company's or any of
such Subsidiaries assets having an aggregate fair market value in excess of
$10,000 or more, except for the disposition of obsolete or worn-out assets in
the normal and ordinary course of business;
(n) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended October 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(o) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(p) cause or permit the Company or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay under the terms of such Employee
Benefit Plan, whether or not such failure to pay would result in an "accumulated
funding deficiency" or (iv) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Employee Benefit Plan. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA;
(q) enter into any transaction or conduct any operations not in the normal
and ordinary course of business;
(r) enter into any Contract or make any commitment to do any of the
foregoing; or
(s) waive any material rights or claims of the Company.
5.9. Exclusive Negotiation. Neither the Company nor any of the Sellers
shall: (i) provide any information about the Company or any of its Subsidiaries
or any of their
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respective Businesses to any Person (other than the Purchaser, Newco, a
Potential Founding Company or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the Shares
or any material interest in the Company, any of its Subsidiaries or their
respective Businesses; (ii) solicit or accept any other offers for the sale,
exchange or other disposition of the Shares or any material interest in the
Company, its Subsidiaries or their respective Businesses; (iii) negotiate or
discuss with any Person (other than the Purchaser or any of its representatives)
the possible sale, exchange or other disposition of the Shares or any material
interest in the Company, any of its Subsidiaries or their respective Businesses;
or (iv) sell, exchange or otherwise dispose of any of the Shares or any material
interest in the Company, any of its Subsidiaries or any of their respective
Businesses, in any of the foregoing cases, whether by equity sale, merger,
consolidation, equity exchange, sale of assets or otherwise. The Company shall,
and each of the Sellers shall and shall cause the Company and each of its
Subsidiaries to, advise the Purchaser or Newco promptly of their or its receipt
of any written offer or written proposal concerning the Shares, the Company, any
of its Subsidiaries, any part of their respective Businesses or any material
interest therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Company nor
the Sellers shall issue any public report, statement, press release or similar
item or make any other public disclosure with respect to the execution or
substance of this Agreement prior to the consultation with and approval of the
Purchaser. In addition, prior to Closing, before Purchaser issues a public
statement that refers to the Company or the Sellers (other than in the
Registration Statement) Purchaser will endeavor to consult with Sellers to the
extent time permits. Nothing contained herein shall restrict the ability of the
Company or Sellers from contacting a third party in order to obtain a Consent to
the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule or any other Schedules, provided that no
amendment or supplement to the Disclosure Schedule prepared by the Company that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect shall be effective unless the Purchaser consents to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 6 and 7 have been fulfilled, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 5.11. Except
as otherwise provided herein, no amendment of or supplement to a Schedule shall
be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement in connection with the Initial Public Offering (the
"Registration Statement").
5.12. Cooperation in Preparation of Registration Statement.
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(a) The Company and Sellers shall furnish or cause to be furnished to the
Purchaser, Newco and the underwriters of the Initial Public Offering (the
"Underwriters") all of the information concerning the Company or the Sellers
reasonably requested by the Purchaser, Newco and the Underwriters, and will
cooperate with the Purchaser, Newco and the Underwriters in the preparation of,
any registration statement (or similar document) relating to the Purchaser
Financing Transaction and the prospectus (or similar document) included therein
(including audited financial statements, prepared in accordance with generally
accepted accounting principles). The Company and the Sellers agree promptly to
advise the Purchaser if at any time during the period in which a prospectus
relating to the Purchaser Financing Transaction is required to be delivered
under the Securities Act, any information contained in the prospectus concerning
the Company or the Sellers becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such inaccuracy. The
Purchaser agrees to use its commercially reasonable best efforts to prepare and
file the Registration Statement as promptly as practicable, to furnish the
Company with a copy thereof and each amendment thereto in substantially the form
in which it is to be filed as promptly as reasonably practicable prior to such
filing (it being understood that neither the Sellers nor the Company has any
obligation to review the same other than with respect to information regarding
the Company or the Sellers) and to diligently seek to cause the Registration
Statement to be declared effective and the Initial Public Offering to be
completed. The Purchaser agrees that neither the Sellers nor the Company shall
have any responsibility for pro forma adjustments that may be made to the
Financial Statements.
(b) The Company and each of the Sellers acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents or representatives of such Underwriters shall
have any liability to the Sellers, the Company or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the Initial Public Offering to occur at a particular price or
within a particular range of prices or occur at all, and (iii) the decision of
the Sellers to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Sellers acknowledge that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Sellers with respect to any
disclosure contained in the Registration Statement and no Seller may assert any
claim against the Underwriters relating to the Registration Statement on account
thereof.
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5.13. Examination of Final Financial Statement. The Company shall provide
to Purchaser prior to the Closing Date unaudited consolidated balance sheets of
the Company for each month and fiscal quarter end between the date of this
Agreement and the Closing Date, and unaudited consolidated statements of income,
cash flows and retained earnings of the Company for such subsequent months and
fiscal quarters. In addition, the Company shall prepare and deliver to Purchaser
at Closing the Closing Balance Sheet. Such financial statements, which shall be
deemed to be Financial Statements (as defined herein), shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except for the absence of
notes and subject to normal year end adjustments). Such financial statements
shall present fairly the results of operations of the Subsidiaries for the
periods indicated thereon.
5.13A. Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.12(a) have been reviewed by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Company and each Seller hereby
irrevocably agree that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. Neither the Company nor the
Sellers, without the prior written consent of the Underwriters, shall exercise
any demand, mandatory, piggyback, optional or any other registration rights, if
any such rights exist, for a period of 180 days from the Effective Date. The
Company and each Seller agree that the foregoing shall be binding upon their
transferees, successors, assigns, heirs and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Purchaser and its transfer agent, are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act; (ii) such compliance by the Sellers and the Company shall be
deemed a condition precedent in addition to the conditions precedent set forth
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in Article 6 of this Agreement, and such compliance by Purchaser and Newco shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Article 6 of this Agreement; and (iii) the parties agree to cooperate
and use their best efforts to cause all filings required under the Hart-Scott
Act to be made. If filings under the Hart-Scott Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Purchaser or Newco.
The obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Hart-Scott Act, if applicable.
5.16. Reorganization Status. No party to this Agreement shall undertake any
actions not contemplated by this Agreement that would cause the merger to fail
to qualify as a reorganization as defined under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to the Purchaser and Newco's Obligations. The
Purchaser and Newco's obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Newco of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Sellers contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date, except for those representations and
warranties which by their terms relate to an earlier date, which representations
and warranties shall be true and correct in all material respects with regard to
such earlier date. The Company and each of the Sellers shall deliver to the
Purchaser and Newco a certificate dated the Closing Date, certifying that all of
the Company's and the Sellers' representations and warranties contained in this
Agreement are true and correct on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Company and each of the
Sellers shall have performed and complied in all material respects with each and
every covenant, agreement and condition required by this Agreement to be
performed or satisfied by the Company and each of the Sellers, as the case may
be, at or prior to the Closing Date. The Company and each of the Sellers shall
deliver to the Purchaser and Newco a certificate, dated the Closing Date,
certifying that the Company and the Sellers have fully performed and complied in
all material respects with all the duties, obligations and conditions required
by this Agreement to be performed and complied with by them at or prior to the
Closing Date.
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(c) Delivery of Documents. The Company and each of the Sellers shall have
delivered to the Purchaser and Newco all documents, certificates, instruments
and items (including, without limitation, certificates representing the Shares)
required to be delivered by him, her or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Satisfaction of Liabilities. The Company and each of its Subsidiaries
shall have satisfied and discharged all of their Debt except for: (i) Debt for
which an adjustment to the Base Purchase Price has been made under Section
2.2(b) and (ii) Debt which constitutes an Adjusted Current Liability.
(g) Closing Balance Sheet The Company shall have delivered to the Purchaser
a true and complete copy of the Closing Balance Sheet, together with a
certificate dated the Closing Date, signed by the Company's chief financial
officer that the Closing Balance Sheet is in accordance with the Books and
Records and with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments) and presents fairly the
financial position of the Company as of the Closing Date.
(h) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Shares, or the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Company or any of its Subsidiaries.
(i) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser or Newco to consummate the Merger;
(ii) imposing or seeking to impose limitations on the ability of the Purchaser
to combine and operate the business, operations and assets of the Company or any
of the Company's Subsidiaries with the Purchaser or Newco's business, operations
and assets; (iii) imposing or seeking to impose other sanctions, damages or
liabilities arising out of the transactions contemplated by this Agreement on
the Purchaser, Newco or any of the Purchaser or Newco's directors, officers or
employees; (iv) requiring or seeking to require divestiture by the Purchaser or
Newco of all or any material portion of the business, assets or
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property of the Company or any of its Subsidiaries; or (v) restraining,
enjoining or prohibiting or seeking to restrain, enjoin or prohibit the
consummation of transactions contemplated by this Agreement.
(j) Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate or certificates dated as of the Closing Date and signed
on its behalf by its Secretary to the effect that (i)(A) the copy of the
Company's articles or certificate of incorporation attached to the certificate
is true, correct and complete, (B) no amendment to such articles or certificate
of incorporation has occurred since the date of the last amendment annexed (such
date to be specified), (C) a true and correct copy of the Company's bylaws as in
effect on the date thereof and at all times since the adoption of the resolution
referred to in (D) is annexed to such certificate, (D) the resolutions by the
Company's board of directors authorizing the actions taken in connection with
the Merger, including as applicable, without limitation, the execution, delivery
and performance of this Agreement were duly adopted and continue in force and
effect (a copy of such resolutions to be annexed to such certificate); (ii)
setting forth the Company's incumbent officers and including specimen signatures
on such certificate or certificates as their genuine signatures; and (iii) the
Company is in good standing in all jurisdictions where the ownership or lease of
property or the conduct of its business requires it to qualify to do business,
except for those jurisdictions where the failure to be duly qualified,
authorized and in good standing would not have a Material Adverse Effect upon
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) on the Company. The certification referred
to above in (iii) shall attach certificates of good standing certified by the
Secretaries of State or other appropriate officials of such states, dated as of
a date not more than a five (5) days prior to the Closing Date.
(k) Opinion of Counsel of Sellers. Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A., counsel for the Company and the Sellers, shall have
delivered to the Purchaser and Newco their favorable opinion, dated the Closing
Date, as to the matters covered in Schedule 6.1(k). In rendering such opinion,
counsel may rely to the extent recited therein on certificates of public
officials and of officers of the Sellers as to matters of fact, and as to any
matter which involves other than federal or Tennessee law, such counsel may rely
upon the opinion of local counsel reasonably satisfactory to the Purchaser and
its counsel.
(l) Termination of Related Party Agreements. All existing agreements
between the Company and its Affiliates, any of the Sellers or their Affiliates,
other than those, if any, set forth on Schedule 6.1(l), shall have been
canceled.
(m) Employment Agreements. Each of the persons listed on Schedule 6.1(m)
shall have entered into an employment agreement (collectively, the "Employment
Agreements") with the Company substantially in the form of Exhibit C attached
hereto.
(n) Repayment of Indebtedness. Prior to the Closing Date, the Sellers shall
have repaid the Company (including the Subsidiaries) in full all amounts owing
by the Sellers or employees of the Company to the Company (including the
Subsidiaries).
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(o) FIRPTA Certificate. Each Seller shall have delivered to the Purchaser a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
(p) Insurance. The Purchaser and Newco shall be named as an additional
named insured on all of the Company's insurance policies as of the Closing Date.
(q) Escrow Agreement. Each Seller and the Company shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
6.2. Conditions Precedent to Company's and Sellers' Obligations. The
Company's and Sellers' obligations to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of, or waiver in writing by
the Sellers of, prior to or at the Closing, each and every of the following
conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Newco contained in this Agreement shall be true
and correct in all material respects on and as of the date of the Closing Date
with the same force as though such representations and warranties had been made
on and as of the Closing Date, except for those representations and warranties
that by their terms relate to an earlier date, which representations and
warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser and Newco shall each deliver to the Sellers a
certificate, executed by a duly authorized officer of the Purchaser and Newco,
respectively, dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Newco shall
each have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by them at or prior to the Closing Date. The Purchaser and Newco shall
each deliver to the Sellers a certificate, dated the Closing Date, certifying
that each of them has fully performed and complied in all material respects with
all the duties, obligations and conditions required by this Agreement to be
performed and complied with by it at or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Newco shall have delivered to
the Sellers all documents, certificates, instruments and items required to be
delivered by them at or prior to the Closing.
(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Sellers to consummate the Merger; (ii)
imposing or seeking to impose other sanctions, damages or liabilities arising
out of the transactions contemplated by this Agreement on the Company or any
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of its Subsidiaries or any of their respective directors, officers or employees
or on any of the Sellers; or (iii) restraining, enjoining or prohibiting or
seeking to restrain, enjoin or prohibit the consummation of transactions
contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Newco shall have executed the
Escrow Agreement substantially in the form of Exhibit A attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(m).
(g) Secretary's Certificate. The Purchaser and Newco shall each have
delivered to the Sellers a certificate or certificates dated as of the Closing
Date and signed on its behalf by its Secretary to the effect that (i)(A) the
copy of the Purchaser's or Newco's as the case may be, articles or certificate
of incorporation attached to the certificate is true, correct and complete, (B)
no amendment to such articles or certificate of incorporation has occurred since
the date of the last amendment annexed (such date to be specified), (C) a true
and correct copy of the such entity's bylaws as in effect on the date thereof
and at all times since the adoption of the resolution referred to in (D) is
annexed to such certificate, (D) the resolutions by the entity's board of
directors authorizing the actions taken in connection with the Merger, including
as applicable, without limitation, the execution, delivery and performance of
this Agreement were duly adopted and continue in force and effect (a copy of
such resolutions to be annexed to such certificate) and (ii) setting forth the
incumbent officers of the entity and including specimen signatures on such
certificate or certificates of such officers executing this Agreement on behalf
of such entity as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Company and Sellers their
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(i). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of Purchaser as to
matters of fact, and such opinion may be limited to federal laws and the laws of
the Commonwealth of Pennsylvania.
(j) Related Transactions. The purchase by Purchaser or its Affiliates of
all of the outstanding capital stock of CodaLex Microfilming Corporation.
pursuant to that certain Stock Purchase Agreement dated as of the date hereof
and the purchase by Purchaser of the assets and assumption of certain
liabilities of Image Information Industries, Inc. pursuant to that certain Asset
Purchase Agreement dated as of the date hereof.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law, the filing with the appropriate state authorities of
the Articles of Merger which shall become effective at the Effective Time of the
Merger) and (ii) effect the conversion and delivery of Shares referred to in
Section 2.9 hereof and payment of consideration for the Shares; provided, that
such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 2 hereof, each of which actions shall only be taken upon the Closing
Date as herein provided. In the event that there is no Closing Date and this
Agreement terminates, Purchaser hereby covenants and agrees to do all things
required by Pennsylvania law and all things which counsel for the Company advise
Purchaser are required by applicable laws of the State of Tennessee in order to
rescind the merger effected by the filing of the Articles of Merger as described
in this Section. The taking of the actions described in clauses (i) and (ii)
above shall take place on the Pricing Date at the offices of Pepper, Hamilton &
Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA
19103. On the Closing Date (x) the Articles of Merger shall be or shall have
been filed with the appropriate state authorities so that they shall be or, as
of 8:00 a.m. EASTERN STANDARD TIME on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the delivery of
a certified check or checks in an amount equal to the cash portion of the
consideration which the Sellers shall be entitled to receive pursuant to the
Merger referred to in Section 2 hereof and (z) the closing with respect to the
Initial Public Offering shall occur and be deemed to be completed. The date on
which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Closing Date." Except as otherwise provided in
Section 11 hereof, during the period from the Pricing Date to the Closing Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the Initial Public Offering is terminated pursuant to
the terms thereof.
ARTICLE 8
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
8.1. Confidentiality.
(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person including, but not limited to, any employees, agents
or representatives of Microfilm World Inc. ("Microfilm World"), or other
employees, agents or representatives of Microfilm World to the extent such party
is employed by Microfilm World, unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents,
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advisors and representatives who have a need to know such Confidential
Information for the performance of their duties as employees, agents or
representatives, (ii) to the extent strictly necessary to obtain any Consents
including, without limitation, any Regulatory Approvals, that may be required or
advisable to consummate the transactions contemplated by this Agreement, (iii)
to enforce such party's rights and remedies under this Agreement, (iv) with
respect to disclosures that are compelled by any Requirement of Law or pursuant
to any Legal Proceeding; provided, that the party compelled to disclose
Confidential Information pertaining to any other party shall notify such other
party thereof and use his or its commercially reasonable efforts to cooperate
with such other party to obtain a protective order or other similar
determination with respect to such Confidential Information; (v) made to any
party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall,
(i) from and after the date of this Agreement, supersede all of the obligations
contained in that certain letter agreement among the Purchaser, the Company and
the Sellers dated April 17, 1997, and (ii) survive the termination of this
Agreement, or the Closing, as applicable, for a period of two years after the
date of such termination or the Closing Date, respectively; provided, that, if
the Closing shall occur, then the Purchaser's obligation of confidentiality
shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser, including but not limited to the
Potential Founding Companies (collectively, the "Purchaser Targets"), in the
course of discussions with the Purchaser or a Potential Founding Company.
Accordingly, the parties hereto each agree not to directly or indirectly seek to
acquire or merge with, or pursue or respond to, with an intent to acquire or
merge with, any Purchaser Targets until the later of 300 days after the date of
this Agreement or 180 days after termination of this Agreement.
(e) The Purchaser will cause each of the Founding Companies other than the
Company to enter into a provision similar to this Section 8.1 requiring each
such Founding Company to keep confidential any information obtained by such
Founding Company.
8.2. Covenant Not To Compete. As a material inducement to the Purchaser and
Newco's consummation of the Merger, each of the Sellers shall not, during the
Restricted Period,
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do any of the following, directly or indirectly, without the prior written
consent of the Purchaser in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser, the Surviving
Corporation or the Company or any of their respective Affiliates or
Subsidiaries, or any of their respective successors or assigns, whether now
existing or hereafter created or acquired (collectively, the "Related
Companies"), or otherwise engage or participate, directly or indirectly, in any
business conducted by Purchaser or a Subsidiary (the "Restricted Business")
within any geographic area located within the United States of America, its
possessions or territories (the "Restricted Area"); provided, however, that the
parties hereby acknowledge that Jodi S. Gorman and Theodore J. Solomon may
continue to be involved in the operation and management of Microfilm World;
(b) become interested (whether as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise),
directly or indirectly, in any Person that engages in the Restricted Business
within the Restricted Area; provided, however, that the parties hereby
acknowledge that Theodore J. Solomon, Jodi S. Gorman and Gerald P. Gorman, who
currently are stockholders of Microfilm World, may continue to own such stock in
Microfilm World: and provided further, that nothing contained in this Section
8.2(b) shall prohibit any Seller from owing, as a passive investor, not more
than five percent (5%) of the outstanding securities of any class of any
publicly-traded securities of any publicly held Company listed on a
well-recognized national securities exchange or on an interdealer quotation
system of the National Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's, the Surviving Corporation's, the Company's or any of their
respective Related Companies' (A) customers or distributors or prospective
customers or distributors (wherever located) with respect to goods or services
that are competitive with those of the Purchaser, the Company, or any of their
respective Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Purchaser, the Surviving Corporation, the Company or any of their respective
Related Companies, (C) distributors, consultants, agents, or independent
contractors to terminate or modify any contract, arrangement or relationship
with the Purchaser, the Surviving Corporation, the Company or any of their
respective Related Companies or (D) employees (other than family members) to
leave the employ of the Purchaser, the Surviving Corporation, the Company or any
of their respective Related Companies.
8.3. Specific Enforcement; Extension of Period.
(a) Each of the Sellers acknowledges that any breach or threatened breach
by him or her of any provision of Sections 8.1 or 8.2 will cause continuing and
irreparable injury to the Purchaser, the Surviving Corporation, the Company and
their respective Related Companies for which monetary damages would not be an
adequate remedy. Accordingly, the
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Purchaser, the Surviving Corporation, the Company and any of their respective
Related Companies shall be entitled to injunctive relief from a court of
competent jurisdiction, including specific performance, with respect to any such
breach or threatened breach. In connection therewith, none of the Sellers shall,
in any action or proceeding to so enforce any provision of this Article 8,
assert the claim or defense that an adequate remedy at law exists or that
injunctive relief is not appropriate under the circumstances. The rights and
remedies of the Purchaser, the Surviving Corporation, the Company and any of
their respective Related Companies set forth in this Section 8.3 are in addition
to any other rights or remedies to which the Purchaser, the Company or any of
their respective Related Companies may be entitled, whether existing under this
Agreement, at law or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
applicable Seller's first breach of the provisions of Sections 8.1 or 8.2 or
service of process upon the such Seller through the expiration of all appeals
related to such litigation.
8.4. Disclosure. Each of the Sellers acknowledges that the Purchaser, the
Company or any of their respective Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Sellers may, directly or indirectly, breach or
threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the Purchaser, Newco
and the Sellers that the provisions of this Article 8 shall be enforceable to
the fullest extent permissible under applicable law and public policy.
Accordingly, if any provision of this Article 8 shall be determined to be
invalid, unenforceable or illegal for any reason, then the validity and
enforceability of all of the remaining provisions of this Article 8 shall not be
affected thereby. If any particular provision of this Article 8 shall be
adjudicated to be invalid or unenforceable, then such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such amendment to apply only to the operation of such provision
in the particular jurisdiction in which such adjudication is made; provided
that, if any provision contained in this Article 8 shall be adjudicated to be
invalid or unenforceable because such provision is held to be excessively broad
as to duration, geographic scope, activity or subject, then such provision shall
be deemed amended by limiting and reducing it so as to be valid and enforceable
to the maximum extent compatible with the applicable laws and public policy of
such jurisdiction, such amendment only to apply with respect to the operation of
such provision in the applicable jurisdiction in which the adjudication is made.
8.6. Sellers' Acknowledgment. Each of the Sellers acknowledges that he or
she has carefully read and considered the provisions of this Article 8. Each of
the Sellers acknowledges and understands that the restrictions contained in this
Article 8 may limit his ability to earn a livelihood in a business similar to
that of the Purchaser, Newco, the Company or
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any of their respective Related Companies, but he nevertheless believes that he
has received and will receive sufficient consideration and other benefits to
justify such restrictions. Each of the Sellers also acknowledges and understands
that these restrictions are reasonably necessary to protect the Purchaser's, the
Surviving Corporation's, the Company's and their respective Related Companies'
interests, and each Seller does not believe that such restrictions will prevent
him from earning a living in businesses that are not competitive with those of
the Purchaser, the Company or any of their respective Related Companies during
the term of such restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Sellers, the Company and the Purchaser contained in this
Agreement shall survive until the second anniversary of the Closing Date, except
that the representations and warranties set forth in each of Section 3.11,
Section 3.20, Section 3.23 and Section 3.28 shall survive until the expiration
of the statute of limitations applicable to the subject matter addressed
thereunder. The covenants and agreements of the Sellers, the Company and of the
Purchaser contained in this Agreement will survive the Closing until, by their
own respective terms, they have been fully performed. Any breach of a
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with this Article 9 will continue to survive if an Indemnity
Notice, an Unliquidated Indemnity Notice or a Claim Notice (as applicable) shall
have been given in good faith based on facts reasonably expected to establish a
valid claim under Article 10 on or prior to the date on which such
representation, warranty, covenant or agreement would have otherwise terminated,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in Article 10. Any representation or warranty contained in
this Agreement made by any party or any written information furnished by any
party that was made by such party fraudulently or with intent to defraud or
mislead or with gross negligence shall indefinitely survive the Closing. Any
representation or warranty made by the Sellers or the Company in this Agreement
or any written information furnished or caused to be furnished by any of the
Sellers or the Company to the Purchaser that is incorporated in, or is the basis
for omitting information from, the Registration Statement, prospectus or other
document, or any amendment or supplement thereof in connection with any
Purchaser Financing Transaction shall survive until the expiration of all
applicable statutes of limitations regarding claims brought by investors in such
Purchaser Financing Transaction alleging material misstatements or omissions in
such documents.
9.2. Intentionally Omitted.
9.3. Underwriter's Benefit. The Sellers' and the Company's representations
and warranties and covenants contained in this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the
Purchaser pursuant hereto or thereto or in
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connection with the transactions contemplated by this Agreement shall run to the
benefit of any Underwriter of the Purchaser's common stock subject to the
Initial Public Offering in addition to the benefit of the Purchaser.
Accordingly, any such Underwriter, and each person, if any, who controls any
such Underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, shall be (i) an intended beneficiary of this Agreement
and (ii) deemed to be an Indemnified Party for the purposes of the
indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Sellers' Indemnification. From and after the Closing Date, each of
the Sellers shall, jointly and severally, indemnify and hold harmless the
Purchaser, Newco, the Surviving Corporation and the Company and any of their
respective Subsidiaries, and each Person who controls (within the meaning of the
Securities Act) the Purchaser, Newco, the Surviving Corporation or, after the
Closing Date, the Company or any of its Subsidiaries, and each of their
respective directors, officers, employees, agents, successors and assigns and
legal and accounting representatives, from and against all Indemnifiable Losses
that may be imposed upon, incurred by or asserted against any of them resulting
from, related to, or arising out of (i) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by the Company or
any of the Sellers under this Agreement or any document, instrument, certificate
or other item required to be furnished to the Purchaser or Newco pursuant hereto
or thereto or in connection with the transactions contemplated by this
Agreement; (ii) any untrue statement of any material fact contained in any
registration statement, prospectus, document or other item, or any amendment or
supplement thereof, prepared, filed, distributed or executed in connection with
any Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, that is based upon any misrepresentation or breach of
any warranty made by the Company or any of the Sellers pursuant to this
Agreement or upon any untrue statement or omission contained in any written
information furnished or caused to be furnished by any of the Sellers to the
Purchaser or Newco (provided that the Sellers hereby acknowledge that the
information concerning the Sellers and the Company in the Registration Statement
shall be deemed to be provided to the Purchaser and Newco for the purposes
hereof); (iii) any liability or obligation of any of the Sellers, the Company or
any of its Subsidiaries other than Debt for which an adjustment to the Base
Purchase Price has been made under Section 2.2(b) and Debt which does not
constitute an Adjusted Current Liability; (iv) any liability for payment of
Taxes that accrued or relates to a period of time ending on or prior to the
Closing Date (without regard to any information provided on the Disclosure
Schedule or otherwise disclosed to or known by any Indemnified Party); (v) any
non-compliance with applicable Requirements of Law relating to bulk sales, bulk
transfers and the like or to fraudulent conveyances, fraudulent transfers,
preferential transfers and the like; (vi) any action, claim or demand by any
holder of the Company's securities, whether debt or equity, in such holder's
capacity as such, whether now existing or hereafter arising or incurred; (vii)
any
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non-compliance with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101,
et. seq., as amended, and the rules and regulations promulgated thereunder and
any similar Requirement of Law; and (viii) any Legal Proceeding or Order arising
out of any of the foregoing even though such Legal Proceeding or Order may not
be filed, become final, or come to light until after the Closing Date.
10.1A. No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Surviving Company or any successor to achieve
after the Closing Date any projected financial information, including, without
limitation, sales of software and costs of software development, in and of
itself shall not result in an Indemnifiable Loss to Purchaser, Newco, or the
Surviving Company.
10.2. Purchaser's Indemnification. From and after the Closing Date, the
Purchaser, Newco and the Surviving Corporation shall indemnify and hold harmless
the Sellers and each of their respective legal and accounting representatives,
successors and assigns from and against all Indemnifiable Losses imposed upon,
incurred by or asserted against, the Sellers resulting from, related to, or
arising out of: (i) any misrepresentation, breach of any warranty or
non-fulfillment of any covenant to be performed by the Purchaser or Newco under
this Agreement or any document, instrument, certificate or other item furnished
or to be furnished to the Sellers pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any Debt for which an
adjustment to the Base Purchase Price has been made under Section 2.2(b) and any
Adjusted Current Liabilities; (iii) any untrue statement of any material fact
contained in any registration statement, prospectus, document or other item, or
any amendment or supplement thereof, prepared, filed, distributed or executed in
connection with any Purchaser Financing Transaction, or any omission to state in
any such registration statement, prospectus, document, item, amendment or
supplement a material fact required to be stated therein or necessary to make
the statements therein not misleading, that is based upon any misrepresentation
or breach of any warranty made by the Purchaser or Newco pursuant to this
Agreement or upon any untrue statement or omission contained in any information
furnished or caused to be furnished by the Purchaser or Newco; and (iv) any
Legal Proceeding or Order arising out of any of the foregoing even though such
Legal Proceeding or Order may not be filed, become final, or come to light until
after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of
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liability under this Article 10; provided, however that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Indemnity Notice. Within thirty (30) days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
Indemnifiable Loss or (ii) object to such claim, in which case the Indemnifying
Party shall give written notice to the Indemnified Party of such objection
together with the reasons therefor, it being understood that the failure of the
Indemnifying Party to so object shall preclude the Indemnifying Party from
asserting any claim, defense or counterclaim relating to the Indemnifying
Party's failure to pay any Indemnifiable Loss. The Indemnifying Party's
objection shall not, in and of itself, relieve the Indemnifying Party from its
obligations under this Article 10. In the event that the parties are unable to
resolve the subject of the Indemnity Notice, the issue shall be submitted for
determination to a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall promptly, and in any event, within fourteen (14) days after obtaining
sufficient information to articulate such grounds, give written notice to the
applicable Indemnifying Party thereof, together with such information as is
reasonably sufficient to describe the potential or contingent claim to the
extent then feasible (an "Unliquidated Indemnity Notice"). The failure of an
Indemnified Party to give the Indemnifying Party the Unliquidated Indemnity
Notice shall not release the Indemnifying Party of liability under this Article
10; provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Unliquidated Indemnity Notice. Promptly, but in any event within sixty (60) days
after the amount of such claim shall be finalized, resolved, or liquidated, the
Indemnified Party shall give the Indemnifying Party an Indemnity Notice, and the
Indemnifying Party's obligations under this Article 10 with respect to such
Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action or threatened claim or demand by
any third party against the Indemnified Party, the Indemnified Party, within the
earlier of, as applicable, ten (10) days after receiving notice of the filing of
a lawsuit or fourteen (14) days after receiving notice of the existence of a
claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Governmental Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.23, the Indemnifying Party shall be
entitled
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to defend such claim in the name of the Indemnified Party at its own expense and
through counsel of its own choosing, but which is reasonably satisfactory to the
Indemnified Party; provided, that if the applicable claim or demand is against,
or if the defendants in any such Legal Proceeding shall include, both the
Indemnified Party and the Indemnifying Party and the Indemnified Party
reasonably concludes that there are defenses available to it that are different
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party may be reasonably deemed to conflict with those of the
Indemnifying Party, then the Indemnified Party shall have the right to select
separate counsel and to assume the Indemnified Party's defense of such claim,
demand or Legal Proceeding, with the reasonable fees, expenses and disbursements
of such counsel to be reimbursed by the Indemnifying Party as incurred. The
Indemnifying Party shall give the Indemnified Party notice in writing within ten
(10) days after receiving the Claim Notice from the Indemnified Party in the
event of litigation, or otherwise within thirty (30) days, of its intent to do
so. In the case of any claim resulting from, relating to or arising out of any
Purchaser Financing Transaction or the provisions of Section 3.23, the Purchaser
shall have right to control the defense thereof at the Indemnifying Party's
expense. Whenever the Indemnifying Party is entitled to defend any claim
hereunder, the Indemnified Party may elect, by notice in writing to the
Indemnifying Party, to continue to participate through its own counsel, at its
expense, but the Indemnifying Party shall have the right to control the defense
of the claim or the litigation; provided, that the Indemnifying Party retains
counsel reasonably satisfactory to the Indemnified Party and pursuant to an
arrangement satisfactory to the Indemnified Party; otherwise, the Indemnified
Party shall have the right to control the defense of the claim or the
litigation. Notwithstanding any other provision contained in this Agreement, the
party controlling the defense of the claim or the litigation shall not settle
any such claim or litigation without the written consent of the other party;
provided, that if the Indemnified Party is controlling the defense of the claim
or the litigation and shall have, in good faith, negotiated a settlement
thereof, which proposed settlement contains terms that are reasonable under the
circumstances, then the Indemnifying Party shall not withhold or delay the
giving of such consent (and in the event the Indemnifying Party and Indemnified
Party are unable to agree as to whether the proposed settlement terms are
reasonable, the Indemnifying Party and Indemnified Party will request that the
disagreement be resolved by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association). In the event
that the Indemnifying Party is controlling the defense of the claim or the
litigation and shall have negotiated a settlement thereof, which proposed
settlement is substantively final and unconditional as to the parties thereto
(other than the consent of the Indemnified Party required under this Section
10.3(c)) and contains an unconditional release of the Indemnified Party and does
not include the taking of any actions by, or the imposition of any restrictions
on the part of, the Indemnified Party and the Indemnified Party shall refuse to
consent to such settlement, the liability of the Indemnifying Party under this
Article 10, upon the ultimate disposition of such litigation or claim, shall be
limited to the amount of the proposed settlement; provided, however, that in the
event the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying Party's
liability as provided for in this Section 10.3(c), and the Indemnifying
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Party shall continue to be liable to the full extent of such litigation or claim
and provided further, that notwithstanding any provision to the contrary, no
Indemnifiable Losses with respect to Taxes shall be settled without the prior
written consent of the Purchaser, which shall not be unreasonably withheld.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser, Newco, the Surviving Corporation, the Company, or
any controlling Person of the Purchaser or the Company (within the meaning of
the Securities Act) makes a claim for indemnification pursuant to Section
10.1(ii) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 10.1(ii) provides
for indemnification in such case, then, the Purchaser, Newco, the Surviving
Corporation, the Company, each controlling Person and each of the Sellers will
contribute to the aggregate Indemnifiable Losses to which the Purchaser, the
Surviving Corporation, the Company or any such controlling Person may be subject
(after contribution from others) as is appropriate to reflect the relative fault
of the Purchaser, Newco, the Surviving Corporation, the Company, such
controlling Person and such Seller in connection with the statements or
omissions which resulted in such Indemnifiable Losses, as well as the relative
benefit received by the Purchaser, Newco, the Surviving Corporation, the
Company, such controlling Person and such Seller as a result of the issuance of
the securities to which such Indemnifiable Losses relate, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such
Indemnifiable Losses, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, the Company, Newco, the
Surviving Corporation, and the other Persons or entities indemnified pursuant to
Section 10.1 shall not assert any claim for indemnification hereunder against
the Sellers until such time as, the aggregate of all claims which such persons
may have against the Sellers shall exceed $15,000 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. Sellers shall
not assert any claim for indemnification hereunder against Purchaser, Newco, the
Surviving Corporation or the Company until such time as the aggregate of all
claims which Sellers may have against Purchaser or the Company shall exceed
$15,000, whereupon such claims shall be indemnified in full. The limitation of
assertion of claims for indemnification contained in this
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paragraph shall apply only to claims based upon inaccuracies in, or breaches of,
representations and warranties contained in this Agreement or any document,
instrument, certificate or other item required to be furnished pursuant to this
Agreement or in connection with the transaction contemplated by this Agreement..
No person shall be entitled to indemnification under this Article 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Seller shall be liable
under this Article 10 or otherwise for an amount which exceeds the amount of
proceeds received by such Seller in connection with the transactions
contemplated herein. For purposes of the foregoing limitation, the DocuNet
Common Stock shall be valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
10.7. Value of DocuNet Common Stock. Any shares of DocuNet Common Stock
used to satisfy an Indemnity Claim shall be valued at the lower of the Initial
Public Offering Price and the Value as of the date such shares are so used.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Company, the Sellers, Newco and the Purchaser;
(b) at any time before the Closing, by the Purchaser pursuant to Section
5.4(a), or if any of the Company's or any of the Sellers' representations or
warranties contained in this Agreement were materially incorrect when made or
become materially incorrect;
(c) at any time before the Closing, by the Sellers holding a majority of
the Shares if any of the Purchaser's or Newco's representations or warranties
contained in this Agreement were materially incorrect when made or become
materially incorrect;
(d) at any time before the Closing, by the Sellers holding a majority of
the Shares, on the one hand, or by the Purchaser, on the other hand, upon any
material breach by such other party's covenants or agreements contained in this
Agreement and the failure of such
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other party to cure such breach, if curable, within ten (10) days after written
notice thereof is given by the non-breaching party to the breaching party; or
(e) at any time after the date which is 270 days after the date of this
Agreement, by the Sellers holding a majority of the Shares, on the one hand, or
by the Purchaser on the other hand, upon notification to the non-terminating
party by the terminating party if the Closing shall not have occurred on or
before such date and such failure to consummate is not caused by a breach of
this Agreement by the terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void, and, subject to such Section 11.2(b), there shall be no liability
under this Agreement on the part of the Company, any of the Sellers, Newco or
the Purchaser and all rights and obligations of each party to this Agreement
shall cease; provided, that (i) the provisions with respect to expenses in
Section 16.4 shall indefinitely survive any such termination, (ii) the
provisions with respect to confidentiality of Section 8.1 shall survive any such
termination until it, by its own terms, is no longer operative; (iii) the
provisions with respect to exclusivity of negotiations of Section 5.10 shall
survive for 180 days after such termination, but only if the termination is made
by Purchaser pursuant to Section 11.1(b) or Section 11.1(d); and (iv) this
Section 11.2 shall indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Maintenance and Access to Records. For a period of three (3) years
after the Closing Date, the Purchaser shall, or shall cause the Surviving
Corporation and each of its Subsidiaries to, maintain all books and records
maintained by the Surviving Corporation or any such Subsidiary on or prior to
the Closing Date and shall permit the Sellers or their respective
representatives and agents access to all such books and records, and to the
Surviving Corporation's and its Subsidiaries' employees and auditors for the
purpose of obtaining information relating to periods on or prior to the Closing
Date, upon reasonable notice by the Sellers and on terms not disruptive to the
business, operation or employees of the Purchaser, the
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Surviving Corporation, the Company or any of their respective Subsidiaries, to
assist the Sellers in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by the Sellers after the Closing
Date or in completing any other reasonable and customary business objective,
(ii) prosecuting or defending on behalf of the Sellers, the Company or any of
its Subsidiaries any litigation controlled by the Sellers or (iii) complying
with requests made of any of the Sellers by any Taxing Authority or any
Governmental or Regulatory Authority conducting an audit, investigation or
inquiry relating to the Company's or any of its Subsidiaries' activities during
periods prior to the Closing Date. Each of the Sellers will hold all information
provided to them pursuant to this Section 12.1 (and any information derived
therefrom) in confidence to the same extent as required by Section 8.1 of this
Agreement with respect to Confidential Information.
12.2. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser utilized in connection with
the Initial Public Offering, the Company or the Sellers become aware of any fact
or circumstance which would change (or, if after the Closing Date, would have
changed) a representation or warranty of Company or Sellers in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Sellers shall promptly give notice of such fact or circumstance
to Purchaser.
12.3. Accounts Receivable. In the event that the Company or the Sellers
makes a payment after the Closing Date to Purchaser in full satisfaction of an
uncollected Receivable, Purchaser will assign its rights to such Receivable to
the Company or the Sellers, as applicable.
12.4. Guarantees. Purchaser shall use its commercially reasonable efforts
to release Sellers from any personal guarantees in connection with the Debt.
ARTICLE 13
TRANSFER RESTRICTIONS
13.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 13.1
(or trusts for the benefit of the Sellers or family members, the trustees of
which so agree), for a period of one year from the Closing, except pursuant to
Section 15 hereof, none of the Sellers shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of (a) any
shares of DocuNet Common Stock received by the Sellers pursuant to this
Agreement, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of DocuNet Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of DocuNet
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of DocuNet Common Stock acquired pursuant to this
Agreement (including, by way of example and not limitation, engaging in put,
call, short-sale, straddle or similar market transactions). The certificates
evidencing the DocuNet Common Stock delivered to the Sellers pursuant to Section
2 of this Agreement will bear a legend substantially in the form set forth
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below and containing such other information as the Purchaser may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST
ANNIVERSARY OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 14
SECURITIES LAWS REPRESENTATIONS
The Sellers acknowledge that the shares of DocuNet Common Stock to be
delivered to the Sellers pursuant to this Agreement have not been and will not
be registered under the Securities Act or any other state securities laws, and
therefore may not be resold without compliance with the Securities Act. The
DocuNet Common Stock to be acquired by such Sellers pursuant to this Agreement
is being acquired solely for their own respective accounts, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
14.1. Compliance with Law. The Sellers covenant, warrant and represent that
none of the shares of DocuNet Common Stock issued to such Sellers will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE
SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION
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STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR
BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
14.2. Economic Risk; Sophistication. The Sellers party hereto are able to
bear the economic risk of an investment in the DocuNet Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Sellers party hereto or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Sellers
acknowledge receipt and review of the draft Registration Statement attached
hereto as Schedule 14.2 for informational purposes and subject to the
limitations of Section 5.12(b). The Sellers acknowledge that such draft is
subject to completion and subject to change, and Sellers acknowledge that their
purchaser representatives have had an adequate opportunity to ask questions and
receive answers from the officers of the Purchaser pertaining thereto.
ARTICLE 15
REGISTRATION RIGHTS
15.1. Piggyback Registration Rights. At any time following the Closing,
whenever the Purchaser proposes to register any DocuNet Common Stock for its own
or others' account under the Securities Act for a public offering, other than
(i) any shelf registration of DocuNet Common Stock; (ii) registrations of shares
to be used solely as consideration for acquisitions of additional businesses by
the Purchaser and (iii) registrations relating to employee benefit plans, the
Purchaser shall give each of the Sellers prompt written notice of its intent to
do so. Upon the written request of any of the Sellers given within 30 days after
receipt of such notice, Purchaser shall cause to be included in such
registration all of the DocuNet Common Stock which any such Seller requests.
However, if the Purchaser is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 15.1 that the number of shares
to be sold by persons other than the Purchaser is greater than the number of
such shares which can be offered without adversely affecting the offering, the
Purchaser may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such persons) to a number
deemed satisfactory by such managing underwriter or such managing underwriter
can eliminate the participation of all such persons in the offering, provided
that, for
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each such offering made by the Purchaser after the Initial Public Offering, a
reduction shall be made first by reducing the number of shares to be sold by
persons other than the Purchaser, the Sellers, the Founding Companies and the
stockholders of the Founding Companies and other stockholders (the "Other
Stockholders") of the Company immediately prior to the Initial Public Offering,
and thereafter, if a further reduction is required, by reducing the number of
shares to be sold by the Sellers, the Founding Companies and the stockholders of
the Founding Companies, and the Other Stockholders, pro rata based upon the
number of shares held by such persons.
15.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 15 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Sellers) shall be borne by the Purchaser. In connection with registrations under
Section 15.1, the Purchaser shall (i) prepare and file with the Securities and
Exchange Commission as soon as reasonably practicable, a registration statement
with respect to the DocuNet Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of at least 90
days (or such shorter period during which holders shall have sold all DocuNet
Common Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the DocuNet Common Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the DocuNet Common Stock; and (iii) take such
other actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
15.3. Underwriting Agreement. In connection with each registration pursuant
to Section 15.1 covering an underwritten registration public offering, the
Purchaser and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of the Purchaser's size and investment
stature, including indemnification and the prohibition of sales or transfers of
such holders' common stock for an applicable lock-up period.
15.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by any Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to such Seller.
15.5. Survival. The provisions of this Article 15 shall survive the Closing
until December 31, 1999.
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ARTICLE 16
MISCELLANEOUS
16.1. Notices. All notices required to be given to any of the parties of
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 16.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or any national overnight
delivery service, with proper charges prepaid, to such party at its address set
forth below:
(a) If to the Company (prior to the Closing Date):
Laser Graphics Systems & Services, Inc.
2375 Shady Lane N.E.
Cleveland, TN 37312
Attn: Gerald P. Gorman
with a copy to:
John Kersh, Jr.
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
(b) If to any of the Sellers, to their attention:
c/o Laser Graphics Systems & Services, Inc.
2375 Shady Lane N.E.
Cleveland, TN 37312
with a copy to:
John Kersh, Jr.
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
(c) If to the Purchaser:
DocuNet Inc.
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715 Matson's Ford Road
Villanova, PA 19085
Attn: Bruce Gillis
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
16.2. No Third Party Beneficiaries. Except as is otherwise provided herein,
this Agreement is not intended to, and does not, create any rights in or confer
any benefits upon anyone other than the parties hereto.
16.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
16.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel.
16.5. Further Assurances. The Sellers, the Surviving Corporation and the
Purchaser shall, at his, her or its own expense, from time to time upon the
request of the other, execute and deliver, or cause to be executed and
delivered, at such times as may reasonably be requested by the Purchaser, the
Surviving Corporation or the Sellers, such other documents, certificates and
instruments and take such actions as the Purchaser, the Surviving Corporation or
the Sellers deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement. In addition, the Sellers shall (i) provide or
cause to be provided such written information with respect to themselves or the
Company, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, the
Surviving
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Corporation, any Underwriter or any auditor reasonably deems necessary or
desirable to complete any audit of the Company's financial statements or in
connection with any Purchaser Financing Transaction; provided, that none of the
Sellers shall be required to execute any guaranty of any indebtedness or
instrument of indebtedness obtained by the Purchaser or any of its Subsidiaries.
16.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
16.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
16.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Company, any of the Sellers nor the Purchaser shall have the right to assign
this Agreement without the prior written consent of the others, except that
Purchaser or Newco may assign its rights and obligations under this Agreement
prior to the Closing to any wholly-owned Subsidiary of the Purchaser or Newco;
provided that the DocuNet Common Stock to be issued in payment of a portion of
the purchase price shall be registered under Section 12 of the Securities
Exchange Act of 1934 at the time it is issued.
16.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
16.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the Sellers, the Purchaser and the Company have
caused this Agreement to be duly executed as of the date first written above.
DOCUNET INC.
By: /s/ Bruce M. Gillis
_______________________________
Bruce M. Gillis
Chairman of the Board of Directors
and Chief Executive Officer
LASER GRAPHICS SYSTEMS
& SERVICES, INC.
By: /s/ Gerald P. Gorman
_______________________________
Gerald P. Gorman
President
Witness: /s/ Jodi S. Gorman
_______________________ _______________________________
Jodi S. Gorman, Individually
Witness: /s/ Theodore J. Solomon
_______________________ _______________________________
Theodore J. Solomon, Individually
Witness: /s/ Theodore J. Solomon, Jr.
_______________________ _______________________________
Theodore J. Solomon, Jr., Individually
Witness: /s/ Charles P. Yezbak, III
_______________________ _______________________________
Charles P. Yezbak, III, Individually
Witness: /s/ David C. Yezbak
_______________________ _______________________________
David C. Yezbak, Individually
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among Gerald P. Gorman, Theodore J. Solomon, Theodore J. Solomon,
Jr., Charles Yezbak, III and David C. Yezbak (collectively "Sellers," and each,
a "Seller"), DocuNet Inc., a Pennsylvania corporation ("Purchaser") and ______
(the "Escrow Agent"). The Purchaser, the Sellers and the Escrow Agent are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Sellers hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow
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Agent hereby accepts such appointment on the terms herein provided. The Escrow
Agent hereby acknowledges receipt from the other Parties of an executed copy of
the Purchase Agreement.
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $_______,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Sellers shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of each Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of each Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to a Seller are delivered by the Escrow
Agent to the Purchaser, such Seller shall promptly deliver to the Escrow Agent
stock powers endorsed in blank with respect to the remaining Common Stock on
deposit in the Escrow Account (together with stock powers with respect thereto
endorsed in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
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(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Sellers shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Sellers to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Sellers under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Sellers
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Sellers
and the Purchaser agree to cause the Escrow Account to be disbursed so as to
give effect to the final determination of the Purchase Price pursuant to Article
2 of the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the
Sellers and Purchaser shall give a joint written notice to the Escrow Agent
directing that a combination of cash and Common Stock (valued at the Share
Value) equal to the Indemnity Amount be so disbursed from the Escrow Account and
on receipt of such joint instructions, the Escrow Agent shall so disburse such
Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Sellers.
All income earned on the Cash Investment will be owned by the Sellers and shall
be distributed at least once every 365 days. The Escrow Agent will not be liable
or responsible for any loss resulting from any investment or reinvestment made
as provided in this Agreement at the written direction of the Sellers.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
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degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Sellers and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Sellers or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Sellers or
between the Sellers, the Purchaser and any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
any sums from the Escrow Account, the Escrow Agent shall have the right to
institute a bill of interpleader in any court of competent jurisdiction to
determine the rights of the Parties.
The Purchaser and the Sellers agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Sellers and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
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11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
12. Designations. The Sellers and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the
Sellers cannot agree on a substitute escrow agent, they will use their best
efforts to derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to any of the Sellers, to their attention:
c/o Laser Graphics Systems & Services, Inc.
2375 Shady Lane N.E.
Cleveland, TN 37312
With a copy to:
Gray, Layton, Kersh, Solomon, Sigmon,
Furr & Smith, P.A.
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516 South New Hope Road
P.O. Box 2636
Gastonia, North Carolina 28053-2636
Attention: John Kersh, Jr., Esquire
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Sellers, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) one hundred
eighty (180) days following the Closing whereupon all amounts and shares of
Common Stock then on deposit in the Escrow Account shall be paid and delivered
to the Sellers; provided, however, that in the event there is an asserted but
unresolved claim ("Claim") pursuant to Article 2 or Article 10 of the Purchase
Agreement on such 180th day, then any combination of cash and Common Stock
(valued at the Share Value) equal, in combination, to the amount of any and all
such Claims shall remain in the Escrow Account. Such cash and/or Common Stock so
remaining in the Escrow Account shall remain subject to this Agreement until the
final resolution of the applicable Claim(s) that required the retention of such
cash and/or Common Stock; provided, however, that in all events all Common Stock
held in the Escrow Account shall be distributed to the Sellers within five (5)
years from the Closing and, to the extent such Common Stock is distributed,
Sellers shall replenish the Escrow Account with cash in a like amount, valued at
the Share Value.
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
Gerald P. Gorman
-----------------------------------
Theodore J. Solomon
-----------------------------------
Theodore J. Solomon, Jr.
-----------------------------------
Charles P. Yezbak, III
-----------------------------------
David C. Yezbak
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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EXECUTION
DOCUNET INC.
DataLink Acquisition Corp.
ASSET PURCHASE AGREEMENT
FOR CERTAIN ASSETS OF
DATALINK CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
PRELIMINARY STATEMENTS............................................................................................1
ARTICLE 1- CERTAIN DEFINITIONS....................................................................................1
ARTICLE 2 - SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES......................................................................11
2.1. Agreement to Sell and Purchase Assets.............................................................11
2.2. Intentionally Omitted.............................................................................11
2.3. Consideration and Payment.........................................................................11
2.4. Payment of Purchase Price.........................................................................16
2.5. Allocation of Purchase Price......................................................................16
2.6. Assumption of Liabilities.........................................................................17
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER................................................................................17
3.1. Organization; Qualification; Good Standing........................................................17
3.2. Authorization for Agreement.......................................................................18
3.3. Ownership; Subsidiaries and Affiliates............................................................18
3.4. Enforceability....................................................................................19
3.5. Legal Proceedings and Orders......................................................................19
3.6. Title to the Purchased Assets and Related Matters.................................................19
3.7. Compliance with Laws..............................................................................19
3.8. Labor Matters.....................................................................................20
3.9. Employee Benefit Plans............................................................................21
3.10. Financial Statements..............................................................................22
3.11. Absence of Undisclosed Liabilities................................................................24
3.12. Real Property.....................................................................................24
3.13. Tangible Personal Property........................................................................25
3.14. Contracts.........................................................................................26
3.15. Insurance.........................................................................................28
3.16. Proprietary Rights................................................................................28
3.17. Environmental Matters.............................................................................29
3.18. Permits...........................................................................................30
3.19. Regulatory Filings................................................................................30
3.20. Taxes and Tax Returns.............................................................................30
3.21. Affiliate Transactions............................................................................31
3.22. Accounts..........................................................................................32
3.23. Receivables.......................................................................................32
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3.24. Solvency..........................................................................................32
3.25. Officers and Directors............................................................................33
3.26. Brokers or Finders................................................................................34
3.27. No Other Agreements to Sell Assets................................................................34
3.28. Customers.........................................................................................34
3.29. Investment Company................................................................................34
3.30. Absence of Changes................................................................................34
3.31. Accuracy and Completeness of Information..........................................................35
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF
PURCHASER AND PARENT...........................................................................36
4.1. Organization......................................................................................36
4.2. Authorization for Agreement.......................................................................36
4.3. Enforceability....................................................................................36
4.4. Litigation........................................................................................36
4.5. Registration Statement............................................................................37
4.6. Brokers or Finders................................................................................37
ARTICLE 5 - COVENANTS............................................................................................37
5.1. Good Faith........................................................................................37
5.2. Approvals.........................................................................................37
5.3. Cooperation; Access to Books and Records..........................................................38
5.4. Duty to Supplement................................................................................39
5.5. Information Required for Purchaser Financing Transactions.........................................39
5.6. Performance of Conditions.........................................................................40
5.7. Conduct of Business...............................................................................40
5.8. Negative Covenants................................................................................41
5.9. Exclusive Negotiation.............................................................................43
5.10. Public Announcements..............................................................................43
5.11. Amendment of Schedules............................................................................43
5.12. Cooperation in Preparation of Registration Statement..............................................44
5.13. Examination of Final Financial Statement..........................................................45
5.13A Audit Opinion.....................................................................................45
5.14. Lock-Up Agreements................................................................................45
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott Act").............................................................46
5.16. Lease.............................................................................................46
</TABLE>
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ARTICLE 6 - CONDITIONS PRECEDENT TO CLOSING......................................................................46
6.1. Conditions Precedent to Purchaser's and Parent's Obligations......................................46
6.2. Conditions Precedent to Seller's Obligations......................................................49
ARTICLE 7 - CLOSING..............................................................................................51
ARTICLE 8 - COVENANT NOT TO COMPETE..............................................................................52
8.1. Confidentiality...................................................................................52
8.2. Covenant Not To Compete...........................................................................53
8.3. Specific Enforcement; Extension of Period.........................................................54
8.4. Disclosure........................................................................................54
8.5. Interpretation....................................................................................54
8.6. Acknowledgment....................................................................................55
ARTICLE 9 - SURVIVAL.............................................................................................55
9.1. Survival of Representations, Warranties, Covenants and Agreements.................................55
9.2. [Intentionally omitted.]..........................................................................56
9.3. Underwriter's Benefit.............................................................................56
ARTICLE 10 - INDEMNIFICATION.....................................................................................56
10.1. Seller and Shareholder's Indemnification..........................................................56
10.1A No Indemnification of Projected Information.......................................................57
10.2. Purchaser's and Parent's Indemnification..........................................................57
10.3. Payment; Procedure for Indemnification............................................................58
10.4. Equitable Contribution Under the Securities Act...................................................60
10.5. Exclusiveness of Indemnification..................................................................60
10.6. Limitations on Indemnification....................................................................61
ARTICLE 11 - TERMINATION AND REMEDIES............................................................................61
11.1. Termination.......................................................................................61
11.2. Effect of Termination.............................................................................62
ARTICLE 12 - POST-CLOSING COVENANTS..............................................................................63
12.1. Further Cooperation...............................................................................63
12.2. Maintenance of Books and Records..................................................................63
12.3. By Seller and Shareholders........................................................................63
12.4. Use of Name.......................................................................................64
12.5. Discharge of Obligations..........................................................................64
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12.6. Receivables.......................................................................................64
12.7. Disclosure........................................................................................64
ARTICLE 13 - TAXES RELATING TO PURCHASED ASSETS..................................................................65
ARTICLE 14 - TRANSFER RESTRICTIONS...............................................................................65
14.1. Transfer Restrictions.............................................................................65
ARTICLE 15 - SECURITIES LAWS REPRESENTATIONS.....................................................................66
15.1. Compliance with Law...............................................................................66
15.2. Economic Risk; Sophistication.....................................................................66
ARTICLE 16 - REGISTRATION RIGHTS.................................................................................67
16.1. Piggyback Registration Rights.....................................................................67
16.2. Registration Procedures...........................................................................68
16.3. Underwriting Agreement............................................................................68
16.4. Availability of Rule 144..........................................................................68
16.5. Survival..........................................................................................68
16.6. Applicability to Shareholders.....................................................................68
ARTICLE 17 - MISCELLANEOUS.......................................................................................68
17.1. Notices...........................................................................................68
17.2. No Third Party Beneficiaries......................................................................70
17.3. Schedules.........................................................................................70
17.4. Expenses..........................................................................................70
17.5. Further Assurances................................................................................70
17.6. Entire Agreement; Amendment.......................................................................70
17.7. Section and Paragraph Titles......................................................................71
17.8. Binding Effect....................................................................................71
17.9. Counterparts......................................................................................71
17.10.Severability......................................................................................71
17.11.Governing Law.....................................................................................71
SCHEDULES
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as amended or supplemented from time to
time, this "Agreement") is hereby made this 9th day of September, 1997 by and
among DataLink Corporation (the "Seller"), an Arizona corporation (the
"Company"), Judith K. DeMott and Geri E. Davidson (each a Shareholder and
collectively, the "Shareholders"), and DataLink Acquisition Corporation, a
Pennsylvania corporation ("Purchaser") and DocuNet Inc., a Pennsylvania
corporation (the "Parent").
PRELIMINARY STATEMENTS
The Seller is engaged in the business of providing document management
services. Shareholders own one hundred percent (100%) of the issued and
outstanding shares of the Seller's capital stock. Purchaser is a wholly-owned
subsidiary of the Parent. The Seller desires to sell to the Purchaser and the
Purchaser desires to purchase from the Seller all of the Seller's assets that
are used in or related to the operation of the Seller's document management,
document software and related businesses (the "Business"), together with the
goodwill related to the Business in accordance with the provisions set forth in
this Agreement. Except for those specific obligations and liabilities of the
Seller identified in this Agreement, the Purchaser is assuming none of the
Seller's obligations or liabilities.
IN CONSIDERATION of the foregoing and the mutual promises, covenants and
agreements contained in this Agreement, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1. [Intentionally Omitted.]
1.2. Accounts shall have the meaning set forth in Section 3.22.
1.3. Accrued Expenses shall mean, as of any date of determination, accrued
expenses as would appear on a balance sheet of the Business as of such date
prepared in accordance with GAAP, but specifically excluding any accounts
payable to any of the Seller's or the Shareholder's Affiliates or to any of the
Seller's directors, officers or employees that is contingent upon or payable as
a result of the transactions contemplated by this Agreement.
<PAGE>
1.4. Acquired Liabilities shall mean, as of the applicable date, Seller's
Payables, Accrued Expenses and advances under service contracts, as would appear
on a balance sheet of the Company as of such date prepared in accordance with
GAAP and in the normal course of business consistent with the past practice of
the Company.
1.5. Acquired Net Fixed Assets shall mean, as of the applicable date, the
Seller's fixed assets as categorized on the Seller Balance Sheet reported in
accordance with GAAP.
1.6. Acquired Net Operating Assets shall mean, as of the applicable date,
the Seller's (i) Acquired Net Fixed Assets plus the Seller's Current Assets,
minus Seller's Acquired Liabilities, reported on the Seller Balance Sheet in
accordance with GAAP.
1.7. Acquired Net Working Capital shall mean, as of the applicable date,
the Seller's Current Assets minus its Acquired Liabilities, as reported on the
Seller Balance Sheet in accordance with GAAP.
1.8. Affiliate shall mean: (i) any Person that directly or indirectly
through one or more intermediaries controls, is controlled by or under common
control with the Person specified; (ii) any director, officer, or Subsidiary of
the Person specified; and (iii) the spouse, parents, children, siblings,
mothers-in-law, fathers-in law, sons-in-law, daughters-in-law, bothers-in-law,
and sisters-in-law of the Person specified. For purposes of this definition and
without limitation to the previous sentence, (x) "control" of a Person means the
power, direct or indirect, to direct or cause the direction of management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise, and (y) any Person owning more than ten percent (10%) or
more of the voting securities or similar interests of another Person shall be
deemed to be an Affiliate of that Person.
1.9. Affiliate Transaction shall have the meaning set forth in Section
3.21.
1.10. Allocation Schedule shall have the meaning set forth in Section 2.5.
1.11. Assignment and Assumption Agreement shall mean the Assignment and
Assumption Agreement to be executed and delivered by and between the Purchaser
and the Seller in the form attached to this Agreement as Exhibit A.
1.12. Assumed Liabilities shall have the meaning set forth in Section 2.6.
1.13. Balance Sheet Date shall mean June 30, 1997.
1.14. Bill of Sale shall mean the Bill of Sale to be executed and delivered
by the Seller to the Purchaser in the form attached to this Agreement as Exhibit
B.
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1.15. Books and Records shall mean all records, documents, lists and files,
relating to either or both of the Purchased Assets or the Business including,
without limitation, price lists, lists of Accounts, customers, suppliers and
personnel, all product, business and marketing plans, historical sales data and
all books, ledgers, files and business records (including, without limitation,
all financial records and books of account) of or relating to either or both of
the Purchased Assets or the Business; in any of the foregoing cases, whether in
electronic form or otherwise.
1.16. Business shall have the meaning set forth in the Preliminary
Statements to this Agreement.
1.17. Cash Purchase Price shall have the meaning set forth in Section 2.4.
1.18. Claim Notice shall have the meaning set forth in Section 10.3(c).
1.19. Closing shall have the meaning set forth in Section 7.1.
1.20. Closing Balance Sheet shall mean the unaudited balance sheet
delivered by the Seller to the Purchaser as of the date immediately prior to the
Closing Date, in accordance with Section 3.10(d).
1.21. Closing Date shall mean the date on which the Closing actually takes
place.
1.22. Closing Trade Accounts Receivable shall have the meaning set forth in
Section 2.3.
1.23. Code shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
1.24. Confidential Information shall mean (i) with respect to any party to
this Agreement or any Affiliate of such party or any Potential Founding Company,
all financial, technical, commercial or other information, including but not
limited to information, materials, documents, financial reports, business plans
and marketing data that relate to the business, strategies or operations of the
parties hereto or a Potential Founding Company, disclosed or otherwise made
available by such party, such Affiliate or Potential Founding Company (the
"Discloser") to another party, affiliate or Potential Founding Company (the
"Recipient") in connection with the transactions contemplated by this Agreement
and (ii) each of the terms, conditions and other provisions contained in this
Agreement and in the agreements or documents to be delivered pursuant to this
Agreement. Notwithstanding the preceding sentence, the definition of
Confidential Information shall not include any information that (i) is in the
public domain at the time of disclosure to the Recipient or becomes part of the
public domain after such disclosure through no fault of the Recipient, (ii) is
possessed in writing by the Recipient at the
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time of disclosure to such Recipient, (iii) is contained in the Registration
Statement on Form S-1 to be filed by Parent in connection with the Initial
Public Offering, or (iv) is disclosed to a party or Potential Founding Company
by any Person other than a party to this Agreement or a Potential Founding
Company; provided, that the party to whom such disclosure has been made does not
have actual knowledge that such Person is prohibited from disclosing such
information (either by reason of contractual, or legal or fiduciary duty or
obligation). For the purposes hereof, public domain shall not include disclosure
of information to a Potential Founding Company or (except as otherwise provided
herein) to any other person in connection with the transactions contemplated
hereby.
1.25. Consents shall mean any consents, waivers, approvals, authorizations,
certifications or exemptions from any Person or under any Contract or
Requirement of Law, as applicable.
1.26. Current Assets shall mean, as of the applicable date, the Seller's
Trade Accounts Receivables, Inventories and Prepaid Expenses.
1.27. Contracts shall mean, with respect to any Person, any indentures,
indebtedness, contracts, leases, agreements, instruments, licenses, undertakings
and other commitments, whether written or oral, to which such Person is, or such
Person's properties are bound.
1.28. Credit Acts shall mean (i) the Fair Debt Collection Practices Act, 16
U.S.C. ss.1692, et seq., the Fair Credit Reporting Act, 16 U.S.C. ss.1681 et
seq., and any other provision of the Consumer Credit Protection Act, in each
case, together with the rules and regulations promulgated thereunder, (ii) the
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C.
ss.6101 et seq., together with the rules and regulations promulgated thereunder,
(iii) the Telephone Consumer Protection Act of 1991, together with the rules and
regulations promulgated thereunder, and (iv) any Requirement of Law of any
jurisdiction relating to the subject matter covered by any of the foregoing, all
as amended and supplemented from time to time, or any successors thereto.
1.29. Debt shall have the meaning set forth in Section 2.3.
1.30. DocuNet Common Stock shall mean the common stock, no par value per
share, of DocuNet Inc., the sole shareholder of Purchaser.
1.31. Employee Benefit Plan shall mean any deferred compensation, pension,
profit sharing, stock option, stock purchase, savings, group insurance or
retirement plan, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangements maintained by the Seller or any ERISA Affiliate (including, without
limitation, health insurance, life insurance and other benefit plans maintained
for retirees) within the previous six plan years or with respect to which
contributions are or were
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(within such six year period) made or required to be made by the Seller or any
ERISA Affiliate or with respect to which the Seller has any liability.
1.32. Encumbrances shall mean, with respect to any asset, any security
interests, liens, encumbrances, pledges, mortgages, conditional or installment
sales Contracts, title retention Contracts, transferability restrictions and
other claims or burdens of any nature whatsoever attached to or adversely
affecting such asset other than liens arising in the ordinary course of business
which are not incurred in connection with the borrowing of money and which, in
the aggregate, are not material.
1.33. Environmental Laws shall mean all Requirements of Law relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land, or surface or subsurface strata)
including, without limitation, Requirements of Law relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment and Requirements of Law relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any of
the foregoing including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et.
seq., and the rules and regulations promulgated thereunder, all as amended and
supplemented from time to time, and together with any successors thereto. As
used in this Agreement, the term "hazardous substances" shall have the meaning
assigned to that term in CERCLA, and the rules and regulations promulgated
thereunder, as amended and supplemented from time to time, or any successors
thereto.
1.34. ERISA shall mean the Employment Retirement Income Security Act of
1974 and the rules and regulations promulgated thereunder, as amended and
supplemented from time to time, or any successors thereto.
1.35. ERISA Affiliate shall mean any Person that is included with the
Seller in a controlled group or affiliated service group under Sections 414(b),
(c), (m) or (o) of the Code.
1.36. Escrow Agent shall mean the individual or entity named as the Escrow
Agent in the Escrow Agreement.
1.37. Escrow Agreement shall mean the Escrow Agreement between the Seller,
the Purchaser and the Escrow Agent to hold the Escrow Amount pursuant to the
terms and conditions therein as referred to in Section 2.4, substantially in the
form attached hereto as Exhibit C.
1.38. Escrow Amount shall have the meaning set forth in Section 2.4(c).
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1.39. Excluded Assets shall mean those assets listed on Schedule 2.1(b)
attached to this Agreement.
1.40. Financial Statements shall have the meaning set forth in Section
3.10(a).
1.41. Founding Companies shall mean those Potential Founding Companies that
enter into definitive acquisition agreements with the Purchaser or Parent in
anticipation of a simultaneous acquisition by Purchaser or Parent and Initial
Public Offering.
1.42. GAAP shall mean generally accepted accounting principles in the
United States set forth in the Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such other statement by such other
entity as may be generally recognized as the successors for the aforementioned;
and shall also mean the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding period
unless specific exemption is noted in the financial statements where a change of
accounting method, principle or presentation has occurred.
1.43. Governmental or Regulatory Authority shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the government of the United States or of any foreign country, any state or any
political subdivision of any such government (whether state, provincial, county,
city, municipal or otherwise).
1.44. Indemnifiable Losses shall mean all liabilities, obligations, claims,
demands, damages, penalties, settlements, causes of action, costs and expenses.
Indemnifiable Losses shall include, without limitation, the actual costs paid in
connection with an Indemnified Party's investigation and evaluation of any claim
or right asserted against such Indemnified Party and all reasonable attorneys',
experts' and accountants' fees, expenses and disbursements and court costs
including, without limitation, those incurred in connection with the Indemnified
Party's enforcement of this Agreement and the indemnification provisions of
Article 10 of this Agreement.
1.45. Indemnified Party shall have the meaning set forth in Section
10.3(a).
1.46. Indemnifying Party shall have the meaning set forth in Section
10.3(a).
1.47. Indemnity Notice shall have the meaning set forth in Section 10.3(a).
1.48. Initial Public Offering shall mean the initial public offering of the
DocuNet Common Stock registered under the Securities Act.
1.49. Initial Public Offering Price shall mean the price to the public of
the DocuNet Common Stock sold in the Initial Public Offering.
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1.50. Intellectual Property shall mean all patents, patent rights, patent
applications, registered trademarks and service marks, trademark rights,
trademark applications, service mark rights, service mark applications, trade
names, registered copyrights, copyright rights and all intellectual, industrial
or proprietary rights and trade secrets, technology and know-how relating to
either or both of the Purchased Assets or the Business, in each case together
with any amendments, modifications and supplements thereto.
1.51. Interim Financial Statements shall have the meaning set forth in
Section 3.10(b).
1.52. Inventory shall mean all inventory incremental or relating to, or
used in connection with the Business including, without limitation, all
supplies, work-in-process and finished goods identified on Annex 1 to Schedule
2.1(a) attached to this Agreement.
1.53. IRS means the Internal Revenue Service or any successor organization
thereto.
1.54. Knowledge shall mean with respect to any representation, warranty or
statement of any party in this Agreement that is qualified by such party's
"knowledge," the actual knowledge of such party or, in the case of an entity,
the actual knowledge of any officer or director of such entity, and, in the case
of any such officer or director that knowledge that a reasonably prudent officer
or director should have if such person duly performed his or her duties as an
officer or director of such party or made reasonable and diligent inquiry and
exercised due diligence with respect thereto.
1.54A. Lease shall mean the lease of Real Property the material terms and
conditions of which are set forth on Exhibit D attached hereto.
1.55. Legal Proceeding shall mean any action, suit, arbitration, claim or
investigation by or before any Governmental or Regulatory Authority, any
arbitration or alternative dispute resolution panel, or any other legal,
administrative or other proceeding.
1.56. Material Adverse Effect shall mean an effect which is or would be
materially adverse to the Business and Properties (including Intellectual
Property), the prospects for the Business, or the condition (financial or
otherwise) or results of operation, of the Seller.
1.57. Obligations and liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
1.58. Order shall mean any judgment, order, writ, decree, injunction or
other determination whatsoever of any Governmental or Regulatory Authority or
any other entity or
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body whose finding, ruling or holding is legally binding or is enforceable as a
matter of right (in any case, whether preliminary or final).
1.59. Payables shall mean, as of any date of determination, the Seller's
accounts payable associated with the Business as of such date in accordance with
GAAP consistently applied, other than amounts that are payable to any Affiliate
of the Seller or any of the Shareholders.
1.60. PBGC means the Pension Benefit Guaranty Corporation or any successor
organization thereto.
1.61. Permits shall mean all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, rights, orders,
qualifications and similar rights or approvals granted or issued by any
Governmental or Regulatory Authority relating to either or both of the Purchased
Assets or the Business.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability Seller, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental or Regulatory Authority whatsoever.
1.63. Prepaid Expenses shall mean, as of any date of determination,
payments made by Seller with respect to the Business, other than payments made
by the Seller to any Affiliate of either the Seller or the Shareholder, that
constitute prepaid expenses of the Business in accordance with GAAP consistently
applied as of such date.
1.63A Pricing shall mean the determination by Parent and the Underwriters
of the public offering price of the shares of DocuNet Common Stock in the
Initial Public Offering.
1.63B Pricing Date shall mean the date on which the Pricing takes place.
1.64. Potential Founding Company shall mean any person or entity entering
into a letter of intent with the Purchaser or Parent, or their Affiliates, to
participate in the simultaneous acquisition by Purchaser or Parent and Initial
Public Offering.
1.65. Property shall mean the Real Property, Intellectual Property and
Tangible Personal Property of the Company.
1.66. Purchased Assets shall have the meaning set forth in Section 2.1.
1.67. Purchase Price shall have the meaning set forth in Section 2.3.
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1.68. Purchaser Financing Transaction shall mean the Initial Public
Offering, any other offering by the Parent or any of its Subsidiaries of any
securities, whether debt or equity, or any other financing or credit arrangement
sought by the Parent or any of its Subsidiaries.
1.69. [Intentionally omitted.]
1.70. Real Property shall mean all real property of Seller.
1.71. Receivables shall mean, as of any date of determination, the Seller's
accounts receivable, notes receivable and other miscellaneous receivables
associated with the Business at such date.
1.72. Regulatory Approvals shall mean all Consents from all Governmental or
Regulatory Authorities.
1.73. Related Companies shall have the meaning set forth in Section 8.2(a).
1.74. Requirement of Law shall mean, with respect to any Person, such
Person's articles or certificate of incorporation, by-laws or other governing or
constitutive documents, if any, and any provision of law, statute, treaty, rule,
regulation, ordinance or pronouncement having the effect of law, or any Order,
to which, in each case, such Person or any of such Person's properties,
operations, business or assets is bound or subject.
1.75. Restricted Area shall have the meaning set forth in Section 8.2(a).
1.76. Restricted Business shall have the meaning set forth in Section
8.2(a).
1.77. Restricted Period shall mean, with respect to the Seller and the
Shareholders, the period commencing on the Closing Date and ending on the later
of (i) the first anniversary of the date on which such Shareholder's employment
with the Purchaser, if any, expires, is not renewed, or is otherwise terminated,
and (ii) the fifth anniversary of the Closing Date, as such period may be
extended pursuant to Section 8.3(b); provided that, with respect to the
Shareholders, the reference to "fifth anniversary" in this clause (ii) shall be
automatically changed to "fourth anniversary" if the average closing price of
the DocuNet Common Stock during any 20-trading day period within the 60-day
period prior to or following the date on which such Shareholder's employment
with the Purchaser terminates is less than 50% of the Initial Public Offering
Price (as adjusted proportionately for any stock splits, stock dividends or
reverse stock splits).
1.78. Securities Act shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended and supplemented from time to
time, or any successors thereto.
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1.79. Seller Accountants shall have the meaning set forth in Section 2.3.
1.80. Seller Balance Sheet shall have the meaning set forth in Section
3.11.
1.81. Intentionally Omitted.
1.82. Intentionally Omitted.
1.83. Subsidiary shall mean, with respect to any Person, any Person of
which securities or other ownership interests having ordinary voting power to
select a majority of the board of directors or other persons serving similar
functions are at the time directly or indirectly owned by such Person.
1.84. Tangible Personal Property shall have the meaning set forth in
Section 3.13.
1.85. Taxes shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, payroll, employment,
social security, unemployment, excise, estimated, stamp, occupancy, occupation,
property or other similar taxes, including any interest or penalties thereon,
and additions to tax or additional amounts imposed by any federal, state, local
or foreign governmental authority, domestic or foreign (a "Taxing Authority") or
(ii) any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation ss.1.1502-6 or comparable Requirement of Law.
1.86. Tax Returns shall mean any declaration, return, report, estimate,
information return, schedule, statements or other document filed or required to
be filed, with or when none is required to be filed with a Taxing Authority, the
statement or other document issued by, a Taxing Authority.
1.87. Trade Accounts Receivable shall mean, as of the applicable date, the
Seller's trade accounts receivable associated with the Business.
1.88. Transfer Taxes shall mean any applicable documentary, sales, use,
filing, transfer and similar Taxes payable as a result of the transactions
contemplated by this Agreement.
1.89. Underwriter shall have the meaning set forth for that term in Section
2(a)(11) of the Securities Act.
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1.90. Unliquidated Indemnity Notice shall have the meaning set forth in
Section 10.3(b).
1.91. Working Capital Adjustment shall have the meaning set forth in
Section 2.3.
ARTICLE 2
SALE AND PURCHASE OF ASSETS; CONSIDERATION;
ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
conditions set forth in this Agreement, and in reliance upon the joint and
several representations and warranties made by the Seller and the Shareholders
to the Purchaser and Parent in this Agreement, the Seller shall sell to the
Purchaser and the Purchaser shall purchase and receive from the Seller, free and
clear of all Encumbrances and all obligations and liabilities (other than the
Assumed Liabilities), all of the tangible and intangible assets of the Seller,
whether real, personal or mixed, that are incremental or relating to, or used in
connection with, the Business, wherever located, including, without limitation
(i) the assets included on the Seller Balance Sheet, (ii) the assets listed on
Schedule 2.1(a) attached to this Agreement, and (iii) all assets acquired by the
Seller after June 30, 1997 and on or prior to the Closing Date, but excluding
the Excluded Assets and any assets disposed of in the ordinary course of
business consistent with past practice (collectively, the "Purchased Assets").
2.2. Intentionally Omitted.
2.3. Consideration and Payment. As full consideration for the Purchased
Assets being purchased pursuant to this Agreement (in addition to the assumption
of the Assumed Liabilities), the Purchaser shall pay, deliver or cause to be
delivered to the Seller, in the manner set forth in Section 2.4 of this
Agreement, the Base Purchase Price (as hereinafter defined), less the Working
Capital Adjustment (as hereinafter defined) and, subject to Section 2.3(e)
below, the Net Book Value of Assets and Liabilities Adjustment (as hereinafter
defined), on the terms and conditions set forth below (the "Purchase Price"):
(a) Base Purchase Price. Subject to Section 2.4(c), the Purchaser
shall pay to the Seller at the Closing the sum of Three Million Seven
Hundred Fifty Thousand dollars ($3,750,000), subject to adjustments as set
forth herein (the "Base Purchase Price").
(b) Debt Adjustment. The Base Purchase Price shall be reduced, at
Closing, by $1.00 for each $1.00 that Debt exceeds the Company's cash and
cash equivalents reflected on the Company's Closing Balance Sheet (the
"Closing Debt Amount"). The Company's Debt shall mean all of the Company's
liabilities, contingent or otherwise,
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except Adjusted Current Liabilities, in accordance with GAAP. The Company's
Adjusted Current Liabilities shall mean all of the Company's liabilities
which would be classified as current liabilities in accordance with GAAP,
except current amounts of principal, interest or penalties due and owing:
(i) under promissory notes or lines of credit to lending institutions; (ii)
to an employee or an Affiliate of the Company, or the Seller; (iii) to a
lessor under a capital lease (except for any capital lease on account of
real property), or (iv) on account of Taxes or earned insurance premiums.
Promptly following the Closing and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the internal
accounting staff and the independent certified public accountant of the
Purchaser (the "Accountants") to verify the Closing Debt Amount. The
Accountants shall issue a report as to their determination of the Closing
Debt Amount (the "Accountants' CDA Report") promptly after their
determination of such amount and the Purchaser shall deliver the
Accountants' CDA Report to the Seller no later than sixty (60) days
following the Closing Date. The determination of the Closing Debt Amount by
the Accountants shall be conclusive and binding upon the parties hereto
unless the Seller shall object to the Accountants' CDA Report within
fifteen (15) days following their receipt of the Accountants' CDA Report.
The Seller's objection, if any, to the Accountants' CDA Report (the
"Seller's CDA Objection") shall set forth in reasonable detail the Seller's
objection(s) to the Accountants' CDA Report and the Seller's calculation of
the Closing Debt Amount. Within ten (10) days after receipt of the Seller's
CDA Objection, the Purchaser will notify the Seller whether it accepts or
disputes the Seller's adjustments, which notification shall set forth in
reasonable detail the adjustments, if any, made by the Seller which the
Purchaser continues to dispute (the "Purchaser's CDA Response Notice"). If
the Seller does not object to the Accountants' CDA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants' CDA
Report, then the adjustment based on the then final Closing Debt Amount
(the "Final Debt Amount"), if any, shall be paid by Seller to the Purchaser
in immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, it shall be paid from the Escrow Amount pursuant to the Escrow
Agreement and Seller shall be obligated to replenish the Escrow Amount by
depositing with the Escrow Agent upon such payment either cash in a like
amount or a number of shares of DocuNet Common Stock having an aggregate
Value (as defined below) equal to such amount. The term "Value" in respect
of a share of DocuNet Common Stock shall mean the lower of the Initial
Public Offering Price and the average closing price of the DocuNet Common
Stock during the 20 trading- day period ending immediately prior to the
applicable payment date. If the Seller objects to the Accountants' CDA
Report as set forth above and the Purchaser does not accept the Seller's
proposed adjustments, then an independent accounting firm mutually
satisfactory to the Seller and the Purchaser shall be engaged to determine
the amount of the Closing Debt Amount and the Final Debt Amount, based upon
the calculations of the independent accountants, and any adjustments of
Base Purchase Price based on the amount determined as provided above shall
be paid to the Purchaser in immediately available funds within five (5)
business days of the determination of such amount by such accounting firm.
If such amount is not received by
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Purchaser within such time period, it shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to replenish
the Escrow Amount by depositing with the Escrow Agent upon such payment
either cash in a like amount or a number of shares of DocuNet Common Stock
having an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
Accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Seller shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Seller and the Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(c) Working Capital Adjustment. The Base Purchase Price shall be
further reduced, at Closing, by $1.00 for each $1.00 that the Company's
Adjusted Working Capital (as hereinafter defined) is less than $400,000 on
the Closing Date (the "Closing Adjusted Working Capital Amount"). The
Company's Adjusted Working Capital shall mean the Company's current portion
of Purchased Assets, calculated pursuant to GAAP, less: (i) the portion of
trade receivables that are more than 100 days past the original invoice
date, calculated pursuant to GAAP, and (ii) Adjusted Current Liabilities.
Promptly following the Closing, and in order to verify the accuracy of the
adjustment made at the Closing, the Purchaser agrees to cause the
Accountants to verify the amount of the Closing Adjusted Working Capital
Amount. The Accountants shall issue a report as to their determination of
the Closing Adjusted Working Capital Amount (the "Accountants' CAWCA
Report") promptly after their determination of such amount and the
Purchaser shall deliver the Accountants' CAWCA Report to the Seller no
later than sixty (60) days following the Closing Date. The determination of
the Closing Adjusted Working Capital Amount by the Accountants shall be
conclusive and binding upon the parties hereto unless the Seller shall
object to the Accountants' CAWCA Report within fifteen (15) days following
its receipt of the Accountants' CAWCA Report. The Seller's objection to the
Accountants' CAWCA Report. The Seller's objection, if any, to the
Accountants' CAWCA Report (the "Seller's CAWCA Objection") shall set forth
in reasonable detail the Seller's objection(s) to the Accountants' CAWCA
Report and the Seller's calculation of the Closing Adjusted Working Capital
Amount. Within ten (10) days after receipt of the Seller's CAWCA Objection,
the Purchaser will notify the Seller whether it accepts or disputes the
Seller's adjustments, if any, which notification shall set forth in
reasonable detail the adjustments made by the Seller which the Purchaser
continues to dispute (the "Purchaser's CAWCA Response Notice"). If the
Seller does not object to the Accountants' CAWCA Report, or if the
Purchaser agrees to accept the Seller's adjustments to the Accountants'
CAWCA Report, then the adjustment based on the then final Closing Adjusted
Working Capital Amount (the "Final Adjusted Working Capital Amount"), if
any, shall be paid by Seller to the Purchaser in immediately
available funds within five (5) business days of such acceptance. If such
amount is not received by
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Purchaser within such time period, such amount shall be paid from the
Escrow Amount pursuant to the Escrow Agreement and Seller shall be
obligated to replenish the Escrow Amount by depositing with the Escrow
Agent upon such payment either cash in a like amount or a number of shares
of DocuNet Common Stock having an aggregate Value equal to such amount. If
the Seller objects to the Accountants' CAWCA Report as set forth above and
the Purchaser does not accept the Seller's proposed adjustments, then an
independent accounting firm mutually satisfactory to the Seller and the
Purchaser shall be engaged to determine the amount of the Closing Adjusted
Working Capital Amount and the Final Adjusted Working Capital Amount, based
upon the calculations of the independent accountants, and any adjustments
of Base Purchase Price based on the amount discussed determined as provided
above shall be paid to the Purchaser in immediately available funds within
five (5) business days of the determination of such amount by such
accounting firm. If such amount is not received by Purchaser within such
time period, such amount shall be paid from the Escrow Amount pursuant to
the Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. The parties hereto agree to cooperate
fully with such independent accountants at their own cost and expense,
including, but not limited to, providing such independent accountants with
access to, and copies of, all books and records that they shall reasonably
request. The Purchaser and the Seller shall each bear one-half of all of
the costs and expenses of such independent accounting firm, and if the
parties hereto are unable to agree upon an independent accounting firm, the
Seller and Purchaser will request that one be designated by the President
of the Philadelphia office of the American Arbitration Association.
(d) Net Book Value of Assets and Liabilities Adjustment. The Base
Purchase Price shall be further reduced, at Closing, by $1.00 for each
$1.00 that the Net Book Value of the Company's Acquired Assets and
Liabilities, as reflected on the Closing Balance Sheet, is less than
$700,000 on the Closing Date (the "Closing Net Book Value Amount"). The Net
Book Value of the Company's Acquired Assets and Liabilities shall mean the
Purchased Assets, less Adjusted Current Liabilities, calculated pursuant to
GAAP. Promptly following the Closing, and in order to verify the accuracy
of the adjustment made at the Closing, the Purchaser agrees to cause the
Accountants to verify the amount of the Closing Net Book Value Amount. The
Accountants shall issue a report as to their determination of the Closing
Net Book Value Amount (the "Accountants' CNBVA Report") promptly after
their determination of such amount and the Purchaser shall deliver the
Accountants' CNBVA Report to the Seller not later than sixty (60) days
following the Closing Date. The determination of the Closing Net Book Value
Amount by the Accountants shall be conclusive and binding upon the parties
hereto unless the Seller shall object to the Accountants' CNBVA Report
within fifteen (15) days following their receipt of the Accountants' CNBVA
Report. The Seller's objection, if any, to the Accountants' CNBVA Report
(the "Seller's CNBVA Objection") shall set forth in reasonable detail the
Seller's objection(s) to the Accountants' CNBVA Report and the
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Seller's calculation of the Closing Net Book Value Amount. Within ten (10)
days after receipt of the Seller's CNBVA Objection, the Purchaser will
notify the Seller whether it accepts or disputes the Seller's adjustments,
if any, which notification shall set forth in reasonable detail the
adjustments made by the Seller which the Purchaser continues to dispute
(the "Purchaser's CNBVA Response Notice"). If the Seller does not object to
the Accountants' CNBVA Report, or if the Purchaser agrees to accept the
Seller's adjustments to the Accountants' CNBVA Report, then the adjustment
based on the then final Closing Net Book Value Amount (the "Final Net Book
Value Amount"), if any, shall be paid by Seller to the Purchaser in
immediately available funds within five (5) business days of such
acceptance. If such amount is not received by Purchaser within such time
period, such amount shall be paid from the Escrow Amount pursuant to the
Escrow Agreement and Seller shall be obligated to replenish the Escrow
Amount by depositing with the Escrow Agent upon such payment either cash in
a like amount or a number of shares of DocuNet Common Stock having an
aggregate Value equal to such amount. If the Seller objects to the
Accountants' CNBVA Report as set forth above and the Purchaser does not
accept the Seller's proposed adjustments, then an independent accounting
firm mutually satisfactory to the Seller and the Purchaser shall be engaged
to determine the amount of the Closing Net Book Value Amount and the Final
Net Book Value Amount, based upon the calculations of the independent
accountants, and any adjustments of Base Purchase Price based on the amount
determined as provided above shall be paid to the Purchaser in immediately
available funds within five (5) business days of the determination of such
amount by such accounting firm. If such amount is not received by Purchaser
within such time period, such amount shall be paid from the Escrow Amount
pursuant to the Escrow Agreement and Seller shall be obligated to replenish
the Escrow Amount by depositing with the Escrow Agent upon such payment
either cash in a like amount or a number of shares of DocuNet Common Stock
having an aggregate Value equal to such amount. The parties hereto agree to
cooperate fully with such independent accountants at their own cost and
expense, including, but not limited to, providing such independent
accountants with access to, and copies of, all books and records that they
shall reasonably request. The Purchaser and the Seller shall each bear
one-half of all of the costs and expenses of such independent accounting
firm, and if the parties hereto are unable to agree upon an independent
accounting firm, the Seller and Purchaser will request that one be
designated by the President of the Philadelphia office of the American
Arbitration Association.
(e) Multiple Adjustments. Notwithstanding anything herein to the
contrary, if a payment is due from Seller to Purchaser on account of the
Working Capital Adjustment and the Net Book Value of Assets and Liabilities
Adjustment, Seller shall only be obligated to pay the greater of the two
adjustment amounts to Purchaser.
(f) Shareholder Obligation The Shareholders hereby agree that the
Shareholders will be jointly and severally liable for all obligations of
Seller under
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the Purchase Price adjustments set forth in this Section 2.3 of this
Agreement including, but not limited to, the obligation to replenish the
Escrow Amount.
2.4. Payment of Purchase Price.
(a) Stock Purchase Price. Subject to Section 2.4(c), a number of shares of
DocuNet Common Stock equal to (i) $500,000 ("Stock Purchase Price") divided by
(ii) the Initial Public Offering Price shall be issued at Closing to Seller.
(b) Cash Purchase Price. In addition, an amount equal to the Base Purchase
Price less (i) the Stock Purchase Price and (ii) the reductions, if any, to be
made at Closing pursuant to Sections 2.3(b), 2.3(c), 2.3(d) and 2.3(e), shall be
payable at the Closing in cash to the Seller ("Cash Purchase Price"). The
specific amount of the Cash Purchase Price shall be payable to the Seller by a
bank check payable to the order of Seller in immediately available funds, or a
wire transfer to an account to be designated by Seller in writing not less than
three (3) business days prior to the Closing, such method of payment to be at
the sole discretion of Purchaser.
(c) Delivery into Escrow. Notwithstanding the foregoing, a number of shares
of DocuNet Common Stock equal to (i) $187,500, divided by (ii) the Initial
Public Offering Price, shall be delivered at Closing to the Escrow Agent
pursuant to the Escrow Agreement (the "Escrow Amount") by the Seller. The Escrow
Amount shall be available to fund (but shall not be the sole source of funding)
any obligations of Seller and Shareholders under this Agreement pursuant to the
terms of the Escrow Agreement; provided, however, if the amount of cash plus the
value of the shares of DocuNet Common Stock (valued at the Initial Public
Offering Price) in the Escrow Amount falls below $187,500 (the "Threshold
Value") due to payment from the Escrow Amount pursuant to Section 2.3 hereof,
the Seller (or the Shareholders pursuant to Section 2.3(c)) shall contribute
additional shares of DocuNet Common Stock (valued at the Initial Public Offering
Price) to the Escrow Amount in an amount necessary so that the amount of cash
plus the value of the shares of DocuNet Common Stock in the Escrow Amount would
equal the Threshold Value.
2.5. Allocation of Purchase Price. The sum of the Purchase Price and all
Assumed Liabilities shall be allocated among the Purchased Assets in the manner
required in Section 1060 of the Code, as initially set forth in Schedule 2.5
attached to this Agreement (the "Allocation Schedule"). Should the Purchase
Price or Assumed Liabilities be modified subsequent to the Closing, the
Allocation Schedule will be modified in accord with the requirements of Section
1060 of the Code. Such allocation shall be binding on the parties for all
purposes including, without limitation, federal income Tax purposes, and the
parties shall not take any contrary position in respect of such allocation in
any Tax Return or Legal Proceeding or audit relating to Taxes, or any documents,
instruments or certificates filed by such party with any Governmental or
Regulatory Authority or Taxing Authority, except as required by applicable law.
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2.6. Assumption of Liabilities. At the Closing, the Purchaser will assume
only the Seller's obligations and liabilities expressly listed on Schedule 2.6
attached to this Agreement, if any (collectively, the "Assumed Liabilities").
Except for the Assumed Liabilities, the Purchaser shall not, by virtue of its
purchase of the Purchased Assets or otherwise, acquire, assume or become
responsible for any obligations or liabilities of the Seller. Nothing contained
in this Agreement shall be construed as an assumption of any specific Assumed
Liability until any required Consent shall have been obtained.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Except as set forth on the disclosure schedule delivered by the Seller and
the Shareholders to the Purchaser and Parent on the date hereof (the "Disclosure
Schedule"), the numbers of which are numbered to correspond to the section
numbers of this Agreement to which they refer, the Seller and the Shareholders
hereby, jointly and severally, represent and warrant to the Purchaser and Parent
as follows:
3.1. Organization; Qualification; Good Standing.
(a) The Seller (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation or
organization, (ii) has the power and authority to own and operate its properties
and assets and to transact the Business and (iii) is duly qualified and
authorized to do business and is in good standing in all jurisdictions where the
failure to be duly qualified, authorized and in good standing would have a
Material Adverse Effect upon the Seller's Business, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise). Listed in the Disclosure Schedule is a true and complete list of all
jurisdictions in which the Seller is qualified to do business.
(b) There is no Legal Proceeding or Order pending or, to the knowledge of
either of the Seller or the Shareholders, threatened against or affecting the
Seller revoking, limiting or curtailing, or seeking to revoke, limit or curtail
the Seller's power, authority or qualification to own, lease or operate its
properties or assets or to transact the Business.
(c) True and complete copies of the Seller's articles or certificate of
incorporation, bylaws and other constitutive documents are attached to this
Agreement as part of the Disclosure Schedule. Except as set forth in Schedule
3.1(c), the minute books of the Seller, as heretofore made available to the
Purchaser or Parent, are correct and complete in all material respects.
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3.2. Authorization for Agreement.
(a) The Seller. The Seller's execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Seller: (i) are within the Seller's corporate powers and duly authorized by all
necessary corporate and shareholder action on the part of the Seller and (ii) do
not (A) require any action by or in respect of, or filing with, any Governmental
or Regulatory Authority (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or default
under, any Requirement of Law applicable to the Seller or any of its properties
or any Contract to which the Seller or any of its properties is bound or subject
or (C) result in the creation of any Encumbrance or any obligation and liability
on any of the Purchased Assets.
(b) The Shareholders. The Shareholders' execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Shareholders (i) are within the powers and authority, corporate or
otherwise, of the Shareholders and are duly authorized by all necessary
corporate and Shareholder action on the part of a corporate Shareholder and (ii)
do not (A) require any action by or in respect of, or filing with, any
Governmental or Regulatory Authority, or (B) except as set forth on the
Disclosure Schedule contravene, violate or constitute, whether with or without
the passage of time or the giving of notice or both, a breach or default under
any Requirement of Law applicable to the Shareholders, any of his or its
properties or any Contract to which the Shareholders or any of his or its
properties is bound or subject.
3.3. Ownership; Subsidiaries and Affiliates.
(a) Sole Shareholder. No Person other than the Shareholders owns record,
beneficial or equitable ownership of any of the Seller's securities, whether
debt or equity.
(b) No Interest in Other Entities. Seller does not own, directly or
indirectly, any debt, equity or other ownership or financial interest in any
other Person. No shares or other ownership or other interests, either of record,
beneficially or equitably, in any Person are included in the Purchased Assets.
(c) Affiliates. The Disclosure Schedule includes a complete and accurate
list of all Persons (other than the Shareholders or any of the Persons described
in the first sentence of Section 1.8, subpart (iii)) that are Affiliates of the
Seller, detailing the nature of the relationship between the Seller and each
such Person that causes such Person to be an Affiliate of the Seller.
(d) No Acquisitions. Since the Balance Sheet Date, the Seller has not
acquired, or agreed to acquire, whether by merger or consolidation, by purchase
of equity interests or assets, or otherwise, any business or any other Person,
or otherwise acquired, or
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agreed to acquire, any assets other than in the ordinary course of business that
are material, either individually or in the aggregate, to the Seller.
3.4. Enforceability. This Agreement has been duly executed and delivered by
the Seller and the Shareholders and constitutes the legal, valid and binding
obligation of the Seller and the Shareholders, enforceable against each of them
in accordance with its terms.
3.5. Legal Proceedings and Orders. Except as set forth in the Disclosure
Schedule there is no Legal Proceeding or Order pending against, or to either of
the Seller's or the Shareholders' knowledge, threatened against or affecting,
the Seller, the Business, the Purchased Assets or the Assumed Liabilities that
could reasonably be expected to have a Material Adverse Effect or to adversely
affect or restrict the ability of the Seller to consummate fully the
transactions contemplated by this Agreement or that in any manner could draw
into question the validity of this Agreement. Neither the Seller nor any of the
Shareholders has knowledge of any fact, event, condition or circumstance that
may give rise to the commencement of any Legal Proceeding or the entering of any
Order against the Seller or any of the Seller's properties including, without
limitation, any Legal Proceeding or Order that could adversely affect or
restrict the ability of any Seller to consummate fully the transactions
contemplated by this Agreement or that in any manner could draw into question
the validity of this Agreement.
3.6. Title to the Purchased Assets and Related Matters. Except for the
items of Tangible Personal Property leased by the Seller and disclosed in the
Disclosure Schedule and except as otherwise set forth in the Disclosure
Schedule, the Seller owns and has good and valid legal and beneficial title to
all of the Purchased Assets free and clear of all Encumbrances. All of the
Purchased Assets are in the possession or under the control of the Seller and
consist of all of the assets that are incremental or relating to, or used in
connection with, the Business. Except for those items of Tangible Personal
Property leased by the Seller and disclosed in the Disclosure Schedule and
except as otherwise set forth in the Disclosure Schedule, no Person other than
the Seller owns any of the Tangible Personal Property located on any of the Real
Property (other than immaterial items of personal property that are owned by the
Seller's employees).
3.7. Compliance with Laws. The Seller is operating in compliance with all
Requirements of Law applicable to it or any of its properties or to which the
Seller or its properties is bound or subject including, without limitation, the
Credit Acts. Except as set forth on the Disclosure Schedule attached to this
Agreement, since January 1, 1992, none of the Seller or the Shareholders has
received any notice from any Person concerning alleged violations of, or the
occurrence of any events or conditions resulting in alleged noncompliance with,
any Requirement of Law applicable to the Seller or any of its properties or to
which the Seller or any of its properties is bound or subject including, without
limitation, any of the Credit Acts. None of the Seller, the Shareholders, any of
their respective Affiliates (other than a Person who is an Affiliate solely by
virtue of clause (iii) of the definition thereof), or any of such Affiliates'
respective Affiliates (other than a Person who is an Affiliate solely by virtue
of clause (iii) of the definition thereof) has made any illegal kickback, bribe,
gift or political contribution to or on
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behalf of any customer, or to any officer, director, employee of any customer,
or to any other Person.
3.8. Labor Matters.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
all consulting or similar Contracts to which the Seller is a party or may
otherwise be bound or subject, and the compensation to which each consultant is
entitled under its respective Contract. The Seller has delivered or caused to be
delivered to the Purchaser true and complete copies of all such Contracts, each
of which is attached to the Disclosure Schedule. Since the Balance Sheet Date,
the Seller has not increased the compensation payable to its consultants or the
rate of compensation payable to its consultants. No individuals retained by the
Seller as an independent contractor or consultant would be reclassified by the
IRS, the U.S. Department of Labor or any other Governmental or Regulatory
Authority as an employee of the Seller for any purpose whatsoever.
(b) Attached to the Disclosure Schedule is a complete and accurate list of
the name of each employee of the Seller, together with such employee's position
or function, the rate of hourly, monthly or annual compensation (as the case may
be) paid or to be paid to such employee in 1995, 1996 and, to the extent known,
1997, any accrued sick leave or pay or vacation and any incentive or bonus
arrangement with respect to any such employee. Except as is set forth on the
Disclosure Statement, since the Balance Sheet Date, the Seller has not increased
the compensation payable to its employees or the rate of compensation payable to
its employees. The Disclosure Schedule also identifies those employees with whom
the Seller has entered into an employment Contract or a Contract obligating the
Seller to pay severance or similar payments to any employee. The Seller and the
Shareholders have delivered or caused to be delivered to the Purchaser true and
complete copies of such Contracts, all of which are attached or listed on the
Disclosure Schedule.
(c) The Seller is not a party to or bound by any collective bargaining
agreement and no collective bargaining agreement covering any of such employees
is currently being negotiated. To the knowledge of either of the Seller or the
Shareholders, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Seller.
(d) There is no, and since January 1, 1992 there has been no, work
stoppage, strike, slowdown, picketing or other labor disturbance or controversy
by or with respect to any of the Seller's employees or former employees. In
addition, no dispute with or claim against the Seller relating to any labor or
employment matter including, without limitation employment practices,
discrimination, terms and conditions of employment, or wages and hours is
outstanding or, to either of the Seller's or the Shareholders' knowledge, is
threatened. There is no claim or petition pending before, and at no time since
January 1, 1992 has there been, any claim or petition made to, any Governmental
or Regulatory Authority including, without
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limitation, the National Labor Relations Board or the Equal Employment
Opportunity Commission against the Seller with respect to any labor or
employment matter.
3.9. Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and accurate list and
description of each Employee Benefit Plan. With respect to each Employee Benefit
Plan, the Seller and the Shareholders have delivered or caused to be delivered
to the Purchaser or Parent true and complete copies of (i) the plan document,
trust agreement and any other document governing such Employee Benefit Plan,
(ii) the summary plan description, (iii) all Form 5500 annual reports and
attachments, and (iv) the most recent IRS determination letter, if any, for such
plan.
(b) Each of the Employee Benefit Plans has been operated and administered
in compliance with their respective terms and all applicable Requirements of Law
including, without limitation, ERISA and the Code. The Seller has not incurred
any "accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the PBGC in connection with any Employee Benefit Plan (or other
class of benefits that the PBGC has elected to insure).
(c) Each Employee Benefit Plan that is intended to be tax qualified under
the Code is identified as such in the Disclosure Schedule attached to this
Agreement. Each such Employee Benefit Plan has received, or the Seller has
applied for or will in a timely manner apply for, a favorable determination
letter from the IRS stating that such Employee Benefit Plan meets the
requirements of the Code and that any trust or trusts associated therewith are
tax exempt under the Code.
(d) The Seller does not maintain any "defined benefit plan" covering
employees of the Seller within the meaning of Section 3(35) of ERISA subject to
Title IV of ERISA or any "Multiemployer Plan" within the meaning of Section
401(a)(3) of ERISA.
(e) All contributions and payments of insurance premiums required to be
made with respect to the Employee Benefit Plans including, without limitation,
the payment of the applicable premiums on any insurance Contract funding an
Employee Benefit Plan, have been fully paid in such a manner as not to cause any
interest, penalties or other amounts that have not been satisfied or discharged
to be assessed against the Seller with respect thereto.
(f) The Seller has complied with the reporting and disclosure requirements
of ERISA applicable to the Employee Benefit Plans and the continuation coverage
requirements of the Code and ERISA applicable to any of the Employee Benefit
Plans.
(g) There has been no "prohibited transaction" or "reportable event" within
the meaning of the Code or ERISA within the last sixty (60) months, or breach of
fiduciary
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duty with respect to any of the Employee Benefit Plans that could subject the
Purchaser, Parent or the Seller to any Tax, penalty or other liability under the
Code or ERISA.
(h) No Employee Benefit Plan has been terminated within the past sixty (60)
months. There are no Legal Proceedings or claims with respect to any of the
Employee Benefit Plans (other than routine claims for benefits from eligible
participants or beneficiaries in the normal and ordinary course of business)
pending or, to the knowledge of either of the Seller or the Shareholders
threatened, and to the knowledge of the Seller or any of the Shareholders, there
are no facts, events, conditions or circumstances that could give rise to any
such Legal Proceeding or claim (other than routine claims for benefits from
eligible participants or beneficiaries in the normal and ordinary course).
(i) Neither the Seller or any ERISA Affiliate has ever sponsored,
maintained or contributed to, or been obligated to contribute to, any employee
benefit plan subject to Title IV of ERISA or the minimum funding requirements of
Code Section 412.
(j) No Employee Benefit Plan provides post retirement medical benefits,
post retirement death benefits or any post retirement welfare benefits of any
fund whatsoever.
(k) There are no current or former employees of the Seller who are on leave
of absence under either of the Uniformed Services Employment or Reemployment
Rights Act or the Family Medical Leave Act.
(l) None of the Seller or any of its respective officers, directors or
significant employees (as such term is defined in Regulation S-K of the
Securities Act), or any other Person has made any statement or communication or
provided any materials to any employee or former employee of the Seller that
provides for or could be construed as a contract, agreement or commitment by the
Purchaser or any of its Affiliates to provide for any pension, welfare, or other
employee benefit or fringe benefit plan or arrangement to any such employee or
former employee, whether before or after retirement or separation or otherwise.
(m) The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in any increase
in or acceleration of any obligation or liability under any Employee Benefit
Plan or to any employee or former employee of the Seller.
3.10. Financial Statements.
(a) The Seller and the Shareholders have delivered or caused to be
delivered to the Purchaser or Parent a copy of the Seller's balance sheets as of
December 31, 1995 and 1996, and June 30, 1997 and the related statements of
operations, shareholders' equity and cash flows for the years and periods, as
applicable, then ended, together with all proper exhibits, schedules and notes
thereto, (collectively, the "Financial Statements"). A true and
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complete copy of the Financial Statements is attached to the Disclosure
Schedule. The Financial Statements have been prepared in accordance with GAAP
consistently applied throughout the periods involved (except for changes
required or permitted by GAAP and noted thereon) and fairly represent the
financial position of the Seller as of the date of such Financial Statements and
the results of operations and changes in shareholders' equity and cash flows for
the periods covered thereby.
(b) The Books and Records accurately and fairly reflect, in reasonable
scope and detail and in accordance with good business practice, the transactions
and assets and liabilities of the Seller and such other information as is
contained therein.
(c) Since the Balance Sheet Date: (i) the Seller has operated, and the
Shareholders have caused the Seller to operate, the Businesses in the normal and
ordinary course in a manner consistent with past practices; (ii) there has been
no development, event, condition, or circumstance that has had, or could
reasonably be expected to have, a Material Adverse Effect upon the Seller; (iii)
there has not been any change in the accounting methods or practices followed by
the Seller, except as required by GAAP and disclosed on the Disclosure Schedule;
(iv) the Seller has not sustained any material damage, destruction, theft, loss
or interference with the Purchased Assets or the Business, whether or not
covered by insurance; (v) the Seller has not (x) paid or declared any dividends
or made any distributions or payment in respect of, or made any payment on
account of, or set apart assets for a sinking or another analogous fund for, the
purchase redemption, defeasance, retirement or other acquisition of, the
Seller's securities, whether debt or equity, and whether in cash or in property
or in obligations of the Seller or (y) paid any management or similar fee to any
Person; (vi) no development, event, condition or circumstance that constitutes,
whether with or without the passage of time or the giving of notice or both, a
default under any of the Seller's outstanding debt obligations has occurred;
(vii) the Seller has not created, incurred, assumed or guaranteed any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business) other than (x) for trade indebtedness incurred in the normal and
ordinary course of the Business and (y) as described in the Disclosure Schedule;
(viii) the Seller has not made or committed to make any capital expenditure or
capital addition or betterments in excess of an aggregate of $10,000; and (ix)
the Seller has not made a gift or contribution (charitable or otherwise) to any
Person (other than gifts made since the Balance Sheet Date which, in the
aggregate, do not exceed $5,000).
(d) On the Closing Date, the Seller and the Shareholders will also deliver
or caused to be delivered to the Purchaser or Parent a true and complete copy of
the Closing Balance Sheet. The Closing Balance Sheet will be prepared in
accordance with the books and records of the Seller and its Subsidiaries, all of
which have been maintained in accordance with good business practice and in the
normal and ordinary course of business, and will be prepared in accordance with
GAAP applied on a consistent basis (except for the absence of notes and subject
to normal year-end audit adjustments).
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3.11. Absence of Undisclosed Liabilities. Except as and to the extent
reflected on, or fully reserved against in, the balance sheet of the Seller at
June 30, 1997, including without limitation, all notes thereto, prepared in
accordance with GAAP (the "Seller Balance Sheet"), the Seller has no liabilities
or obligations, whether direct or indirect, matured or unmatured, contingent or
otherwise as of such date required to be disclosed in the Seller Balance Sheet
in accordance with GAAP, and has incurred no such liabilities or obligations
since such date, except for liabilities or obligations that were incurred
consistently with past business practice in or as a result of the normal and
ordinary course of business since June 30, 1997.
3.12. Real Property.
(a) The Purchased Assets do not include any Real Property. The Disclosure
Schedule includes a complete and accurate list of all the locations of all Real
Property and the name and address of the lessor and, if a Person different than
such lessor, the manager thereof. The Seller and the Shareholders have delivered
or caused to be delivered to the Purchaser or Parent true and complete copies of
all Contracts relating to Real Property (including, without limitation, all
leases and all management, service, supply, security, maintenance and similar
Contracts, and all attornment Contracts, subordination Contracts or similar
Contracts, and all other Contracts affecting or relating to the use and quiet
and peaceful enjoyment of the Real Property) to which the Seller is a party or
is otherwise bound or subject, and, in each case, all amendments thereof, which
relate to or affect any of the Real Property. Except for the leases pertaining
to the Real Property identified in and attached to the Disclosure Schedule,
neither the Seller nor any of the Shareholders is a party to any Contract that
commits or purports to commit the Seller to purchase or otherwise acquire or
lease any real property including, without limitation, the Real Property.
(b) Each Contract relating to or affecting the Real Property (i) is in full
force and effect, (ii) affords the Seller peaceful, undisturbed and exclusive
possession of the applicable Real Property, (iii) is free of all Encumbrances,
and (iv) constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against, the respective parties thereto.
(c) The Seller has performed the obligations required to be performed by it
to date under all Contracts relating to or affecting the Real Property and is
not in default or breach thereof. In addition, no party to any such Contract (i)
has provided any notice to the Seller of its intent to terminate or not renew
any such Contract, (ii) to the knowledge of the Seller and the Shareholders, has
threatened to terminate or not renew any such Contract or (iii) is to the
knowledge of the Seller and the Shareholders, in breach or default under any
provision thereof, and to the knowledge of the Seller and the Shareholder, no
event or condition has occurred, whether with or without the passage of time or
the giving of notice, or both, that would constitute such a breach or default.
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(d) The Real Property is in good condition and repair (ordinary wear and
tear excepted) and there has been no damage, destruction or loss to any of the
Real Property that remains unremedied to date, and the Real Property is suitable
to carry out the Business as conducted thereon.
(e) There are no condemnation, appropriation or other proceedings involving
any taking of the Real Property pending, or to the knowledge of either the
Seller or any of the Shareholders, threatened, against any of the Real Property.
(f) Except as set forth on the Disclosure Schedule, the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not (i) result in or give to any Person any right of
termination, non-renewal, cancellation, withdrawal, acceleration or modification
in or with respect to any Contract relating to or affecting the Real Property,
(ii) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed rent or payments under any such
Contract or (iii) result in the creation or imposition of any obligation and
liability upon the Seller or any Encumbrance upon any of the Purchased Assets
under the terms of any such Contract.
(g) The Disclosure Schedule indicates a summary description of all plans or
projects involving the opening of new operations, expansion of any existing
operations or the acquisition of any Real Property, the lease of Real Property
or acquisition of new businesses, with respect to which the Seller has made any
expenditure in the two-years prior to the date of this Agreement in excess of
$10,000, or which if pursued by the Seller would require additional expenditures
of capital in excess of $10,000.
3.13. Tangible Personal Property.
(a) The Seller either owns or leases all properties as are presently used
in the conduct of the Businesses and the Seller's operations. The Seller and the
Shareholders have delivered or caused to be delivered to the Purchaser or Parent
true and complete copies of all Contracts (including, without limitation, leases
and service, supply, maintenance and similar Contracts) to which the Seller is a
party or is otherwise bound or subject, and all amendments thereto, which relate
to or affect any of the tangible personal property owned, possessed or used by
the Seller (the "Tangible Personal Property"). A complete and accurate list of
all such Contracts set forth in, and true and complete copies of such Contracts
are attached to the Disclosure Schedule. Except (i) for those assets disposed of
in the normal and ordinary course of business since the Balance Sheet Date, (ii)
with respect to Tangible Personal Property that is leased or rented by the
Seller, and (iii) as otherwise set forth on the Disclosure Schedule, the Seller,
as the case may be, has good and valid title to all of its Tangible Personal
Property, including all items of Tangible Personal Property reflected on the
Seller Balance Sheet, free of all Encumbrances.
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(b) Since the Balance Sheet Date, the Seller has not incurred or suffered
any material physical damage, destruction, theft or loss of their respective
tangible items of material personal property, whether owned or leased. All
material Tangible Personal Property including, without limitation, all computer
hardware and software (including all operating and application systems), is in
good working order, condition and repair (ordinary wear and tear excepted) and
suitable to carry out the Business as conducted therewith.
(c) Each Contract relating to or affecting the Tangible Personal Property
(i) is in full force and effect, (ii) affords the Seller peaceful, undisturbed
and exclusive possession of the applicable Tangible Personal Property, (iii) is
free of all Encumbrances and (iv) constitutes a valid and binding obligation of,
and is enforceable in accordance with its terms against, the respective parties
thereto.
(d) The Seller has performed the obligations required to be performed by it
to date under all Contracts relating to or affecting the Tangible Personal
Property and is not in default or breach thereof. In addition, no party to any
such Contract (i) has provided any notice to the Seller of its intent to
terminate or not renew any such Contract, (ii) to the knowledge of the Seller
and Shareholders, threatened to terminate or not renew any such Contract or
(iii) is, to the knowledge of the Seller and Shareholders, in breach or default
under any provision thereof, and, to the knowledge of the Seller and
Shareholders, no event or condition has occurred, whether with or without the
passage of time or the giving of notice, or both, that would constitute such a
breach or default.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Tangible Personal Property, (ii) result in or give
to any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed rent or payments under any such Contract or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrances upon any of the Purchased Assets under the terms of
any such Contract.
3.14. Contracts.
(a) Attached to the Disclosure Schedule is a complete and accurate list of
each Contract described below to which the Seller or any of its properties is
party or is otherwise bound or subject:
(i) each Contract with the Company's or any of its Subsidiaries', as
applicable, customers (but only if such customers are among the Company's
twenty-five highest, in terms of dollar value of purchases, for the
twelve-month period ending on the Balance Sheet Date), dealers, brokers,
value added resellers or vendors (but only if such vendors are among the
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Company's twenty-five highest, in terms of dollar value of sales, for the
twelve-month period ending on the Balance Sheet Date);
(ii) any Contract that creates a partnership or a joint venture or
arrangement that involves a sharing of profits (whether through equity
ownership, Contract or otherwise) with any other Person;
(iii) any Contract that purports to or has the effect of limiting
either Seller's right to engage in, or compete with any Person in, any
business;
(iv) any Contract involving a pledge or encumbering of Seller's assets
or the incurrence by the Seller of liabilities (other than liabilities to
render services to customers in the ordinary course of business) in any one
transaction or series of related transactions in excess of $10,000, or that
extend beyond one year from the date of this Agreement;
(v) any material Contract pursuant to which either Seller has created,
incurred, assumed or guaranteed any indebtedness other than for trade
indebtedness incurred in the normal and ordinary course of the Business;
(vi) any Contract not made in the normal and ordinary course of the
applicable Seller's or Subsidiary's Business;
(vii) any Contract creating any Encumbrance on any of the Purchased
Assets; and
(viii) any Contract that (A) either (x) does not fit within one of the
foregoing categories described in (i) through (vii) above or (y) is not
otherwise identified in the Disclosure Schedule and (B) would be required
by Item 601(b)(10) of Regulation S-K promulgated under the Securities Act
to be attached as an exhibit to any registration statement on Form S-1
filed by the Seller under the Act if the Seller were to file such a
registration statement under the Act on the date on which this
representation and warranty is made.
(b) Each material Contract to which the Seller or any of its properties is
a party or is otherwise bound or subject (i) is valid and binding on Seller and,
to the knowledge of Seller and the Shareholders, is valid and binding upon
parties other than Seller in accordance with its terms, (ii) was made in the
normal and ordinary course of the Business and (iii) contains no provision or
covenant prohibiting or limiting the ability of the Seller or any Subsidiary to
operate their respective Businesses.
(c) No party to any material Contract to which the Seller or any of its
properties is a party or is otherwise bound or subject (i) has provided any
notice to the Seller of its intent to terminate or withdraw its participation in
any such Contract, (ii) has, to the
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knowledge of the Seller and Shareholders, threatened to terminate or withdraw
from participation in any such Contract or (iii) is, to the knowledge of the
Seller and Shareholders, in breach or default under any provision thereof, and,
to the knowledge of the Seller and Shareholders, no event or condition has
occurred, whether with or without the passage of time or the giving of notice,
or both, that would constitute such a breach or default.
(d) Except as set forth in the Disclosure Schedule, no Consent of any party
to any material Contract to which the Seller or any of its properties is a party
or is otherwise bound or subject is required in connection with the transactions
contemplated by this Agreement.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any material
Contract to which the Seller or any of its properties is a party or is otherwise
bound or subject, (ii) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
any such Contract or (iii) result in the creation or imposition of any
obligation and liability upon the Seller or any Encumbrances upon any of the
Purchased Assets under the terms of any such Contract.
3.15. Insurance. The Disclosure Schedule includes complete and accurate
copies of all insurance policies held by the Seller. Each such insurance policy
is valid and binding and is and has been in effect since the date of its
issuance. All premiums due thereunder have been paid, and the Seller has not
received any notice of any cancellation, non-renewal or termination in respect
of any such policy. The Seller is not in default under any such policy. To the
knowledge of either the Seller or any of the Shareholders, no such insurer is
the subject of insolvency proceedings. Neither the Seller nor the Person to whom
any such insurance policy has been issued has received notice that any insurer
under any policy referred to in the Disclosure Schedule is denying liability
with respect to a claim thereunder or defending under a reservation of rights
clause. The Seller has notified its insurance carriers of all litigation, claims
and facts which could reasonably be expected to give rise to a claim, all of
which are disclosed in the Disclosure Schedule (including worker's compensation
claims). The liability insurance maintained by the Seller is and has at all
times prior to the date of this Agreement been on an "occurrence" basis.
3.16. Proprietary Rights.
(a) Included in the Disclosure Schedule is a complete and accurate list and
full description of each item of the Seller's Intellectual Property together
with, in the case of registered Intellectual Property: the (i) applicable
registration number; (ii) filing, registration, issue or application date; (iii)
record owner; (iv) country; (v) title or description; and (vi) remaining life.
In addition, the Disclosure Schedule identifies whether each item of
Intellectual Property is owned by the Seller or possessed and used by the Seller
under any Contract. The Intellectual Property constitutes valid and enforceable
rights and does not infringe or conflict with the rights of any other Person;
provided that to the extent the foregoing relates to Intellectual Property used
but
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not owned by the Seller, such representation and warranty is given solely to the
knowledge of the Seller and Shareholders.
(b) There is neither pending, nor to either the Seller's or any of the
Shareholders' knowledge, threatened, any Legal Proceeding against the Seller
contesting the validity or right of the Seller to use any of the Intellectual
Property, and the Seller has not received any notice of infringement upon or
conflict with any asserted right of others nor, to either the Seller's or any of
the Shareholders' knowledge, is there a basis for such a notice. To either the
Seller's or any of the Shareholders' knowledge, no Person is infringing the
Seller's rights to the Intellectual Property.
(c) Except as otherwise provided in the Disclosure Schedule, the Seller
does not have any obligation to compensate others for the use of any
Intellectual Property. In addition, except as otherwise provided on the
Disclosure Schedule, the Seller has not granted any license or other right to
use, in any manner, any of the Intellectual Property, whether or not requiring
the payment of royalties.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
withdrawal, acceleration or modification in or with respect to any Contract
relating to or affecting the Intellectual Property, (ii) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any such Contract or (iii) result in
the creation or imposition of any obligation and liability upon the Seller or
any Encumbrances upon any of the Purchased Assets under the terms of any such
Contract.
3.17. Environmental Matters.
(a) The Seller and the operation of the Business is and has been in
compliance with all applicable Environmental Laws.
(b) There have occurred no and there are no events, conditions,
circumstances, activities, practices, incidents, or actions on the part of, or
caused by, the Seller or Shareholders (or to the knowledge of the Seller or
Shareholders, caused by a third party) that may give rise to any common law or
statutory liability, or otherwise form the basis of any Legal Proceeding, Order
or action involving or relating to the Seller, based upon or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substance or wastes.
(c) To the knowledge of the Seller and Shareholders, there is no asbestos
contained in or forming a part of any building, structure or improvement
comprising a part of any of the Real Property. To the knowledge of the Seller
and Shareholders, no polychlorinated
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byphenyls (PCBs) are present, in use or stored on any of the Real Property. No
radon gas or the presence of radioactive decay products of radon are present on,
or underground at any of the Real Property at levels beyond the minimum safe
levels for such gas or products prescribed by applicable Environmental Laws.
3.18. Permits.
(a) Each of the Seller and its employees, independent contractors and
agents has obtained and holds in full force, and the Disclosure Schedule sets
forth a complete and accurate list of, all Permits that are necessary for the
operation of their respective Businesses. Neither the Seller nor any such
employee, independent contractor or agent is in noncompliance with the terms of
any such Permit. Any Permits that cannot be transferred to the Purchaser are
identified as such on the Disclosure Schedule.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in or
give to any Person any right of termination, non-renewal, cancellation,
acceleration or modification in or with respect to any such Permit, (ii) result
in or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under any such Permit or (iii)
result in the creation or imposition of any obligation and liability upon the
Seller or any Encumbrance upon any of the Purchased Assets under the terms of
any Permit.
(c) Except as set forth in the Disclosure Schedule there is no Order
outstanding against the Seller, nor is there now pending, or to either the
Seller's or any of the Shareholders' knowledge, threatened, any Legal
Proceeding, which could adversely affect any Permit required to be obtained and
maintained by the Seller.
3.19. Regulatory Filings. The Seller has filed all registrations, filings,
reports, or submissions that are required by any Requirement of Law. All such
filings were made in compliance with applicable Requirements of Law when filed
and no deficiencies have been asserted by any Governmental or Regulatory
Authority with respect to such filings and submissions that have not been
finally resolved.
3.20. Taxes and Tax Returns.
(a) The Seller has duly and timely filed all Tax Returns. Except as set
forth in the Disclosure Schedule, each such Tax Return is true, accurate and
complete. The Seller has paid in full all Taxes for the period covered by such
Tax Return. All Taxes not yet due and payable have been withheld or reserved for
or, to the extent that they relate to periods on or prior to the date of the
Seller Balance Sheet, are reflected as a liability thereon. The Seller duly and
properly filed an election to be an S corporation and such election is currently
in effect, under section 1362 of the Code and the rules and regulations
promulgated thereunder. Such election has been in effect without interruption,
including without limitation any inadvertent termination
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which has been reinstated, since 1990. During the year 1990, and at all times
thereafter, all of the current and former stockholders of the Seller are and
have been permitted stockholders under Section 1362 of the Code and the rules
and regulations promulgated thereunder. During the year 1990 and all times
thereafter, the Seller's federal S election has been recognized and given effect
and the Seller has made an appropriate and timely election to be treated as an S
corporation for state income taxation purposes in the State of Arizona.
(b) The Seller has complied with all applicable Requirements of Law
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Section 1441 and 1442 of the Code, or similar
provisions under any foreign Requirements of Law) and have, within the time and
in the manner prescribed by applicable Requirements of Law, withheld from
employee wages and paid over, in a timely manner, to the proper Taxing
Authorities all amounts required to be so withheld and paid over under
applicable Requirements of Law.
(c) No deficiency for any Taxes has been asserted or assessed against the
Seller that has not been resolved and paid in full or fully reserved for and
identified on the Seller Balance Sheet and, to the knowledge of the Seller and
Shareholders, no deficiency for any Taxes has been proposed that has not been
fully reserved for and identified on the Seller Balance Sheet. The Seller has
not received any outstanding and unresolved notices from the IRS or any other
Taxing Authority of any proposed examination or of any proposed change in
reported information relating to the Seller. Except as set forth in the
Disclosure Schedule (which sets forth the nature of the proceeding, the type of
Tax Return, the deficiencies proposed or assessed and the amount thereof, and
the taxable year in question), no Legal Proceeding or audit or similar foreign
proceedings is pending with regard to any of the Seller's Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Seller regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns is outstanding, nor, to the knowledge of the Seller and the
Shareholders, is any request for any such waiver or consent pending.
(e) None of the Purchased Assets is required to be treated as owned by any
other person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(f) No state of facts exists or has existed that would constitute grounds
for the assessment of Tax liability with respect to period that have not been
audited by the IRS or any other Taxing Authority.
3.21. Affiliate Transactions. The Disclosure Schedule lists and fully
describes each Contract, transaction or series of transactions, whether written
or oral (other than for the compensation arrangements described in the
Disclosure Schedule under Section numbers 3.8, 3.9 and 3.25), pursuant to which
the Seller is, or, at any time during the previous five (5) years has
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been, a party or otherwise bound with any Affiliate of any or all of the Seller
and the Shareholders (an "Affiliate Transaction"). Each Affiliate Transaction
(i) has been entered into the normal and ordinary course of the Business.
3.22. Accounts. The Disclosure Schedule attached to this Agreement
completely and accurately states the names and addresses of each bank, financial
institution, fund, investment or money manager, brokerage house and similar
institution in which the Seller maintains any account (whether checking,
savings, investment, trust or otherwise), lock box or safe deposit box
(collectively, the "Accounts"), and the account numbers and name of the Persons
having authority to affect transactions with respect thereto or other access
thereto.
3.23. Receivables. Except as disclosed in the Disclosure Schedule, since
the Balance Sheet Date, the Seller has not written-off, nor under GAAP is it
appropriate to write off, any Receivables. All Receivables currently owing to
the Seller are completely and accurately listed and aged in the Disclosure
Schedule. The Receivables arose from bona fide transactions in the normal and
ordinary course of business and reflect credit terms consistent with past
practice. The Seller has good, valid and marketable title to its Receivables,
free and clear of all Encumbrances, except as set forth on the Disclosure
Schedule. The Seller has not sold, factored, securitized, or consummated any
similar transaction with respect to any of its Receivables. Subject to proper
reserves taken into account in accordance with GAAP as reflected in the
Disclosure Schedule, each Receivable is fully collectable in the normal and
ordinary course of business (i.e., without resort to litigation or assignment to
a collection agency), and is not subject to any dispute, counterclaim, defense,
set-off or other claim.
3.24. Solvency. On and as of the date of this Agreement, and after giving
effect to the Closing and any other transactions contemplated by this Agreement,
(i) the sum of the Seller's obligations and liabilities is not greater than all
of the assets of the Seller at a fair valuation, (ii) the present fair salable
value of the Seller's assets is not less than that will be required to pay the
probable liability of the Seller on its obligations and liabilities (excluding
those to be assumed by the Purchaser) as they become absolutely mature, (iii)
the Seller has not incurred, will not incur, does not intent to incur and does
not believe that it will incur, obligations and liabilities beyond the Seller's
ability to pay such obligations and liabilities as they mature, (iv) the Seller
is not engaged in, and is not about to engage in, a business or transaction for
which the Seller's assets constitutes or would constitute unreasonably small
capital, and (v) the Seller is not insolvent as defined in, or otherwise in a
condition which could in any circumstances then or subsequently render any
transfer or conveyance made by it voidable or fraudulent pursuant to, any
Requirements of Law pertaining to bankruptcy, insolvency or creditors' rights
generally including, without limitation the Bankruptcy Code of 1978, 11 U.S.C.
ss.101, et. seq., as amended, or any other applicable Requirements of Law
relating to fraudulent conveyances, fraudulent transfers or preferences. The
Seller is receiving reasonably equivalent value and consideration from the
Purchaser for the Purchased Assets and is not selling the Purchased Assets to
the Purchaser with intent to hinder, delay or defraud any of its creditors.
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3.25. Officers and Directors.
(a) The Disclosure Schedule accurately and completely lists the names of
the Seller's directors, executive officers, and any of the Seller's significant
employees (as such terms are defined in Regulation S-K under the Securities Act)
(a "significant employee"), and the compensation payable to each of them to
serve as such.
(b) Except as set forth in the Disclosure Schedule, none of the
Shareholders or any of the current directors, current executive officers or
current significant employees (as such term is defined in Section 3.25(a)) of
the Seller or any Shareholder has, within the past five (5) years:
(i) (x) filed or had filed against it, him or her a petition under the
Federal bankruptcy laws or any state insolvency or similar law, or (y) had
a receiver, conservator, fiscal agent or similar officer appointed by a
court for the business, property or assets of such individual or
corporation, or any partnership in which it, he or she was a general
partner or any other Person of which he or she was a director or an
executive officer or had a position having similar powers and authority at
or within two (2) years of the date of such filing;
(ii) been convicted of, or pled guilty or no contest to, any crime
(other than traffic offenses and other minor offenses);
(iii) been named as a subject of any criminal Legal Proceeding (other
than for traffic offenses and other minor offenses);
(iv) been the subject of any Order or sanction relating to an alleged
violation of, or otherwise found by any Governmental or Regulatory
Authority to have violated: (x) any Requirement of Law relating to
securities or commodities, (y) any Requirement of Law respecting financial
institutions, insurance companies, or fiduciary duties owed to any Person,
(z) any Requirement of Law prohibiting fraud (including, without
limitation, mail fraud or wire fraud);
(v) been the subject of any Order enjoining or otherwise prohibiting
it, him or her from engaging in any type of business activity; or
(vi) been the subject of any Order or sanction by (x) a self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), (y) a contract market designated pursuant to Section 5 of the
Commodity Exchange Act, as amended, or (z) any substantially equivalent
foreign authority or organization.
3.26. Brokers or Finders. Except as set forth in the Disclosure Letter,
neither the Seller nor the Shareholders has engaged the services of any broker
or finder with respect to the transactions contemplated by this Agreement, and
no Person has or will have, as a result of the
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consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser or Parent for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Seller or Shareholders. Without degradation to
any of the foregoing, the Seller and the Shareholders are solely responsible for
the payment of the commissions, fees and other compensation payable to the
Person having any such right, interest or claim on account of any action on the
part of the Seller or Shareholders.
3.27. No Other Agreements to Sell Assets. Neither the Seller nor any of the
Shareholders have granted, and there is not outstanding any option, right,
agreement, Contract or other obligation or commitment pursuant to which any
other Person could reasonably claim a right to acquire in any way the Purchased
Assets or any ownership or other material interest in either the Seller or the
Business.
3.28. Customers. The Disclosure Schedule accurately and completely lists
the names of the twenty-five largest customers (in terms of dollar volume of
purchases) of the Seller and details the Seller's total revenue attributable to
each such customer for the fiscal years ended 1994, 1995 and 1996 and the
current fiscal year to date. Except as set forth in the Disclosure Schedule,
there has been no adverse change in the Seller's business relationship with any
such customer that, in the aggregate, would have a Material Adverse Effect upon
the Seller or the Business.
3.29. Investment Company. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder, as amended from time to time, or any successors thereto.
3.30. Absence of Changes. Since the Balance Sheet Date, except as set forth
on the Disclosure Schedule there has not been with respect to the Seller:
(i) any event or circumstance (either singly or in the aggregate)
which would constitute a Material Adverse Effect;
(ii) any change in its authorized capital, or securities outstanding,
or ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments.
(iii) any declaration or payment of any dividend or distribution in
respect of its capital stock or any direct or indirect redemption, purchase
or other acquisition of any of its capital stock, except any declaration of
dividends payable by the Seller.
(iv) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by it to any of its respective
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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 business to
any person, including, without limitation, the Shareholders and their
Affiliates, other than distributions, sales or transfers in the ordinary
course of business to persons other than the Shareholders and their
Affiliates;
(vii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including without
limitation any indebtedness or obligation of the Shareholders or any
Affiliate thereof, other than the negotiation and adjustment of bills in
the course of good faith disputes with customers in a manner consistent
with past practice;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property
or rights or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(x) any waiver of any of its material rights or claims;
(xi) any transaction by the Seller outside the ordinary course of its
respective businesses; or
(xii) any cancellation or termination of a material Contract.
3.31. Accuracy and Completeness of Information. To the knowledge of the
Seller and Shareholders, all information furnished, to be furnished or caused to
be furnished to the Purchaser or Parent by either the Seller or the Shareholders
with respect to the Purchased Assets, the Assumed Liabilities, the Business, the
Seller or the Shareholders for the purposes of or in connection with this
Agreement, or any transaction contemplated by this Agreement is or, if furnished
after the date of this Agreement, will be true and complete in all material
respects and
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does not, and, if furnished after the date of this Agreement, will not, contain
any untrue statement of material fact or fail to state any material fact
necessary to make such information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT
The Purchaser and Parent hereby, jointly and severally, represent and
warrant to the Seller and the Shareholders as follows:
4.1. Organization. The Purchaser and Parent each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (ii) has the power and authority to own and operate its
properties and assets and to transact its business as currently conducted and
(iii) is duly qualified and authorized to do business and is in good standing in
all jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a material adverse effect upon the Purchaser's or Parent's,
as the case may be businesses, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise).
4.2. Authorization for Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Purchaser (i) are within the Purchaser's and Parent's corporate powers
and duly authorized by all necessary corporate action on the part of the
Purchaser and Parent and (ii) do not (A) require any action by or in respect of,
or filing with, any governmental body, agency or official, except as set forth
in this Agreement or (B) contravene, violate or constitute, whether with or
without the passage of time or the giving of notice or both, a breach or default
under, any Requirement of Law applicable to Purchaser, Parent or any of their
properties or any Contract to which the Purchaser, Parent or any of their
properties is bound, except filings and approvals in connection with the Initial
Public Offering.
4.3. Enforceability. This Agreement has been duly executed and delivered by
the Purchaser and Parent and constitutes the legal, valid and binding obligation
of the Purchaser and Parent, enforceable against the Purchaser and Parent in
accordance with its terms.
4.4. Litigation. There is no Legal Proceeding or Order pending against or,
to the knowledge of the Purchaser or Parent, threatened against or affecting,
the Purchaser, Parent or any of their properties or otherwise that could
adversely affect or restrict the ability of the Purchaser or Parent to
consummate fully the transactions contemplated by this Agreement or that in any
manner draws into question the validity of this Agreement.
4.5. Registration Statement. The Registration Statement on Form S-1 and any
amendment thereto which is filed with the Securities and Exchange Commission in
connection
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with the Initial Public Offering will have been prepared in all material
respects in compliance with the requirements of the Securities Act and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein; provided, however, that insofar as the foregoing
relates to information in the Registration Statement that relates to the Seller,
the Shareholders or any of the other Founding Companies, such representation and
warranty shall be deemed based on the knowledge of the Purchaser.
4.6. Brokers or Finders. The Purchaser or Parent has not engaged the
services of any broker or finder with respect to the transactions contemplated
by this Agreement, and no Person has or will have, as a result of the
consummation of the transaction contemplated by this Agreement, any right,
interest or valid claim against or upon the Seller or Shareholders for any
commission, fee or other compensation as a finder or broker thereof on account
of any action on the part of the Purchaser or Parent. Without degradation to any
of the foregoing, the Purchaser and Parent are solely responsible for the
payment of the commissions, fees and other compensation payable to any Person
having any such right, interest or claim on account of any action on the part of
the Purchaser or Parent.
ARTICLE 5
COVENANTS
5.1. Good Faith. Each of the Seller, the Shareholders, Parent and the
Purchaser shall perform each and every of their respective obligations under
this Agreement and shall perform the transactions contemplated by this Agreement
in good faith and in a commercially reasonable manner.
5.2. Approvals. Each of the Seller, the Shareholders, Parent and the
Purchaser shall use their respective commercially reasonable best efforts to
obtain all Regulatory Approvals and Consents from such other third parties
including, without limitation, Consents required under any Contract, Permit or
Requirement of Law, that are necessary or advisable in connection with the
consummation of the transactions contemplated by this Agreement. The
Shareholders shall use their commercially reasonably best efforts to cause the
Seller to cooperate with the Purchaser and Parent to the fullest extent
practicable in seeking to obtain all such Regulatory Approvals and Consents, and
shall provide, and shall cause the Seller to provide, such information and
communications to all Governmental or Regulatory Authorities as they, the
Purchaser or Parent may request from time to time in connection therewith.
Nothing contained herein shall require either of the Seller, Parent or the
Purchaser to amend the provisions of this Agreement, to pay or cause any of
their respective Affiliates to pay any money, or to provide or cause any of
their respective Affiliates to provide any guaranty to obtain any such
Regulatory Approvals or Consents.
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5.3. Cooperation; Access to Books and Records.
(a) The Seller will, and the Shareholders will and will cause the Seller
to, cooperate with the Purchaser and Parent in connection with the transactions
contemplated by this Agreement and any Purchaser Financing Transaction,
including, without limitation, cooperating in the determination of which
Regulatory Approvals and Consents are required or advisable to be obtained prior
to the Closing Date. Until the Closing Date, the Seller will, and the
Shareholders will and will cause the Seller to, afford to the Purchaser, its
agents, legal advisors, accountants, auditors, commercial and investment banking
advisors and other authorized representatives, agents and advisors reasonable
access to all of the properties and books and records of the Seller (including
those in the possession or control or their accountants, attorneys and any other
third party), as the case may be, for the purpose of permitting the Purchaser or
Parent to make such investigation and examination of the business and properties
of the Seller as the Purchaser or Parent, in its discretion, shall deem
necessary, appropriate or desirable. Any such investigation, access and
examination shall be conducted upon reasonable prior notice under the
circumstances. The Seller will, and the Shareholders will cause the Seller to,
cause each of their respective directors, officers, employees and
representatives, including, without limitation, their respective counsel and
accountants, to cooperate fully with the Purchaser or Parent in connection with
such investigation, access and examination. The results of such investigation
and examination is for the Purchaser's and Parent's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by any or all of the
Seller or the Shareholders in this Agreement, (ii) relieve the Seller or the
Shareholders from its or their obligations with respect to such representations
and warranties (including, without limitation, the indemnification obligations
under Article 10), or (iii) mitigate the Seller's or the Shareholders'
obligations to disclose all material facts to the Purchaser and Parent with
respect to the Seller and the Business.
(b) The Purchaser and Parent will cooperate with the Seller in connection
with the transactions contemplated by this Agreement and any Purchaser Financing
Transaction, including, without limitation, cooperating in the determination of
which Regulatory Approvals and Consents are required or advisable to be obtained
prior to the Closing Date. Until the Closing Date, the Purchaser and Parent will
afford to the Seller and its agents, legal advisors and accountants reasonable
access to all of the properties and books and records of the Purchaser and
Parent (including those in the possession or control or their accountants,
attorneys and any other third party), as the case may be, for the purpose of
permitting the Seller to make such investigation and examination of the business
and properties of the Purchaser and Parent and any of their Subsidiaries as the
Seller, in its discretion, shall deem necessary, appropriate, or desirable. Any
such investigation, access and examination shall be conducted upon reasonable
prior notice under the circumstances. Purchaser and Parent will cause each of
their directors, officers, employees and representatives, including, without
limitation, its counsel and accountants, to cooperate fully with the Seller, in
connection with such investigation, access and examination. The results of such
investigation and examination is for the Seller's sole benefit, and shall not
(i) impair or reduce any representation or warranty made by the Purchaser or
Parent in this Agreement, (ii) relieve the Purchaser or Parent from their
obligations with respect to such
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representations and warranties (including, without limitation, the Purchaser's
and Parent's obligations under Article 10), or (iii) mitigate the Purchaser's
and Parent's obligations to otherwise disclose all material facts to the Seller
with respect to the Purchaser and Parent.
5.4. Duty to Supplement.
(a) Promptly upon the Seller's or the Shareholders' discovery of the
occurrence of any development, event, circumstance or condition that,
individually or in the aggregate, may have a Material Adverse Effect upon the
Purchased Assets, or the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Seller, the
Shareholders shall, and shall cause the Seller to, as the case may be, notify
the Purchaser and Parent of such development, event, circumstance or condition.
In the event that the Purchaser or Parent receives such notice or otherwise
discovers the fact of any such development, event, circumstance or condition,
the Purchaser or Parent shall be entitled, in its sole discretion, to terminate
this Agreement within ten (10) days after so discovering without further
obligation or liability upon the delivery of written notice to the Seller to
that effect; provided, however, that before Purchaser or Parent may exercise its
termination right, it must afford the Seller the opportunity to cure the matter
giving rise to the termination right (but for no longer than five days following
the date Purchaser or Parent notifies the Seller of its intent to terminate)
unless, in the judgement of the managing underwriter of the Initial Public
Offering, any such cure period might adversely affect the Initial Public
Offering.
(b) Promptly upon the Seller's or the Shareholders' discovery of any fact,
event, condition or circumstance that causes any representation or warranty made
by any or all of the Seller or the Shareholders to the Purchaser and Parent in
this Agreement to become untrue or inaccurate at any time after the date of this
Agreement, the Shareholders shall, and shall cause the Seller to, notify the
Purchaser and Parent of such fact, event, condition or circumstance.
5.5. Information Required for Purchaser Financing Transactions. The Seller
shall, and the Shareholders shall and shall cause the Seller to, furnish the
Purchaser and Parent with the following information:
(a) the Seller's audited balance sheet as of June 30, 1995, 1996 and 1997
and the related statements of operations, shareholders' equity and cash flows
for the year then ended, together with all proper exhibits, schedules and notes
thereto, audited by Arthur Andersen LLP, all of which shall be prepared in
accordance with GAAP consistently applied with prior periods and shall present
fairly the financial position of the Seller for the years ended June 30, 1995,
1996 and 1997 and the results of operations and changes in shareholders' equity
and cash flows for the periods covered thereby;
(b) any unaudited interim financial statements requested by the Purchaser
and Parent or any Underwriter to be included in any registration statement,
prospectus, document or other item, or any amendment or supplement thereof,
relating any Purchaser Financing
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Transaction, all of which shall (i) be in accordance with the Books and Records
maintained in accordance with good business practice and in the normal and
ordinary course of business, (ii) be prepared in accordance with GAAP applied on
a consistent basis (except for the absence of notes and subject to normal
year-end audit adjustments), (iii) present fairly the financial position of the
Seller as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods covered thereby, and (iv)
include comparable interim financial statements for the prior year period; and
(c) such other written information with respect to themselves as the
Purchaser, Parent or any Underwriter may reasonably deem necessary, desirable or
appropriate in connection with any Purchaser Financing Transaction or the
preparation of any registration statement, prospectus, document or other item
relating thereto.
5.6. Performance of Conditions. The Seller, the Shareholders, Parent and
the Purchaser shall, and the Shareholders shall cause the Seller to, take all
reasonable steps necessary or appropriate and use all commercially reasonable
efforts to effect as promptly as practicable the fulfillment of the conditions
required to be obtained that are necessary or advisable for the Seller, Parent
and the Purchaser to consummate the transactions contemplated by this Agreement
including, without limitation, all conditions precedent set forth in Article 6.
5.7. Conduct of Business. During the period of time from and after the date
of this Agreement to the Closing Date, the Seller shall, and the Shareholders
shall cause the Seller to, operate the Business in the normal and ordinary
course in a manner consistent with past practice including, without limitation,
to do the following:
(a) to maintain the Seller's corporate existence and all Permits, bonds,
franchises and qualifications to do business;
(b) to comply with all Requirements of Law;
(c) to use its commercially reasonable best efforts to preserve intact the
Seller's business relationships with its agents, customers, employees, creditors
and others with whom the Seller has a business relationship;
(d) to preserve the Seller's assets, properties and rights (including,
without limitation, the Purchased Assets) necessary or advisable to the
profitable conduct of the Business;
(e) to pay when due all Taxes lawfully levied or assessed against the
Seller before any penalty or interest accrues on any unpaid portion thereof and
to file all Tax Returns when due (including after applicable extensions)
provided that no such payment shall be required which is being contested in good
faith and by proper proceedings and for which appropriate reserves as may be
required by GAAP have been established;
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(f) to maintain in full force and effect all policies of insurance adequate
(both in terms of coverage and amount of coverage) to insure against risks as
are customarily and prudently insured against by companies of established repute
engaged in the same or a similar business;
(g) to perform all material obligations under all material Contracts to
which the Seller is a party or by which it or its properties are bound or
subject;
(h) to 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 the Purchaser or Parent, which consent shall not be unreasonably
withheld; and
(i) to collect Receivables and pay Accrued Expenses in a manner consistent
with past practices.
5.8. Negative Covenants. During the period from and after the date of this
Agreement until the Closing Date, the Seller shall not, and the Shareholders
shall not cause the Seller to do, and shall not permit the Seller to do,
directly or indirectly, any of the following without the express prior written
consent of the Purchaser or Parent, which consent shall not be unreasonably
withheld:
(a) make or adopt any changes to or otherwise alter the Seller's
certificate or articles of incorporation, by-laws or any other governing or
constitutive documents;
(b) purchase or enter into any Contract or commitment to purchase or lease
any real property;
(c) grant any salary increase or permit any advance to any director,
officer or employee or enter into any new, or amend or otherwise alter, any
Employee Benefit Plan, or any employment or consulting Contract, or any Contract
providing for the payment of severance;
(d) make any borrowings or otherwise create, incur, assume or guaranty any
indebtedness (except for the endorsement of negotiable instruments for deposit
or collection or similar transactions in the normal and ordinary course of the
Business), issue any commercial paper or refinance any existing borrowings or
indebtedness other than in the ordinary course of business;
(e) enter into any Permit other than in the normal and ordinary course of
business;
(f) enter into any Contract, other than in the ordinary course of the
Business; provided that any Contract permitted to be entered into pursuant to
this Section 5.8(f) shall not (i) involve a pledge of or an encumbrance on any
of the Seller's assets or the incurrence
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by the Seller of liabilities (other than in the performance of services for
customers in the ordinary course of business) in any one transaction or series
of related transactions in excess of ($10,000) and cause the aggregate
commitment under all such new Contracts to exceed ($100,000), or (ii) involve a
term of more than one (1) year;
(g) make, or enter into any commitment to make, any contribution
(charitable or otherwise) to any Person;
(h) enter into any transaction with any Affiliate of either or both of the
Seller or the Shareholders including, without limitation the purchase, sale or
exchange of property with, the rendering of any service to, or the making of any
loans to, any such Affiliate (provided that the foregoing will not restrict the
distribution of income from the Accumulated Adjustment Account to the
Shareholders);
(i) grant or issue any subscription, warrant, option or other right to
acquire any of the Seller's securities, whether debt or equity, and whether by
conversion or otherwise, or make any commitment to do so;
(j) merge or consolidate, or agree to merge or consolidate, with or into
any other Person or acquire or agree to acquire or be acquired by any Person;
(k) mortgage, pledge, hypothecate or grant a security interest in, or
otherwise permit or suffer to exist any Encumbrance upon, any of the Purchased
Assets;
(l) sell, lease, exchange, transfer or otherwise dispose of, or agree to
sell, lease, exchange, transfer or otherwise dispose of, any of the Seller's
assets having an aggregate fair market value in excess of $10,000, except for
the disposition of obsolete or worn-out assets in the normal and ordinary course
of business, which assets do not exceed, in the aggregate, 5% of the Seller's
assets as reflected on the Seller Balance Sheet;
(m) (i) change any of its methods of accounting in effect as at the Balance
Sheet Date, or (ii) make or rescind any express or deemed election relating to
Taxes, or change any of its methods of reporting income or deductions for income
tax purposes from those employed in the preparation of income Tax Returns for
the taxable year ended December 31, 1996, except, in either case, as may be
required by any applicable Requirement of Law, the IRS or GAAP;
(n) enter into any Contract or make any commitment to make any capital
expenditures or capital additions or betterments in excess of an aggregate of
$10,000;
(o) cause or permit the Seller or any such Subsidiary to (i) terminate any
Employee Benefit Plan, (ii) permit any "prohibited transaction" involving any
Employee Benefit Plan, (iii) fail to pay to any Employee Benefit Plan any
contribution which it is obligated to pay
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under the terms of such Employee Benefit Plan, whether or not such failure to
pay would result in an "accumulated funding deficiency" or (iv) allow or suffer
to exist any occurrence of a "reportable event" or any other event or condition,
which presents a material risk of termination by the PBGC of any Employee
Benefit Plan. As used in this Agreement, the terms "accumulated funding
deficiency" and "reportable event" shall have the respective meanings assigned
to them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in the Code and ERISA;
(p) enter into any transaction or conduct any operations not in the normal
and ordinary course of business; or
(q) enter into any Contract or make any commitment to do any of the
foregoing.
5.9. Exclusive Negotiation. The Seller and the Shareholders shall not: (i)
provide any information about the Seller or the Business to any Person (other
than the Purchaser, Parent or their representatives) with a view to sell,
exchange or dispose or solicit an offer for the acquisition of any of the
Purchased Assets or any ownership or other material interest in the Seller or
the Business; (ii) solicit or accept any other offers for the sale, exchange or
other disposition of any of the Purchased Assets or any ownership or other
material interest in the Seller or the Business; (iii) negotiate or discuss with
any Person (other than the Purchaser, Parent or any of their representatives)
the possible sale, exchange or other disposition of any of the Purchased Assets
or any ownership or other material interest in the Seller or the Business; or
(iv) sell, exchange or otherwise dispose of any of the Purchased Assets or any
ownership or other material interest in the Seller or the Business, in any of
the foregoing cases, whether by equity sale, merger, consolidation, equity
exchange, sale of assets or otherwise. The Seller shall, and the Shareholders
shall and shall cause the Seller to, advise the Purchaser and Parent promptly of
its or his receipt of any written offer or written proposal concerning any of
the Purchased Assets, the Seller, or the Business or any material interest
therein, and the terms thereof.
5.10. Public Announcements. Prior to the Closing, neither the Seller nor
any Shareholder shall issue any public report, statement, press release or
similar item or make any other public disclosure with respect to the substance
of this Agreement prior to the consultation with and approval of the Purchaser
or Parent. In addition, prior to Closing, before the Purchaser or Parent issues
a public statement that refers to the Seller or Shareholders (other than in the
Registration Statement) the Purchaser or Parent will endeavor to consult with
the Seller to the extent time permits. Nothing contained herein shall restrict
the ability of the Seller from contacting a third party in order to obtain a
Consent to the transactions contemplated hereby.
5.11. Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Disclosure Schedule or any other Schedule hereto with
respect to any matter hereafter arising or discovered
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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 Seller that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect shall
be effective unless the Purchaser or Parent consents to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 6 and 7
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 5.11. Except as otherwise
provided herein, no amendment of or supplement to a Schedule shall be made later
than 24 hours prior to the anticipated effectiveness of the Registration
Statement in connection with the Initial Public Offering (the "Registration
Statement").
5.12. Cooperation in Preparation of Registration Statement.
(a) The Seller and the Shareholders shall furnish or cause to be furnished
to the Purchaser, Parent and the underwriters of the Initial Public Offering
(the "Underwriters") all of the information concerning the Seller or the
Shareholders reasonably requested by the Purchaser, Parent and the Underwriters,
and will cooperate with the Purchaser, Parent and the Underwriters in the
preparation of, any registration statement (or similar document) relating to the
Purchaser Financing Transaction and the prospectus (or similar document)
included therein (including audited financial statements, prepared in accordance
with generally accepted accounting principles). The Seller and the Shareholders
agree promptly to advise the Purchaser and Parent if at any time during the
period in which a prospectus relating to the Purchaser Financing Transaction is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the Seller or the Shareholders becomes incorrect or
incomplete in any material respect, and to provide the information needed to
correct such inaccuracy. The Purchaser and Parent agree to use their
commercially reasonable best efforts to prepare and file the Registration
Statement as promptly as practicable, to furnish the Seller with a copy thereof
and each amendment thereto in substantially the form in which it is to be filed
as promptly as reasonably practicable prior to such filing (it being understood
that neither the Seller nor any of the Shareholders has any obligation to review
the same other than with respect to information regarding the Company or the
Seller) and to diligently seek to cause the Registration Statement to be
declared effective and the Initial Public Offering to be completed. The
Purchaser and Parent agree that neither the Seller nor any of the Shareholders
shall have any responsibility for pro forma adjustments that may be made to the
Financial Statements.
(b) The Seller and each of the Shareholders acknowledge and agree (i) that,
prior to the execution and delivery of a definitive underwriting agreement, the
Underwriters have made no firm commitment, binding agreement, or promise or
other assurance of any kind, whether express or implied, oral or written, that
the Registration Statement will become effective or that the Initial Public
Offering pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all, (ii) that none of the prospective
Underwriters of the Purchaser's common stock, in the Initial Public Offering nor
any officers, directors, agents
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or representatives of such Underwriters shall have any liability to the
Shareholders, the Seller or any other person affiliated or associated with the
Seller for any failure of the Registration Statement to become effective, the
Initial Public Offering to occur at a particular price or within a particular
range of prices or occur at all, and (iii) the decision of the Shareholders and
the Seller to enter into this Agreement and, if applicable, to vote in favor of
or consent to the transactions contemplated hereby, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications of, or due diligence investigation which have been or will be
made or performed by any prospective Underwriter, relative to the Purchaser or
the prospective Initial Public Offering. The Seller acknowledges that shares of
DocuNet Common Stock received as a part of the Purchase Price, if any, will not
be issued pursuant to the Registration Statement; and, therefore, the
Underwriters shall have no obligation to the Seller or the Shareholders with
respect to any disclosure contained in the Registration Statement and neither
Seller nor any Shareholder may assert any claim against the Underwriters
relating to the Registration Statement on account thereof.
5.13. Examination of Final Financial Statement. The Seller shall provide to
Purchaser and Parent prior to the Closing Date, the unaudited consolidated
balance sheets of the Seller for each month and fiscal quarter end between the
date of this Agreement and the Closing Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the Seller for such
subsequent fiscal months and quarters. In addition, the Seller shall prepare and
deliver to the Purchaser and Parent at Closing, the Closing Balance Sheet. Such
financial statements, which shall be deemed to be Financial Statements (as
defined herein) shall have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except for the absence of notes and subject to normal year-end audit
adjustments).
5.13A Audit Opinion. The parties acknowledge that the Financial Statements
identified in Section 3.10(a) have been received by Arthur Andersen LLP in
anticipation of rendering its unqualified opinion thereon prior to consummation
of the Initial Public Offering.
5.14. Lock-Up Agreements. In connection with the Initial Public Offering,
for good and valuable consideration, the Seller and each Shareholder hereby
irrevocably agrees that for a period of 180 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except pursuant to the Escrow Agreement), directly or indirectly, any shares of
DocuNet Common Stock or any securities convertible into or exercisable or
exchangeable for shares of DocuNet Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the DocuNet Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of DocuNet Common Stock or such other securities, in cash or otherwise without
the prior written consent of the Underwriters. None of the Seller or the
Shareholders, without the prior written consent of the Underwriters,
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shall exercise any demand, mandatory, piggyback, optional or any other
registration rights, if any such rights exist, for a period of 180 days from the
Effective Date. The Seller and the Shareholders agree that the foregoing shall
be binding upon their transferees, successors, assigns, heirs and personal
representatives and shall benefit and be enforceable by the underwriters in the
Initial Public Offering. In furtherance of the foregoing, the Parent and its
transfer agent, are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Section 5.14.
5.15. Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "Hart-Scott Act"). All parties to this Agreement hereby recognize that
one or more filings under the Hart-Scott Act may be required in connection with
the transactions contemplated herein. If it is determined by the parties to this
Agreement that filings under the Hart-Scott Act are required, then: (i) each of
the parties hereto agrees to cooperate and use its best efforts to comply with
the Hart-Scott Act, (ii) such compliance by the Seller and the Stockholder shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 6 of this Agreement, and such compliance by Purchaser and
Parent shall be deemed a condition precedent in addition to the conditions
precedent set forth in Section 6 of this Agreement, and (iii) the parties agree
to cooperate and use their best efforts to cause all filings required under the
Hart-Scott Act to be made. If filings under the Hart-Scott Act are required, the
costs and expenses thereof (including filing fees) shall be borne by Purchaser
and Parent. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott Act, if applicable.
5.16. Lease. At the Closing, Seller and the Purchaser or Parent will
execute the Lease or a lease containing the terms set forth on Exhibit D hereto.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1. Conditions Precedent to Purchaser's and Parent's Obligations. The
Purchaser's and Parent's obligation to consummate the transactions contemplated
by this Agreement is subject to the satisfaction of, or waiver in writing by the
Purchaser or Parent of, prior to or at the Closing, each and every of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Seller and the Shareholders contained in this Agreement shall
be true and correct on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date except for those representations and warranties that by their terms
relate to an earlier date, which representations and warranties shall be true
and correct in all material respects with regard to such earlier date. The
Seller and each of the Shareholders shall execute and deliver to the Purchaser
and Parent a certificate dated the Closing Date, certifying that all of the
Seller's and the Shareholders' representations and
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warranties contained in this Agreement are true and correct on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Seller and the
Shareholders shall have each performed and complied in all material respects
with each and every covenant, agreement and condition required by this Agreement
to be performed or satisfied by the Seller and the Shareholders, as the case may
be, at or prior to the Closing Date. Each of the Seller and the Shareholders
shall execute and deliver to the Purchaser and Parent a certificate dated as of
the Closing Date, certifying that the Seller and the Shareholders have fully
performed and complied in all material respects with all the duties, obligations
and conditions required by this Agreement to be performed and complied with by
them at or prior to the Closing Date.
(c) Delivery of Documents. The Seller and the Shareholders shall have each
delivered to the Purchaser or Parent all documents, certificates, instruments
and items required to be delivered by him or it at or prior to the Closing Date
pursuant to this Agreement.
(d) Consents. All proceedings, if any, to have been taken and all Consents
including, without limitation, all Regulatory Approvals, necessary or advisable
in connection with the transactions contemplated by this Agreement shall have
been taken or obtained.
(e) Financing. The Registration Statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(f) Closing Balance Sheet The Seller shall have delivered to the Purchaser
and Parent a true and complete copy of the Closing Balance Sheet together with a
certificate dated the Closing Date, signed by the Seller's chief financial
officer that the Closing Balance Sheet is in accordance with the Books and
Records and with GAAP applied on a consistent basis (except for the absence of
notes and subject to normal year-end audit adjustments) and presents fairly the
financial position of the Seller as of the Closing Date.
(g) No Material Adverse Change. From and after the date of this Agreement,
there shall not have occurred or be threatened any development, event,
circumstance or condition that could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect upon the Purchased Assets, or
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Seller.
(h) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Purchaser to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of the Purchaser to combine and
operate
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the business, operations and assets of the Seller with the Purchaser's or
Parent's business, operations and assets; (iii) imposing or seeking to impose
other sanctions, damages or liabilities arising out of the transactions
contemplated by this Agreement on the Purchaser or Parent, or any of their
directors, officers or employees; (iv) requiring or seeking to require
divestiture by the Purchaser of all or any material portion of the business,
assets or property of the Seller; or (v) restraining, enjoining or prohibiting
or seeking to restrain, enjoin or prohibit the consummation of transactions
contemplated by this Agreement.
(i) Secretary's Certificate. The Seller shall have delivered to the
Purchaser and Parent a certificate or certificates dated as of the Closing Date
and signed on its behalf by its Secretary to the effect that (i)(A) the copy of
the Seller's articles or certificate of incorporation attached to the
certificate is true, correct and complete, (B) no amendment to such articles or
certificate of incorporation has occurred since the date of the last amendment
annexed (such date to be specified), (C) a true and correct copy of the Seller's
bylaws as in effect on the date thereof and at all times since the adoption of
the resolution referred to in (D) is annexed to such certificate, (D) the
resolutions by the Seller's board of directors and shareholders authorizing the
actions taken in connection with the sale of the Purchased Assets, including,
without limitation, the execution, delivery and performance of this Agreement,
were duly adopted and continue in force and effect (a copy of such resolutions
to be annexed to such certificate); (ii) setting forth the Seller's incumbent
officers and including specimen signatures on such certificate or certificates
as their genuine signatures; and (iii) the Seller is in good standing in all
jurisdictions where the ownership or lease of property or the conduct of its
business requires it to qualify to do business, except for those jurisdictions
where the failure to be duly qualified, authorized and in good standing would
not have a material adverse effect upon the business, prospects, operations,
results of operations, assets, liabilities or condition (financial or otherwise)
of the Seller. The certification referred to above in (iii) shall attach
certificates of good standing certified by the Secretaries of State or other
appropriate officials of such states, dated as of a date not more than a five
(5) days prior to the Closing Date.
(j) Opinion of Counsel of Seller. Bonn, Luscher, Padden & Wilkins, counsel
for the Seller and the Shareholders, shall have delivered to the Purchaser and
Parent their favorable opinion, dated the Closing Date as to the matters covered
in Schedule 6.1(j). In rendering such opinion, counsel may rely to the extent
recited therein on certificates of public officials and of the Seller's officers
as to matters of fact, and as to any matter that involves other than federal or
Arizona law, such counsel may rely upon the opinion of local counsel reasonably
satisfactory to the Purchaser, Parent and their counsel.
(k) Termination of Related Party Agreements. All existing agreements
between the Seller and the Shareholders or Affiliates of the Seller or
Shareholders, other than those set forth on Schedule 6.1(k), shall have been
canceled.
(l) Employment Agreements. Each of the persons listed on Schedule 6.1(l)
shall have entered into an employment or consulting agreement (collectively, the
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"Employment Agreements") with the Purchaser or Parent substantially in the form
of Exhibit E attached hereto.
(m) Repayment of Indebtedness. Prior to the Closing Date, the Shareholders
shall have repaid the Seller in full all amounts owing by the Shareholders or
employees of the Seller to the Purchaser.
(n) FIRPTA Certificate. Each Shareholder shall have delivered to the
Purchaser and Parent a certificate to the effect that he is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
(o) Escrow Agreement. Shareholders and the Seller shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
6.2. Conditions Precedent to Seller's Obligations. The Seller's obligation
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of, or waiver in writing by the Seller of, prior to or at the
Closing, each and every of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser and Parent contained in this Agreement shall be true
and correct in all material respects on and as of the date of the Closing Date
with the same force as though such representations and warranties had been made
on and as of the Closing Date except for those representations and warranties
that by their terms relate to an earlier date, which representations and
warranties shall be true and correct in all material respects with regard to
such earlier date. The Purchaser and Parent shall execute and deliver to the
Seller a certificate dated as of the Closing Date, certifying that all of its
representations and warranties contained in this Agreement are true and correct
on and as of the Closing Date as though such representations and warranties had
been made on and as of the Closing Date.
(b) Compliance with Covenants and Conditions. The Purchaser and Parent
shall have performed and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement to be performed or
satisfied by the Purchaser and Parent at or prior to the Closing Date. The
Purchaser and Parent shall execute and deliver to the Seller a certificate dated
as of the Closing Date, certifying the Purchaser and Parent have fully performed
and complied in all material respects with all the duties, obligations and
conditions required by this Agreement to be performed and complied with by it at
or prior to the Closing Date.
(c) Delivery of Documents. The Purchaser and Parent shall have delivered to
the Shareholders all documents, certificates, instruments and items required to
be delivered by it at or prior to the Closing.
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(d) No Legal Proceeding Affecting Closing. There shall not have been
instituted and there shall not be pending or threatened any Legal Proceeding,
and no Order shall have been entered (i) imposing or seeking to impose
limitations on the ability of the Seller to sell any of the Purchased Assets;
(ii) imposing or seeking to impose other sanctions, damages or liabilities
arising out of the transactions contemplated by this Agreement on the Seller or
any of its directors, officers or employees or on the Shareholder; or (iv)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
the consummation of transactions contemplated by this Agreement.
(e) Escrow Agreement. The Purchaser and Parent shall have executed the
Escrow Agreement substantially in the form of Exhibit C attached hereto.
(f) Employment Agreements. The Purchaser shall have entered into the
Employment Agreements with each of the persons listed on Schedule 6.1(l).
(g) Secretary's Certificate. The Purchaser and Parent shall have delivered
to the Seller a certificate or certificates dated as of the Closing Date and
signed on its behalf by its Secretary to the effect that (i)(A) the copy of the
Purchaser's and the Parent's articles or certificate of incorporation attached
to the certificate is true, correct and complete, (B) no amendment to such
articles or certificate of incorporation has occurred since the date of the last
amendment annexed (such date to be specified), (C) a true and correct copy of
the Purchaser's and the Parent's bylaws as in effect on the date thereof and at
all times since the adoption of the resolution referred to in (D) is annexed to
such certificate, (D) the resolutions by the Purchaser's and Parent's board of
directors authorizing the actions taken in connection with the purchase of the
Purchased Assets including, without limitation, the execution, delivery and
performance of this Agreement were duly adopted and continue in force and effect
(a copy of such resolutions to be annexed to such certificate) and (ii) setting
forth the incumbent officers of the Purchaser and Parent and including specimen
signatures on such certificate or certificates of such officers executing this
Agreement on behalf of the Purchaser and Parent as their genuine signatures.
(h) Financing. The registration statement on Form S-1 relating to the
Initial Public Offering shall have been declared effective by the Securities and
Exchange Commission and the closing of the sale of DocuNet Common Stock to the
Underwriters in the Initial Public Offering shall have occurred simultaneously
with the Closing Date hereunder.
(i) Opinion of Counsel of Purchaser. Pepper, Hamilton & Scheetz LLP,
counsel for Purchaser, shall have delivered to the Seller and Shareholder its
favorable opinion, dated the Closing Date, as to the matters covered in Schedule
6.2(i). In rendering such opinion, counsel may rely to the extent recited
therein on certificates of public officials and of officers of Purchaser as to
matters of fact, and such opinion may be limited to federal laws and the laws of
the Commonwealth of Pennsylvania.
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ARTICLE 7
CLOSING
At or prior to the Pricing, the parties shall take all administrative
actions necessary to prepare to effect the sale of the Purchased Assets and the
assumption of the Assumed Liabilities referred to herein; provided, that such
actions shall not include the actual completion of the sale and purchase of the
Purchased Assets and the assumption of the Assumed Liabilities, the delivery of
the Bill of Sale and the Assignment and Assumption Agreement, and the delivery
of the check(s) (or wire transfers) referred to in Section 2 hereof, each of
which actions shall only be taken upon the Closing Date as herein provided. In
the event that there is no Closing Date and this Agreement terminates, Purchaser
hereby covenants and agrees to do all things required by Pennsylvania law and
all things which counsel for the Seller advises Purchaser are required by
applicable laws of the State of Arizona in order to rescind any actions taken in
furtherance of the sale of the Purchased Assets and the assumption of the
Assumed Liabilities as described in this Section. The taking of the actions
described above shall take place on the Pricing Date at the offices of Pepper,
Hamilton & Scheetz LLP, 3000 Two Logan Square, 18th and Arch Streets,
Philadelphia, PA 19103. On the Closing Date (i) (a) the Seller's duly executed
Bill of Sale, (b) the Seller's duly executed counterpart to the Assignment and
Assumption Agreement and (c) all such endorsements, assignments and other
instruments of transfer and conveyance including, without limitation, waivers or
consents of lessors and other third Persons, and releases, satisfactions and
termination statements from secured parties, as may be necessary to vest in the
Purchaser indefeasible and marketable legal and beneficial title to the
Purchased Assets, free and clear of all Encumbrances (except for the Assumed
Liabilities), to effect the assignment and assumption of the Assumed Liabilities
and to consummate the transactions contemplated by this Agreement, all of which
shall be in form and substance reasonably satisfactory to the Purchaser, (ii)
all transactions contemplated by this Agreement, including the delivery of
shares of DocuNet Common Stock to the Seller, the delivery of the shares of
DocuNet Common Stock to the Escrow Agent on account of the Escrow Agreement, the
delivery of a bank check or checks or a wire transfer in an amount equal to the
cash portion of the consideration which the Seller shall be entitled to receive
pursuant to Section 2 hereof, and the delivery of the documents contemplated to
be delivered by Purchaser, Parent, Seller and Shareholders pursuant to Section 6
hereof, and (iii) the closing with respect to the Initial Public Offering shall
occur and be deemed to be completed. The date on which the actions described in
the preceding clauses (i), (ii) and (iii) occurs shall be referred to as the
"Closing Date." Except as otherwise provided in Section 11 hereof, during the
period from the Pricing Date to the Closing Date, this Agreement may only be
terminated by the parties if the underwriting agreement in respect of the
Initial Public Offering is terminated pursuant to the terms thereof.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1. Confidentiality.
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(a) Each party to this Agreement shall use Confidential Information only in
connection with the transactions contemplated hereby (including the Initial
Public Offering) and shall not disclose any Confidential Information about any
other party to any Person unless the party desiring to disclose such
Confidential Information receives the prior written consent of the party about
whom such Confidential Information pertains, except (i) to any party's
directors, officers, employees, agents, advisors and representatives who have a
need to know such Confidential Information for the performance of their duties
as employees, agents or representatives, (ii) to the extent strictly necessary
to obtain any Consents including, without limitation, any Regulatory Approvals,
that may be required or advisable to consummate the transactions contemplated by
this Agreement, (iii) to enforce such party's rights and remedies under this
Agreement, (iv) with respect to disclosures that are compelled by any
Requirement of Law or pursuant to any Legal Proceeding; provided, that the party
compelled to disclose Confidential Information pertaining to any other party
shall notify such other party thereof and use his or its commercially reasonable
efforts to cooperate with such other party to obtain a protective order or other
similar determination with respect to such Confidential Information; (v) made to
any party's legal counsel, independent auditors, investment bankers or financial
advisors under an obligation of confidentiality; (vi) to other Founding
Companies or Potential Founding Companies; or (vii) as otherwise permitted by
Section 5.10 of this Agreement.
(b) In the event that the transactions contemplated by this Agreement are
not consummated in accordance with the terms of this Agreement, each party
shall, upon the request of the other party, return to the other party or destroy
all Confidential Information and any copies thereof previously delivered by such
requesting party, except to the extent that such party deems such Confidential
Information necessary or desirable to enforce his or its rights under this
Agreement.
(c) The obligation of confidentiality contained in this Section 8.1 shall
survive the termination of this Agreement, or the Closing, as applicable, for a
period of two years after the date of such termination or the Closing Date,
respectively; provided, that, if the Closing shall occur, then the Purchaser's
and Parent's obligation of confidentiality shall terminate upon the Closing.
(d) The parties hereto acknowledge and agree that they may become aware of
potential acquisition targets of the Purchaser or Parent, including but not
limited to the Potential Founding Companies (collectively, the "Purchaser
Targets"), in the course of discussions with Purchaser, Parent or a Potential
Founding Company. Accordingly, the parties hereto each agree not to directly or
indirectly seek to acquire or merge with, or pursue or respond to, with an
intent to acquire or merge with, any Purchaser Targets until the later of 300
days after the date of this Agreement or 180 days after termination of this
Agreement.
(e) The Purchaser or Parent will cause each of the Founding Companies other
than the Seller to enter into a provision similar to this Section 8.1 requiring
each such Founding Company to keep confidential any information obtained by such
Founding Company.
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8.2. Covenant Not To Compete. As a material inducement to the Purchaser's
consummation of the transactions contemplated by this Agreement, each of the
Seller and the Shareholders shall not, during the Restricted Period, do any of
the following, directly or indirectly, without the prior written consent of the
Purchaser or Parent in its sole discretion:
(a) compete, directly or indirectly, with the Purchaser or any of its
Affiliates or Subsidiaries, or any of their respective successors or assigns,
whether now existing or hereafter created or acquired (collectively, the
"Related Companies"), or otherwise engage or participate, directly or
indirectly, in the business conducted by Purchaser or a Subsidiary (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder, lender, partner, co-
venturer, director, officer, employee, agent, consultant or otherwise), directly
or indirectly, in any Person that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8.2(b) shall
prohibit the Shareholders from owing, as a passive investor, not more than five
percent (5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc; or
(c) solicit, call on, divert, take away, influence, induce or attempt to do
any of the foregoing, in each case within the Restricted Area, with respect to
the Purchaser's or any of the Related Companies' (A) customers or distributors
or prospective customers or distributors (wherever located) with respect to
goods or services that are competitive with those of the Purchaser or any of the
Related Companies, (B) suppliers or vendors or prospective suppliers or vendors
(wherever located) to supply materials, resources or services to be used in
connection with goods or services that are competitive with those of the
Purchaser or any of the Related Companies, (C) distributors, consultants,
agents, or independent contractors to terminate or modify any contract,
arrangement or relationship with the Purchaser or any of the Related Companies
or (D) employees to leave the employ of the Purchaser or any of the Related
Companies.
8.3. Specific Enforcement; Extension of Period.
(a) The Seller and each of the Shareholders acknowledges that any breach or
threatened breach by it or him or her of any provision of Sections 8.1 or 8.2
will cause continuing and irreparable injury to the Purchaser and the Related
Companies for which monetary damages would not be an adequate remedy.
Accordingly, the Purchaser and any of the Related Companies shall be entitled to
injunctive relief from a court of competent jurisdiction, including specific
performance, with respect to any such breach or threatened breach. In connection
therewith, none of the Seller nor any of the Shareholders shall, in any action
or proceeding to so enforce any provision of this Article 8, assert the claim or
defense that an adequate remedy at law exists or that injunctive relief is not
appropriate under the circumstances. The rights and remedies
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of the Purchaser and any of the Related Companies set forth in this Section 8.3
are in addition to any other rights or remedies to which the Purchaser or any of
the Related Companies may be entitled, whether existing under this Agreement, at
law or in equity, all of which shall be cumulative.
(b) The periods of time set forth in this Article 8 shall not include, and
shall be deemed extended by, any time required for litigation to enforce the
relevant covenant periods. The term "time required for litigation" as used in
this Section 8.3(b) shall mean the period of time from the earlier of the
Seller's or the Shareholders' as applicable, first breach of the provisions of
Sections 8.1 or 8.2 or service of process upon the Seller or the Shareholders,
as applicable, through the expiration of all appeals related to such litigation.
8.4. Disclosure. The Seller and each of the Shareholders acknowledge that
the Purchaser or any of the Related Companies may provide a copy of this
Agreement or any portion of this Agreement to any Person with, through or on
behalf of which any of the Seller or the Shareholders may, directly or
indirectly, breach or threaten to breach any of the provisions of Section 8.2.
8.5. Interpretation. It is the desire and intent of the parties that the
provisions of this Article 8 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if any
provision of this Article 8 shall be determined to be invalid, unenforceable or
illegal for any reason, then the validity and enforceability of all of the
remaining provisions of this Article 8 shall not be affected thereby. If any
particular provision of this Article 8 shall be adjudicated to be invalid or
unenforceable, then such provision shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such amendment to
apply only to the operation of such provision in the particular jurisdiction in
which such adjudication is made; provided that, if any provision contained in
this Article 8 shall be adjudicated to be invalid or unenforceable because such
provision is held to be excessively broad as to duration, geographic scope,
activity or subject, then such provision shall be deemed amended by limiting and
reducing it so as to be valid and enforceable to the maximum extent compatible
with the applicable laws and public policy of such jurisdiction, such amendment
only to apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
8.6. Acknowledgment. The Seller and each of the Shareholders acknowledges
that it or he has carefully read and considered the provisions of this Article
8. The Seller and each of the Shareholders acknowledges and understands that the
restrictions contained in this Article 8 may limit their respective ability to
conduct a business similar to that of the Purchaser or any of the Related
Companies, but the Seller and each of the Shareholders nevertheless believes
that it and he has received and will receive sufficient consideration and other
benefits to justify such restrictions. The Seller and each of the Shareholders
also acknowledges and understands that these restrictions are reasonably
necessary to protect the Purchaser's and the Related Companies' interests, and
the Seller and each of the Shareholders does not believe that such restrictions
will
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prevent it or him from conducting businesses that are not competitive with those
of the Purchaser or any of the Related Companies during the term of such
restrictions in the Restricted Area.
ARTICLE 9
SURVIVAL
9.1. Survival of Representations, Warranties, Covenants and Agreements.
Subject to the last three (3) sentences of this Section 9.1, the representations
and warranties of the Seller and the Shareholders on the one hand, and the
Purchaser and Parent on the other hand, contained in this Agreement shall
survive until the second anniversary of the Closing Date, except that the
representations and warranties set forth in each of Section 3.9, Section 3.17,
Section 3.20 and Section 3.25 shall survive until the expiration of the statute
of limitations applicable to the subject matter addressed thereunder. The
covenants and agreements of the Seller and the Shareholders on the one hand, and
of the Purchaser and Parent on the other hand, contained in this Agreement will
survive the Closing until, by their own respective terms, they have been fully
performed. Any representation, warranty, covenant or agreement that would
otherwise terminate in accordance with this Article 9 will continue to survive
if an Indemnity Notice, an Unliquidated Indemnity Notice or a Claim Notice (as
applicable) shall have been given in good faith based on facts reasonably
expected to establish a valid claim under Article 10 on or prior to the date on
which such representation, warranty, covenant or agreement would have otherwise
terminated, until the related claim for indemnification has been satisfied or
otherwise resolved as provided in Article 10. Any breach of representation or
warranty contained in this Agreement made by any party or any written
information furnished by any party that was made by such party fraudulently or
with intent to defraud or mislead or with gross negligence shall indefinitely
survive the Closing. Any representation or warranty made by any or all of the
Seller or the Shareholders in this Agreement or any information furnished or
caused to be furnished by any or all of the Seller or the Shareholders to the
Purchaser or Parent that is incorporated in, or is the basis for omitting
information from, the Registration Statement, prospectus or other document, or
any amendment or supplement thereof in connection with any Purchaser Financing
Transaction shall survive until the expiration of all applicable statutes of
limitations regarding claims brought by investors in such Purchaser Financing
Transaction alleging material misstatements or omissions in such documents.
9.2. [Intentionally omitted.]
9.3. Underwriter's Benefit. The representations and warranties and
covenants made by any or all of the Seller or the Shareholders contained in this
Agreement or any document, instrument, certificate or other item furnished or to
be furnished to Purchaser or Parent pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement shall run to the benefit of
any Underwriter of the Parent's common stock subject to the Initial Public
Offering in addition to the benefit of the Purchaser and Parent. Accordingly,
any such Underwriter, and each person, if any, who controls any such Underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, and the rules and
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regulations of the Commission thereunder, shall be (i) an intended beneficiary
of this Agreement, and (ii) deemed to be an Indemnified Party for the purposes
of the indemnification provided for in Article 10.
ARTICLE 10
INDEMNIFICATION
10.1. Seller and Shareholder's Indemnification. From and after the Closing
Date, the Seller and the Shareholders shall, jointly and severally, indemnify
and hold harmless the Purchaser and any of its Affiliates, and each Person who
controls (within the meaning of the Securities Act) the Purchaser or any such
Affiliate, and each of their respective directors, officers, employees, agents,
successors and assigns and legal representatives, from and against all
Indemnifiable Losses that may be imposed upon, incurred by or asserted against
any of them resulting from, related to, or arising out of (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by any or all of the Seller or the Shareholders under this
Agreement or any document, instrument, certificate or other item required to be
furnished to the Purchaser or Parent pursuant hereto or thereto or in connection
with the transactions contemplated by this Agreement; (ii) any untrue statement
of any material fact contained in any registration statement, prospectus,
document or other item, or any amendment or supplement thereof, prepared, filed,
distributed or executed in connection with any Purchaser Financing Transaction,
or any omission to state in any such registration statement, prospectus,
document, item, amendment or supplement a material fact required to be stated
therein or necessary to make the statements therein not misleading, that is
based upon any misrepresentation or breach of any warranty made by any or all of
the Seller or the Shareholders pursuant to this Agreement or upon any untrue
statement or omission contained in any information furnished or caused to be
furnished by any or all of the Seller or the Shareholders to the Purchaser or
Parent (provided that the Seller and Shareholders shall not be liable with
respect to a prospectus that is distributed after they have notified the
Purchaser and Parent in writing to correct a misstatement or omission; and
provided, further that the Seller and Shareholders hereby acknowledge that the
information concerning the Seller and the Shareholders in the Registration
Statement shall be deemed to be provided to the Purchaser and Parent for the
purposes hereof); (iii) any obligation and liability of the Seller or the
Shareholders of any nature whatsoever, whether now existing or hereafter arising
or incurred, except for the Assumed Liabilities; (iv) any non-compliance with
applicable Requirements of Law relating to bulk sales, bulk transfers and the
like or to fraudulent conveyances, fraudulent transfers, preferential transfers
and the like by the Seller; (v) any action, claim or demand by any holder of the
Seller's securities, whether debt or equity, in such holder's capacity as such,
whether now existing or hereafter arising or incurred; (vi) any non-compliance
with the Worker Adjustment and Retraining Act, 29 U.S.C. ss.2101, et. seq., as
amended, and the rules and regulations promulgated thereunder and any similar
Requirement Law; (vii) whether or not known by the Purchaser, any liability for
payment of Taxes that accrued or relate to the period of time prior to the
Closing Date (regardless of disclosure herein, including the Disclosure
Schedule); and (viii) any Legal Proceeding or Order, arising out of any of the
foregoing even
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though such Legal Proceeding or Order may not be filed, become final, or come to
light until after the Closing Date.
10.1A No Indemnification of Projected Information. Notwithstanding any
possible interpretation of Paragraph 10.1 or any other provision of this
Agreement, the failure of the Purchaser or any successor to achieve after the
Closing Date any projected financial information, including, without limitation,
sales of software and costs of software development, in and of itself shall not
result in an Indemnifiable Loss to Purchaser.
10.2. Purchaser's and Parent's Indemnification. From and after the Closing
Date, the Purchaser and Parent shall jointly and severally indemnify and hold
harmless the Seller and the Shareholders and each of their respective legal
representatives, successors and assigns from and against all Indemnifiable
Losses imposed upon, incurred by or asserted against, the Seller or the
Shareholders resulting from, related to, or arising out of: (i) any
misrepresentation, breach of any warranty or non-fulfillment of any covenant to
be performed by the Purchaser or Parent under this Agreement or any document,
instrument, certificate or other item furnished or to be furnished to the Seller
or the Shareholders pursuant hereto or thereto or in connection with the
transactions contemplated by this Agreement; (ii) an Assumed Liabilities; (iii)
any untrue statement of any material fact contained in any registration
statement, prospectus, document or other item, or any amendment or supplement
thereof, prepared, filed, distributed or executed in connection with any
Purchaser Financing Transaction, or any omission to state in any such
registration statement, prospectus, document, item, amendment or supplement a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except for any untrue statement or omission contained in
any information furnished or caused to be furnished by the Seller or
Shareholders; and (iv) any Legal Proceeding or Order, arising out of any of the
foregoing even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Closing Date.
10.3. Payment; Procedure for Indemnification.
(a) In the event that the Person seeking indemnification under this Article
10 (the "Indemnified Party") shall suffer an Indemnifiable Loss, he, she or it
shall, within fourteen (14) days after obtaining Knowledge of the incurrence of
any such Indemnifiable Loss, give written notice to the party from whom
indemnification under this Article 10 is sought (the "Indemnifying Party") of
the amount of the Indemnifiable Loss, together with reasonably sufficient
information to enable the Indemnifying Party to determine the accuracy and
nature of the claimed Indemnifiable Loss (the "Indemnity Notice"). The failure
of any Indemnified Party to give the Indemnifying Party the Indemnity Notice
shall not release the Indemnifying Party of liability under this Article 10;
provided, however that the Indemnifying Party shall not be liable for
Indemnifiable Losses incurred by the Indemnified Party that would not have been
incurred but for the delay in the delivery of, or the failure to deliver, the
Indemnity Notice. Within thirty (30) days after the receipt by the Indemnifying
Party of the Indemnity Notice, the Indemnifying Party shall either (i) pay to
the Indemnified Party an amount equal to the Indemnifiable Loss or (ii) object
to
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such claim, in which case the Indemnifying Party shall give written notice to
the Indemnified Party of such objection together with the reasons therefor, it
being understood that the failure of the Indemnifying Party to so object shall
preclude the Indemnifying Party from asserting any claim, defense or
counterclaim relating to the Indemnifying Party's failure to pay any
Indemnifiable Loss. The Indemnifying Party's objection shall not, in and of
itself, relieve the Indemnifying Party from its obligations under this Article
10. In the event that the parties are unable to resolve the subject of the
Indemnity Notice, the issue shall be submitted for determination to a neutral
third party designated by the President of the Philadelphia office of the
American Arbitration Association.
(b) In the event that any Indemnified Party shall have reasonable grounds
to believe that an Indemnifiable Loss may be incurred, such Indemnified Party
shall, within fourteen (14) days after obtaining sufficient information to
articulate such grounds, give written notice to the applicable Indemnifying
Party thereof, together with such information as is reasonably sufficient to
describe the potential or contingent claim to the extent then feasible (an
"Unliquidated Indemnity Notice"). The failure of an Indemnified Party to give
the Indemnifying Party the Unliquidated Indemnity Notice shall not release the
Indemnifying Party of liability under this Article 10; provided, however that
the Indemnifying Party shall not be liable for Indemnifiable Losses incurred by
the Indemnified Party that would not have been incurred but for the delay in the
delivery of, or the failure to deliver, the Unliquidated Indemnity Notice.
Within sixty (60) days after the amount of such claim shall be finalized,
resolved, or liquidated, the Indemnified Party shall give the Indemnifying Party
an Indemnity Notice, and the Indemnifying Party's obligations under this Article
10 with respect to such Indemnity Notice shall apply.
(c) In the event the facts giving rise to the claim for indemnification
under this Article 10 shall involve any action, or threatened claim or demand by
any third Person against the Indemnified Party, the Indemnified Party, within
the earlier of, as applicable, ten (10) days after receiving notice of the
filing of a lawsuit or sixty (60) days after receiving notice of the existence
of a claim or demand giving rise to the claim for indemnification (which shall
include a notice from any Government Authority of an intent to audit with
respect to Taxes), shall send written notice of such claim to the Indemnifying
Party (the "Claim Notice"). The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party of
liability under this Article 10; provided, however, that the Indemnifying Party
shall not be liable for Indemnifiable Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or the
failure to deliver, the Claim Notice. Subject to the provision contained in the
third sentence immediately following this sentence, and except for claims
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.20, the Indemnifying Party shall be
entitled to defend such claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing; provided, that if the
applicable claim or demand is against, or if the defendants in any such Legal
Proceeding shall include, both the Indemnified Party and the Indemnifying Party
and the Indemnified Party reasonably concludes that there are defenses available
to it that are different or additional to those available to the Indemnifying
Party or if the interests of the Indemnified Party may be reasonably deemed to
conflict with those of the Indemnifying Party, then the Indemnified
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Party shall have the right to select separate counsel and to assume the
Indemnified Party's defense of such claim, demand or Legal Proceeding, with the
reasonable fees, expenses and disbursements of such counsel to be reimbursed by
the Indemnifying Party as incurred. The Indemnifying Party shall give the
Indemnified Party notice in writing within ten (10) days after receiving the
Claim Notice from the Indemnified Party in the event of litigation, or otherwise
within thirty (30) days, of its intent to do so. In the case of any claim
resulting from, relating to or arising out of any Purchaser Financing
Transaction or the provisions of Section 3.20, the Purchaser and Parent shall
have right to control the defense thereof at the Indemnifying Party's expense.
Whenever the Indemnifying Party is entitled to defend any claim hereunder, the
Indemnified Party may elect, by notice in writing to the Indemnifying Party, to
continue to participate through its own counsel, at its expense, but the
Indemnifying Party shall have the right to control the defense of the claim or
the litigation; provided, that the Indemnifying Party retains counsel reasonably
satisfactory to the Indemnified Party and pursuant to an arrangement
satisfactory to the Indemnified Party; otherwise, the Indemnified Party shall
have the right to control the defense of the claim or the litigation.
Notwithstanding any other provision contained in this Agreement, the party
controlling the defense of the claim or the litigation shall not settle any such
claim or litigation without the written consent of the other party; provided,
that if the Indemnified Party is controlling the defense of the claim or the
litigation and shall have, in good faith, negotiated a settlement thereof, which
proposed settlement contains terms that are reasonable under the circumstances,
then the Indemnifying Party shall not withhold or delay the giving of such
consent (and in the event the Indemnifying Party and Indemnified Party are
unable to agree as to whether the proposed settlement terms are reasonable, the
Indemnifying Party and Indemnified Party will request that the disagreement be
resolved by a neutral third party designated by the President of the
Philadelphia office of the American Arbitration Association). In the event that
the Indemnifying Party is controlling the defense of the claim or the litigation
and shall have negotiated a settlement thereof, which proposed settlement is
substantively final and unconditional as to the parties thereto (other than the
consent of the Indemnified Party required under this Section 10.3(c)) and
contains an unconditional release of the Indemnified Party and does not include
the taking of any actions by, or the imposition of any restrictions on the part
of, the Indemnified Party and the Indemnified Party shall refuse to consent to
such settlement, the liability of the Indemnifying Party under this Section 10,
upon the ultimate disposition of such litigation or claim, shall be limited to
the amount of the proposed settlement; provided, however, that in the event the
proposed settlement shall require that the Indemnified Party make an admission
of liability, a confession of judgment, or shall contain any other non-financial
obligation which, in the reasonable judgment of the Indemnified Party, renders
such settlement unacceptable, then the Indemnified Party's failure to consent
shall not give rise to the limitation of Indemnifying Party's liability as
provided for in this Section 10.3(c), and the Indemnifying Party shall continue
to be liable to the full extent of such litigation or claim and provided
further, that notwithstanding any provision to the contrary, no Indemnifiable
Losses with respect to Taxes shall be settled without the prior written consent
of the Purchaser or Parent.
10.4. Equitable Contribution Under the Securities Act. To provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which the Purchaser
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or any controlling Person of the Purchaser (within the meaning of the Securities
Act) makes a claim for indemnification pursuant to Section 10.1(ii) but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 10.1(ii) provides for indemnification in
such case, then, the Purchaser, each controlling Person, the Seller and the
Shareholders will contribute to the aggregate Indemnifiable Losses to which the
Purchaser or any such controlling Person may be subject (after contribution from
others) as is appropriate to reflect the relative fault of the Purchaser, such
controlling Person, the Seller, and the Shareholders in connection with the
statements or omissions which resulted in such Indemnifiable Losses, as well as
the relative benefit received by the Purchaser, such controlling Person, the
Seller and the Shareholders as a result of the issuance of the securities to
which such Indemnifiable Losses relate, it being understood that the parties
acknowledge that the overriding equitable consideration to be given effect in
connection with this provision is the ability of one party or the other to
correct the statement or omission which resulted in such Indemnifiable Losses,
and that it would not be just and equitable if contribution pursuant hereto were
to be determined by pro rata allocation or by any other method of allocation
which does not take into consideration the foregoing equitable considerations;
provided, however, that, in any such case, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10.5. Exclusiveness of Indemnification. The indemnification rights of the
parties under this Article 10 are exclusive of other rights and remedies that
the parties may have under this Agreement (but for this provision), at law or in
equity or otherwise.
10.6. Limitations on Indemnification. Purchaser, Parent and the other
Persons or entities indemnified pursuant to Section 10.1 shall not assert any
claim for indemnification hereunder against the Seller or the Shareholders until
such time as the aggregate of all claims which such persons may have against the
Seller or the Shareholders shall exceed $37,500 (the "Indemnification
Threshold"), whereupon such claims shall be indemnified in full. None of the
Seller or the Shareholders shall assert any claim for indemnification hereunder
against Purchaser or Parent until such time as the aggregate of all claims which
Seller or the Shareholders may have against Purchaser or Parent shall exceed
$37,500, whereupon such claims shall be indemnified in full. The limitation on
the assertion of claims for indemnification contained in this paragraph shall
apply only to claims based upon inaccuracies in, or breaches of, representations
and warranties contained in this Agreement or any document, instrument,
certificate or other item required to be furnished pursuant to this Agreement or
in connection with the transaction contemplated by this Agreement.
No person shall be entitled to indemnification under this Section 10 if and
to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
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Notwithstanding any other term of this Agreement, the Seller and the
Shareholders shall not be liable under this Section 10 for an amount which
exceeds the aggregate amount of proceeds received by the Seller in connection
with the transactions contemplated herein. For purposes of calculating the value
of the DocuNet Stock received by Seller, the DocuNet Common Stock shall be
valued at the Initial Public Offering Price.
No claim under this Article 10 shall be made unless an Indemnity Notice, an
Unliquidated Indemnity Notice or a Claim Notice (as applicable) has been given
prior to the applicable survival period.
ARTICLE 11
TERMINATION AND REMEDIES
11.1. Termination. This Agreement may be terminated, and the transactions
contemplated by this Agreement may be abandoned:
(a) at any time before the Closing, by the mutual written agreement among
the Seller, the Shareholders, Parent and the Purchaser;
(b) at any time before the Closing, by the Purchaser or Parent pursuant to
Section 5.4(a), or if any of the Seller's or any of the Shareholders'
representations or warranties contained in this Agreement were materially
incorrect when made or become materially incorrect;
(c) at any time before the Closing, by the Seller if any of the Purchaser's
or Parent's representations or warranties contained in this Agreement were
materially incorrect when made or become materially incorrect;
(d) at any time before the Closing, by the Seller on the one hand, or by
the Purchaser or Parent, on the other hand, upon any material breach by other(s)
of such other party's covenants or agreements contained in this Agreement and
the failure of such other party to cure such breach, if curable, within ten (10)
days after written notice thereof is given by the non-breaching party to the
breaching party; or
(e) at any time after the date which is 180 days after the date of this
Agreement, by the Seller on the one hand, or by the Purchaser or Parent on the
other hand, upon notification to the non-terminating party by the terminating
party if the Closing shall not have occurred on or before such date and such
failure to consummate is not caused by a breach of this Agreement by the
terminating party.
11.2. Effect of Termination.
(a) Subject to Section 11.2(b) of this Agreement, if this Agreement is
validly terminated pursuant to Section 11.1, then this Agreement shall forthwith
become void,
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and, subject to such Section 11.2(b), there shall be no liability under this
Agreement on the part of the Seller, the Shareholders or the Purchaser and all
rights and obligations of each party to this Agreement shall cease; provided,
that (i) the provisions with respect to expenses in Section 17.4 shall
indefinitely survive any such termination, (ii) the provisions with respect to
confidentiality of Section 8.1 shall survive any such termination until it, by
its own terms, is no longer operative; (iii) the provisions with respect to
exclusivity of negotiations of Section 5.9 shall survive for 180 days after such
termination, but only if the termination is made by Purchaser pursuant to
Section 11.1(b) or Section 11.1(d); and (iv) this Section 11.2 shall
indefinitely survive such termination.
(b) If this Agreement is validly terminated as a result of a
misrepresentation or a breach of any warranty made by any party to this
Agreement or as a result of a material breach by a party of any of such party's
covenants or agreements contained in this Agreement, or, if all conditions to
the obligations of a party at Closing contained in Article 6 of this Agreement
have been satisfied (or waived by the party entitled to waive such conditions)
and such party does not proceed with the Closing, then any and all rights and
remedies available to the non-breaching parties, whether under this Agreement,
at law or in equity or otherwise shall be preserved and shall survive the
termination of this Agreement.
ARTICLE 12
POST-CLOSING COVENANTS
12.1. Further Cooperation. From and after the Closing Date, the Seller
shall, and the Shareholders shall and shall cause the Seller to, assist and
cooperate with the Purchaser and Parent in effecting the orderly transfer of the
Purchased Assets to the Purchaser. In addition, at the Purchaser's request from
time to time, the Seller shall, and the Shareholders shall and shall cause the
Seller to, execute and deliver to the Purchaser such further endorsements,
assignments and instruments of transfer and conveyance and take such other
actions as the Purchaser reasonably requests to transfer, vest or perfect the
Purchaser's rights in and to the Purchased Assets free and clear of all
Encumbrances and otherwise to accomplish the orderly transfer of the Purchased
Assets to the Purchaser and to consummate the transactions contemplated by this
Agreement. In addition, the Seller and each of the Shareholders shall (i)
provide or cause to be provided such written information with respect to
themselves, (ii) execute and deliver or cause to be executed and delivered such
other documents, certificates or instruments, and (iii) take or cause to be
taken such actions, in each of the foregoing cases, as the Purchaser, Parent,
any Underwriter or any auditor reasonably deems necessary or desirable to
complete any audit of the Seller's financial statements (including, but not
limited to, the execution of management representation letters to any auditor by
the Seller's management or the Shareholders) or in connection with any Purchaser
Financing Transaction; provided, that none of the Shareholders shall be required
to execute any guaranty of any indebtedness obtained by the Purchaser.
12.2. Maintenance of Books and Records. For a period of three (3) years
after the Closing Date, the Purchaser or Parent shall maintain all Books and
Records maintained by the
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Seller on or prior to the Closing Date which are transferred to the Purchaser
and shall permit any or all of the Seller or the Shareholders or their
respective representatives and agents access, at the Seller's or the
Shareholders' sole cost and expense, to all such Books and Records, upon
reasonable notice by the Seller or the Shareholders, as applicable, and on terms
not disruptive to the business, operation or employees of the Purchaser or any
of the Purchaser's Affiliates to assist the Seller or the Shareholders, as
applicable, in (i) completing any tax or regulatory filings or financial
statements required or appropriate to be made by any or all of the Seller or the
Shareholders after the Closing Date or in completing any other reasonable and
customary business objective, (ii) prosecuting or defending on behalf of any or
all of the Seller or the Shareholders any litigation controlled by any or all of
the Seller or the Shareholders under Section 10.3(c) of this Agreement or (iii)
complying with requests made of any or all of the Seller or the Shareholders by
any Taxing Authority or any Governmental or Regulatory Authority conducting an
audit, investigation or inquiry relating to the Seller's activities during
periods prior to the Closing Date. The Seller and the Shareholders will hold all
information provided to them pursuant to this Article 12 (and any information
derived therefrom) in confidence to the same extent as required by Section 5.5
of this Agreement with respect to Confidential Information.
12.3. By Seller and Shareholders. For a period of three (3) years after the
Closing Date, the Seller shall, and the Shareholders shall and shall cause the
Seller to, maintain all Books and Records possessed or to be possessed by any or
all of the Seller and the Shareholders that relate to the Business prior to the
Closing Date. The Seller shall, and the Shareholders shall and shall cause the
Seller to, permit the Purchaser or Parent, or their representatives and agents
access, at the Purchaser's sole cost and expense, to all of such Books and
Records upon reasonable prior written notice for any reasonable business
purpose.
12.4. Use of Name. From and after the Closing Date, the Seller shall, and
the Shareholders shall cause the Seller to: (i) sign such consents and take such
other actions as the Purchaser and Parent shall reasonably request to permit the
Purchaser and Parent to use the name DataLink and all variants thereof (the
"Name"); (ii) cease to use the Name; and (iii) take all necessary action to
change its corporate and trade names by a date which is twenty days from the
Closing Date to such name or names that are substantially different from and not
confusingly similar to the Name.
12.5. Discharge of Obligations. From and after the Closing Date, the Seller
shall, and the Shareholders shall cause the Seller to, pay and discharge
diligently, in accordance with past practice but not less than on a timely
basis, all of the Seller's obligations and liabilities (other than the Assumed
Liabilities) including, without limitation, any obligations and liabilities to
employees, trade creditors and customers.
12.6. Receivables. If, at any time after the Closing Date, the Seller or
the Shareholders shall receive any payments on account of any of the Receivables
or other rights to payment constituting a part of the Purchased Assets, then the
Seller or the Shareholders, as applicable, shall hold such funds in trust for,
and shall promptly remit (and the Shareholders shall
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cause the Seller to remit promptly) such funds to the Purchaser immediately upon
receipt thereof. The Seller hereby, effective from and after the Closing Date,
authorizes and grants to the Purchaser (acting through any one or more of the
Purchaser's authorized representatives or agents) a power of attorney to endorse
the Seller's name on any check or any other remittances received by the
Purchaser on account of the Receivables. The foregoing power of attorney is
coupled with an interest and is irrevocable.
12.7. Disclosure. If, subsequent to the effective date of the registration
statement relating to the Initial Public Offering and prior to the 25th day
after the date of the final prospectus of Purchaser or Parent utilized in
connection with the Initial Public Offering, the Shareholders or the Seller
become aware of any fact or circumstance which would change (or, if after the
Closing Date, would have changed) a representation or warranty of Seller or the
Shareholders in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the Seller and the Shareholders shall promptly
give notice of such fact or circumstance to Purchaser or Parent.
ARTICLE 13
TAXES RELATING TO PURCHASED ASSETS
The Seller shall, and the Shareholders shall cause the Seller to pay, and
the Seller and the Shareholders shall jointly and severally indemnify and hold
harmless the Purchaser and Parent from and against all Transfer Taxes. All Taxes
on the ownership or use of the Purchased Assets (specifically excluding Taxes
measured by the net income of any party) that accrue on or prior to the Closing
Date shall be paid by the Seller, and all such Taxes that accrue after the
Closing Date shall be paid by the Purchaser; provided, that all such Taxes shall
be prorated to the Closing Date. Should Purchaser pay any such Taxes, Seller
shall, immediately upon request, pay to Purchaser that portion of such Taxes
that accrued prior to the Closing Date.
ARTICLE 14
TRANSFER RESTRICTIONS
14.1. Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 14.1
(or trusts for the benefit of the Seller, Shareholders or family members, the
trustees of which so agree), for a period of one year from the Closing, except
pursuant to Section 16 hereof, neither the Seller nor the Shareholders shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of (a) any shares of DocuNet Common Stock received by the
Seller pursuant to this Agreement, or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of DocuNet Common
Stock, in whole or in part, and no such attempted transfer shall be treated as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of DocuNet Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of DocuNet
Common Stock acquired pursuant to this Agreement (including, by way of example
and not limitation, engaging in put, call, short-sale,
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straddle or similar market transactions). Notwithstanding the foregoing, the
Seller may transfer such the shares of DocuNet Common Stock to the Shareholders,
subject to the Shareholders holding such shares subject to the restrictions set
forth in this Agreement. The certificates evidencing the DocuNet Common Stock
delivered to the Seller pursuant to Section 2 of this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as the Purchaser may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO FIRST ANNIVERSARY
OF CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
ARTICLE 15
SECURITIES LAWS REPRESENTATIONS
The Seller and the Shareholders acknowledge that the shares of DocuNet
Common Stock to be delivered to the Seller pursuant to this Agreement have not
been and will not be registered under the Securities Act or any other state
securities laws, and therefore may not be resold without compliance with the
Securities Act. The DocuNet Common Stock to be acquired by the Seller pursuant
to this Agreement is being acquired solely for its own respective account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
15.1. Compliance with Law. The Seller and Shareholders covenant, warrant
and represent that none of the shares of DocuNet Common Stock issued to Seller
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act, the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws. All the DocuNet Common Stock
shall bear the following legend in addition to any other legends required under
this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES
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ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES OR BLUE
SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE
SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM
AND SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO
THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
15.2. Economic Risk; Sophistication. The Seller and the Shareholders are
able to bear the economic risk of an investment in the DocuNet Common Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the DocuNet Common Stock. The Seller and the Shareholders or their
respective purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of the Purchaser concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of the Purchaser, the plans for the operations of the business of
the Purchaser, the business, operations and financial condition of the Founding
Companies, and any plans for additional acquisitions and the like. The Seller
and the Shareholders acknowledge receipt and review of the draft Registration
Statement attached hereto as Schedule 15.2 for informational purposes and
subject to the limitations of Section 5.12(b). The Seller and the Shareholders
acknowledge that such draft is subject to completion and subject to change, and
Seller and the Shareholders acknowledge that it or their respective purchaser
representatives have had an adequate opportunity to ask questions and receive
answers from the officers of the Purchaser pertaining thereto.
ARTICLE 16
REGISTRATION RIGHTS
16.1. Piggyback Registration Rights. Subject to Section 5.14 and 16.5, at
any time following the Closing, whenever the Purchaser proposes to register any
DocuNet Common Stock for its own or others' account under the Securities Act for
a public offering, other than (i) any shelf registration of the DocuNet Common
Stock; (ii) registrations of shares to be used solely as consideration for
acquisitions of additional businesses by the Purchaser and (iii) registrations
relating to employee benefit plans, the Purchaser shall give the Seller prompt
written notice of its intent to do so. Upon the written request of the Seller
given within 30 days after receipt of such notice, Purchaser shall cause to be
included in such registration all of the DocuNet Common Stock which any such
Seller requests. However, if the Purchaser is advised in writing in good
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faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 16.1
that the number of shares to be sold by persons other than the Purchaser is
greater than the number of such shares which can be offered without adversely
affecting the offering, the Purchaser may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares held
by such persons) to a number deemed satisfactory by such managing underwriter or
such managing underwriter can eliminate the participation of all such persons in
the offering, provided that, for each such offering made by the Purchaser after
the Initial Public Offering, a reduction shall be made first by reducing the
number of shares to be sold by persons other than the Purchaser, the Seller, the
Founding Companies, the stockholders of the Founding Companies and other
stockholders (the "Other Stockholders") of the Company immediately prior to the
Initial Public Offering, and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Sellers, the Founding Companies,
the stockholders of the Founding Companies and the Other Stockholders, pro rata
based upon the number of shares held by such persons.
16.2. Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts and fees, if any, of separate counsel engaged by the
Seller and Shareholders) shall be borne by the Purchaser. In connection with
registrations under Section 16.1, the Purchaser shall (i) prepare and file with
the Securities and Exchange Commission as soon as reasonably practicable, a
registration statement with respect to the DocuNet Common Stock and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least 90 days (or such shorter period during which holders shall
have sold all DocuNet Common Stock which they requested to be registered); (ii)
use its best efforts to register and qualify the DocuNet Common Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution for the DocuNet Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the Securities Act and the regulations
thereunder.
16.3. Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten public offering, the Purchaser and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of the Purchaser's size and investment stature, including
indemnification and the prohibition of sales or transfers of such holders'
common stock for an applicable lock-up period.
16.4. Availability of Rule 144. The Purchaser shall not be obligated to
register shares of DocuNet Common Stock held by the Seller at any time when the
resale provisions of Rule 144(k) (or any similar or successor Seller provision)
promulgated under the Securities Act are available to Seller.
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<PAGE>
16.5. Survival. The provisions of this Section 15 shall survive the Closing
until December 31, 1999.
16.6. Applicability to Shareholders. The provisions of this Article 16
shall apply to any Shareholder to the extent that the DocuNet Common Stock
constituting the Stock Purchase Price is subsequently distributed to such
Shareholder.
ARTICLE 17
MISCELLANEOUS
17.1. Notices. All notices required to be given to any of the parties to
this Agreement shall be in writing and shall be deemed to have been sufficiently
given, subject to the further provisions of this Section 14.1, for all purposes
when presented personally to such party or sent by certified or registered mail,
return receipt requested, with proper postage prepaid, or
any national overnight delivery service, with proper charges prepaid, to such
party at its address set forth below:
(a) If to the Seller:
Judith DeMott and Geri Davidson
DataLink
8811 South 19th Street
Phoenix, AZ 85040
with a copy to:
John M. Welch
Bonn, Luscher, Padden & Wilkins
805 North Second Street
Phoenix, Arizona 85004
(b) If to the Shareholders:
Judith DeMott and Geri Davidson
DataLink
8811 South 19th Street
Phoenix, AZ 85040
with a copy to:
John M. Welch
Bonn, Luscher, Padden & Wilkins
805 North Second Street
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<PAGE>
Phoenix, Arizona 85004
(c) If to the Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attention: Barry M. Abelson
Such notice shall be deemed to be received when delivered if delivered
personally, the next business day after the date sent if sent by a national
overnight delivery service, or three (3) business days after the date mailed if
mailed by certified or registered mail. Any notice of any change in such address
shall also be given in the manner set forth above. Whenever the giving of notice
is required, the giving of such notice may be waived in writing by the party
entitled to receive such notice.
17.2. No Third Party Beneficiaries. Except as is otherwise expressly
provided in this Agreement, this Agreement is not intended to, and does not,
create any rights in or confer any benefits upon anyone other than the parties
hereto.
17.3. Schedules. All schedules attached to this Agreement are incorporated
by reference into this Agreement for all purposes.
17.4. Expenses. The parties to this Agreement shall pay their own expenses
incident to the preparation, negotiation and execution of this Agreement
including, without limitation, all fees and costs and expenses of their
respective accountants and legal counsel. The parties acknowledge that all fees
and expenses of Arthur Andersen LLP incurred in auditing the Seller's financial
statements in connection with the transactions contemplated hereby shall be the
responsibility of Purchaser, provided that, notwithstanding the foregoing,
Seller shall be responsible to pay $10,000 of such fees and expenses.
17.5. Further Assurances. Any or all of the Seller or the Shareholders on
the one hand, and the Purchaser and Parent on the other hand, shall, at their
own respective expense, from time to time upon the request of the other party,
execute and deliver, or cause to be executed and delivered, at such times as may
reasonably be requested by such other party, such other
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<PAGE>
documents, certificates and instruments and take such actions as such other
party deem reasonably necessary to consummate more fully the transactions
contemplated by this Agreement.
17.6. Entire Agreement; Amendment. This Agreement and any other documents,
instruments or other writings delivered or to be delivered pursuant to this
Agreement constitute the entire agreement among the parties with respect to the
subject matter of this Agreement and supersede all prior agreements,
understandings, and negotiations, whether written or oral, with respect to the
subject matter of this Agreement. None of the terms and provisions contained in
this Agreement can be changed without a writing signed by all parties hereto.
17.7. Section and Paragraph Titles. The section and paragraph titles used
in this Agreement are for convenience only and are not intended to define or
limit the contents or substance of any such section or paragraph.
17.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each of the parties to this Agreement and their respective heirs,
personal representatives, and successors and permitted assigns. Neither the
Seller, the Shareholders, Parent nor the Purchaser shall have the right to
assign this Agreement without the prior written consent of the others, except
that Purchaser or Parent may assign its rights and obligations under this
Agreement prior to the Closing to any wholly-owned Subsidiary of the Purchaser
or entity owning all of the capital stock of Purchaser, provided that such
assignment shall not relieve the Purchaser of any of its obligations hereunder.
17.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
instrument.
17.10. Severability. Any provision of this Agreement (other than those
contained in Article 8 of this Agreement, in which case, Section 8.5 of this
Agreement shall govern with respect to the invalidity, unenforceability, or
illegality of any such provision) that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such provision, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17.11. Governing Law. This Agreement shall be governed and construed as to
its validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania notwithstanding the choice of law rules of Pennsylvania or any
other jurisdiction.
-70-
<PAGE>
IN WITNESS WHEREOF, the Shareholders, the Purchaser, the
Parent and the Seller have caused this Agreement to be duly executed as of the
date first written above.
DOCUNET INC.
By: /s/ Bruce Gillis
-------------------------------
Bruce Gillis
DATALINK CORPORATION
By: /s/ Judith K. DeMott
-------------------------------
Judith K. DeMott, President
Witness: /s/ Judith K. DeMott
------------------------------- -------------------------------
Judith K. DeMott, Individually
Witness: /s/ Geri Davidson
------------------------------- -------------------------------
Geri Davidson, Individually
-71-
<PAGE>
Schedule 2.1(a)
Purchased Assets
----------------
1. Real Property Leases. Seller's interest, as lessee, in the real property that
is the subject matter of the leases listed in the Disclosure Schedule under
section number 3.12.
2. Personal Property Leases. Seller's interest, as lessee or otherwise, in all
personal property that is the subject matter of any leases listed is the
Disclosure Schedule under section number 3.13.
3. Equipment, Machinery and Other Tangible Personal Property. All machinery,
equipment, leasehold improvements, trucks, automobiles, supplies, office
furniture, leasehold improvements, leasehold improvements, computing and
telecommunications equipment and other items of personal property that are owned
by Seller and used in connection with the Business including, without
limitation, all Contracts with the Seller's customers or clients.
4. Contracts. All of the interest in all Contracts relation to the acquisition
or ownership by Seller of any of the Purchased Assets or the operation of the
Business including, without limitation, those listed in the Disclosure Schedule
under section number 3.14.
5. Books and Records. All of Seller's Books and Records relating to the
Business.
6. Permits. All of Seller's interest in all Permits relating to the Business
including, without limitation, those listed in the Disclosure Schedule under
section number 3.18, to the extent assignable or transferrable.
7. Intellectual Property. All of Seller's right, title and interest in and to
the Intellectual Property including, without limitation, that listed in the
Disclosure Schedule under section number 3.16.
8. Property, Personnel and Accounting Records. All of Seller's records relating
to the Business including, without limitation, property records and personnel
records of Seller's employees who become employees of the Seller.
9. Business and Goodwill. All of Seller's right, title and interest in and to
the Business as a going concern and all of the goodwill incident to the
Business.
10. Inventory. All Inventory of the Business on the Closing Date.
11. Receivables. All of Seller's Receivables associated with the Business
existing at the Closing Date, including the Trade Accounts Receivables that are
less than 100 days past the original invoice date.
<PAGE>
12. Cash. All of Seller's cash and cash equivalents on hand or in Accounts.
13. Prepaid Expenses. All Prepaid Expenses at the Closing Date including,
without limitation, those listed and fully described in Annex A to this Schedule
2.1(a) other than those Prepaid Expenses that comprise a part of the Excluded
Assets and that are designated as such on Annex A to Schedule 2.1(b).
14. Computer Software. All computer applications software, owned or licensed by
Seller, whether for general business sage (e.g., Accounting, word processing,
graphics, spreadsheet analysis, etc.) or specific, unique-to-the-business usage
(e.g., order processing, manufacturing, process controls, design, shipping,
etc.) and all computer operating, security or programing software, owned or
licensed by Seller.
15. Other Intangible Assets. All other assets (including causes of action,
rights of action, contract rights and warranty and product liability claims
against third parties) relating to the Purchased Assets, the Assumed Liabilities
and the Business.
-2-
<PAGE>
Schedule 2.1(b)
Excluded Assets
---------------
1. Insurance Policies. Any insurance policies maintained by Seller with respect
to the Business.
2. Cash Consideration. The aggregate cash consideration paid by Purchaser to
Seller pursuant to this Agreement.
3. Corporate Records. Seller's corporate minute book and stock books and
records.
4. Certain Claims. Any of Seller's claims and rights against third parties
(including, without limitation, insurance carriers), to the extent they relate
to obligations and liabilities that are not a part of the Assumed Liabilities
(except to the extent that Purchaser shall have incurred costs and expenses with
respect to such claims and rights).
5. Benefit Plan Assets. Assets constituting any pension or other funds for the
benefit of Seller's employees including, without limitation, any Employee
Benefit Plan.
6. Tax Refunds. All of Seller's claims for refunds of Taxes and other
governmental charges to the extent such refunds relate to periods ending on or
prior to the Closing Date.
7. Prepaid Expenses. All Prepaid Expenses at the Closing listed and fully
described in Annex A to this Schedule 2.1(b).
8. Aged Trade Account Receivables. All of Seller's Trade Account Receivables
that are more than 100 days past the original invoice date
<PAGE>
Schedule 2.3
Officers of Surviving Corporation
---------------------------------
DataLink Acquisition Corp.
- --------------------------
S. David Model President
Andrew R. Bacas Secretary
James Brown Treasurer
-2-
<PAGE>
Schedule 2.4
Stock Purchase Price
--------------------
To be delivered at a later date.
-3-
<PAGE>
Schedule 2.5
Allocation Schedule
-------------------
Item Allocation
- ---- ----------
Cash Value as reflected on the Closing Balance
Sheet
Trade Receivables Value as reflected on the Closing Balance
Sheet
Plant, Property and Equipment Book value as reflected on the Closing
Balance Sheet
Goodwill/Other Intangibles Remainder of Purchase Price not classified as
Cash or Plant, Property and Equipment
Any additional Class III assets (as defined in the Code) acquired
subsequent to the Balance Sheet Date shall have a fair market value equal to the
respective purchase price and Class IV assets (as defined in the Code) shall be
reduced accordingly.
-4-
<PAGE>
Schedule 2.6
Assumed Liabilities
-------------------
(1) Acquired Liabilities incurred in the ordinary course of business
consistent with (i) past practices, and (ii) the representations and warranties
contained herein, provided that Acquired Liabilities shall not include any
liability for the payment of taxes that accrued or relate to the period of time
prior to the Closing Date, and
(2) The Company's Debt.
-5-
<PAGE>
Schedule 6.1(j)
________________________, 1997
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
Ladies and Gentlemen:
We have acted as counsel to Datalink corporation, an Arizona corporation
(the "Company", in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of _______________________ 1997 (the "Purchase
Agreement"), among the Company, DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), and Judith K. DeMott and Geri E. Davidson ("Stockholders"). This
opinion is furnished to you pursuant to Section _________________ of the
Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the [Certificate] [Articles] of Incorporation and Bylaws
of the Company. We have also made such examinations of laws, certificates of
public officials, instruments, documents, and corporate records and have made
such other investigations as we have deemed necessary in connection with the
opinions hereinafter set forth. In such examination we have assumed (i) the
genuineness of all signatures on certificates and documents other than those
signed by the Company and the Stockholders, (ii) the accuracy, completeness and
authenticity of all records and documents submitted to us as originals, (iii)
the conformity to the original of all documents submitted to us as certified,
conformed or photostatic copies, (iv) the legal capacity of all natural persons
who are parties to the Transaction Documents, and (v) that the Transaction
Documents accurately describe and contain the mutual understanding of the
parties, and that there are no oral or written statements or agreements that
modify, amend, or vary, or purport to modify, amend, or vary, any of the terms
thereof.
-6-
<PAGE>
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the State of Arizona and the federal
laws of the United States and we do not purport to express any opinion herein
with respect to the laws of any other state or jurisdiction.
We note that the Transaction Documents contain clauses selecting
Pennsylvania law as governing law. For purposes of this opinion, we have
assumed, with your permission, that such clauses selected Arizona law, without
regard for principles of choice of law, and that such documents are being
executed and delivered and will be performed in, and that the applicable
property is and will be held in, the State of __________.
Based on the foregoing, and subject to the assumptions, limitations and
qualifications set forth herein, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona and has all necessary
corporate power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Company.
3. The Transaction Documents have been duly and validly executed by the
Company and the Stockholders and constitute the legal, valid and binding
obligations of the Company and the Stockholders, respectively, and are
enforceable against them in accordance with their respective terms.
4. Neither the execution and the delivery of the Transaction Documents nor
the consummation of the transactions contemplated thereby, violate the
[Certificate] [Articles] of Incorporation or Bylaws of the Company.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, fraudulent conveyance, moratorium or other laws affecting or relating
to creditors' rights, (ii) the requirement that, to the extent that provisions
of the Transaction Documents and any other documents delivered in connection
therewith permit the parties to make certain determinations, such determinations
may be subject to a requirement that they be made on a reasonable basis and in
good faith, (iii) the effect of general principles of equity, equitable defenses
and the discretion of the court regarding the enforcement of remedies
(regardless of whether considered in a proceeding in equity or at law), and (iv)
the unenforceability of or limitation on the enforceability of certain
provisions,
-7-
<PAGE>
including without limitation indemnification provisions or covenants not to
compete, when such provisions are found to be contrary to public policy.
This opinion is limited to the matters expressly stated herein, and no
other opinions are implied by, or are to be inferred from, this letter. Without
limiting the prior sentence, we express no opinion as to any documents or
instruments except the documents and instruments defined herein as the
Transaction Documents, and express no opinion regarding any Documents
incorporated therein by reference.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressee and its successors with respect to the transaction contemplated by the
Transaction Documents, and unless we give our prior written consent, neither our
opinion nor this opinion letter may be quoted in whole or in part, be relied
upon or used for any other purpose by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
______________________________
A Partner
-8-
<PAGE>
Schedule 6.l(k)
None
-9-
<PAGE>
Schedule 6.2(i)
[____________________] __, 1997
[NAME AND ADDRESS]
Ladies and Gentlemen:
We have acted as counsel to DocuNet Inc., a Pennsylvania corporation (the
"Purchaser"), in connection with the transactions contemplated by that certain
[Purchase Agreement] dated as of ______________________, 1997 (the "Purchase
Agreement"), among the Purchaser, __________________ , a __________________
corporation (the "Seller"), and ____________________ ("Stockholders"). This
opinion is furnished to you pursuant to Section _____ of the Purchase Agreement.
In connection with rendering this opinion, we have examined the Purchase
Agreement and the Escrow Agreement (collectively the "Transaction Documents").
We have also examined the Articles of Incorporation and Bylaws of the Purchaser.
We have also made such equations of laws, certificates of public officials,
instruments, documents, and corporate records and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In such examination we have assumed (i) the genuineness
of all signatures on certificates and documents other than those signed by the
Purchaser, (ii) the accuracy, completeness and authenticity of all records and
documents submitted to us as originals, (iii) the conformity to the original of
all documents submitted to us as certified, conformed or photostatic copies, and
(iv) the legal capacity of all natuua1 persons who are parties to the
Transaction Documents.
Capitalized terms used herein and not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
Our opinion is limited to the laws of the Commonwealth of Pennsylvania and
the federal laws of the United States and we do not purport to express any
opinion herein with respect to the laws of any other state or jurisdiction.
Based on the foregoing and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
1. The Purchaser is a corporation duly organized, validly existing and
presently subsisting under the laws of the Commonwealth of Pennsylvania and has
all necessary
-10-
<PAGE>
corporate power and authority enter into the Transaction Documents and to
consummate the transactions contemplated thereby.
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all requisite corporate action on the part of the
Purchaser.
3. The Transaction Documents have been duly and validly executed by the
Purchaser and constitute the legal, valid and binding obligations of the
Purchaser enforceable against it in accordance with their respective teens.
4. Neither the execution and the delivery of the Transaction Documents, nor
the consummation of the transactions contemplated thereby, violate the Articles
of Incorporation or Bylaws of the Purchaser.
All of the opinions set forth in this letter are further subject to: (i)
the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting or relating to creditors' rights,
(ii) as to any covenants not to compete, the unenforceability of, or limitation
on, certain provisions when such provisions are found unreasonable in scope,
(iii) the requirement that, to the extent that provisions of the Transaction
Documents and any other documents delivered in connection therewith permit the
parties to make certain determinations, such determinations may be subject to a
requirement that they be made on a reasonable basis and in good faith, (iv) the
effect of general principles of equity, equitable defenses and the discretion of
the court regarding the enforcement of remedies (regardless of whether
considered in a proceeding in equity or at law), and (v) the unenforceability of
or limitation on the enforceability of certain provisions, including without
limitation indemnification provisions, when such provisions are found to be
contrary to public policy.
This opinion is rendered as of the date hereof and we assume no obligation
to modify, update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention, or any changes in laws
which may hereafter occur.
Our opinion, as expressed herein, is solely for the benefit of the
addressees, their successors and assigns, and unless we give our prior written
consent, neither our opinion nor this opinion letter may be quoted in whole or
in part or be replied upon by any other person.
PEPPER, HAMILTON & SCHEETZ LLP
_______________________________
A Partner
-11-
<PAGE>
EXHIBIT A
Assignment and Assumption Agreement
-----------------------------------
To be delivered at a later date.
-12-
<PAGE>
EXHIBIT B
Bill of Sale
------------
To be delivered at a later date.
-13-
<PAGE>
EXHIBIT D
Lease
-----
-14-
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") dated as of this ____ day of ______,
1997, by and among DataLink Corporation (the "Seller"), DocuNet Inc., a
Pennsylvania corporation ("Purchaser") and ______ (the "Escrow Agent"). The
Purchaser, the Seller and the Escrow Agent are sometimes collectively referred
to herein as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to the Purchase Agreement (as hereinafter defined), it is
a condition to the consummation of the transactions contemplated thereby that at
the Closing, this Escrow Agreement be entered into by the Parties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the Parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. All defined or capitalized terms used in this Agreement
will have the meanings set forth in the Purchase Agreement unless such terms are
defined herein or unless the context clearly indicates to the contrary.
(a) Common Stock shall mean the common stock, $ ____ par value, of
the Purchaser.
(b) Market Price shall mean the average closing price of Common
Stock during the twenty (20) day trading period immediately preceding the Price
Determination Date.
(c) Price Determination Date shall mean any date on which (i)
payment of an Indemnity Amount (as hereinafter defined) is made, (ii) payment of
a Covered Amount (as hereinafter defined) is made or (iii) an additional deposit
of Common Stock to restore the Combined Value (as hereinafter defined) to the
Threshold Value is made.
(d) Purchase Agreement shall mean that certain Stock Purchase
Agreement, Asset Purchase Agreement or Agreement and Plan of Reorganization, as
the case may be, between the Seller and the Purchaser.
(e) Purchase Price shall mean the amount payable by the Purchaser
pursuant to Article 2 of the Purchase Agreement.
(f) Share Value shall mean the lesser of (i) the Initial Public
Offering Price or (ii) the Market Price.
2. Appointment of Escrow Agent. The Purchaser and the Seller hereby
appoint the Escrow Agent as the escrow agent for the purposes set forth herein
and the Escrow Agent hereby accepts such appointment on the terms herein
provided. The Escrow Agent hereby acknowledges receipt from the other Parties of
an executed copy of the Purchase Agreement.
-1-
<PAGE>
3. Deposit of Escrow Account. Pursuant to Article 2 of the Purchase
Agreement, there is being deposited into an account (the "Escrow Account")
maintained by the Escrow Agent either (i) a number of shares of Common Stock
valued at the Initial Public Offering Price, (ii) cash or (iii) a combination of
Common Stock and cash comprising part of the Purchase Price equal to $187,500,
(the "Threshold Value"). The Escrow Account will be held, invested, reinvested
and disbursed by Escrow Agent in accordance with the terms hereof.
4. Additional Deposits. In the event that the combined (i) value of any
shares of Common Stock (valued at the Initial Public Offering Price) which may
be on deposit in the Escrow Account and (ii) the amount of cash which may be on
deposit in the Escrow Account ("Cash Value") (collectively, the "Combined
Value") falls below the Threshold Value, due to payment from the Escrow Account
pursuant to a Purchase Price adjustment pursuant to Article 2 of the Purchase
Agreement, the Seller shall, within one (1) business day, deposit additional
shares of Common Stock or cash, as the case may be, to the Escrow Account in an
amount such that the Combined Value in the Escrow Account equals the Threshold
Value.
5. Pledge of Common Stock; Restriction on Transferability.
(a) In the event that the Escrow Account includes shares of Common
Stock, each Seller hereby pledges for the benefit of the Purchaser, and grants
the Purchaser a security interest in, such deposited Common Stock. In addition,
each Seller depositing Common Stock in the Escrow Account has also delivered to
the Escrow Agent stock powers endorsed in blank with respect to the deposited
Common Stock registered in the name of such Seller. The Escrow Agent shall hold
all such deposited Common Stock, not as an agent of Seller, but rather as a
pledgeholder.
If blank stock powers with respect to any Common Stock deposited
into the Escrow Account and registered to the Seller are delivered by the Escrow
Agent to the Purchaser, Seller shall promptly deliver to the Escrow Agent stock
powers endorsed in blank with respect to the remaining Common Stock on deposit
in the Escrow Account (together with stock powers with respect thereto endorsed
in blank), pledged to the Purchaser.
(b) In the event that the Escrow Account includes shares of Common
Stock, each such certificate representing Common Stock on deposit therein shall
have the following legend noted conspicuously thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A LIEN IN FAVOR OF THE ISSUER PURSUANT TO THAT CERTAIN ESCROW
AGREEMENT DATED ________ ___, 1997 BY AND AMONG THE PURCHASER,
CERTAIN PERSONS, AND ___________ AS ESCROW AGENT. THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS ON TRANSFER UNTIL
RELEASED FROM SUCH RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF SUCH ESCROW AGREEMENT.
(c) Up until any disbursement of any shares of Common Stock
deposited into the Escrow Account, Seller shall be entitled to vote said shares
in any meeting of shareholders, and shall be entitled to all dividends paid
thereon.
-2-
<PAGE>
6. Purpose of the Escrow Account.
(a) Adjustments to Purchase Price. To the extent provided in
Article 2 of the Purchase Agreement, the Parties have specified a mechanism for
the final determination of the Purchase Price of the Company (the "Purchase
Price Provision"). The amounts that may be payable by the Seller to the
Purchaser under the Purchase Price Provision are herein called the "Covered
Amounts." One purpose of the Escrow Account is, to the extent herein provided,
to provide a source of funds for the payment of the Covered Amounts.
(b) Indemnification. The Escrow Account further serves to secure
the indemnification obligations of the Seller under Article 10 of the Purchase
Agreement (the "Indemnification Provision"). The amounts that may be payable to
the Purchaser under the Indemnification Provision are herein called the
"Indemnity Amounts."
7. Application of Escrow Account. The Escrow Account will be retained
by the Escrow Agent and shall be distributed as follows:
(a) Adjustments to Purchase Price. Upon the final determination of
the Purchase Price pursuant to Article 2 of the Purchase Agreement, the Seller
and the Purchaser shall give a joint written notice to the Escrow Agent
indicating whether and to what extent the Escrow Account is to be disbursed to
the Purchaser and on receipt of such joint instructions, the Escrow Agent shall
disburse the Escrow Account in accordance with such instructions. The Seller and
the Purchaser agree to cause the Escrow Account to be disbursed so as to give
effect to the final determination of the Purchase Price pursuant to Article 2 of
the Purchase Agreement.
(b) Indemnification. In the event the Purchaser suffers an
Indemnifiable Loss and is entitled to payment of an Indemnity Amount, the Seller
and Purchaser shall give a joint written notice to the Escrow Agent directing
that a combination of cash and Common Stock (valued at the Share Value) equal to
the Indemnity Amount be disbursed from the Escrow Account and on receipt of such
joint instructions, the Escrow Agent shall so disburse such Indemnity Amount.
8. Investment of Escrow Account. As soon as possible after its receipt
of the Escrow Account, the Escrow Agent shall invest any cash deposited in the
Escrow Account (the "Cash Investment") as set forth on Exhibit "A" attached
hereto, or as otherwise directed in writing from time to time by the Seller. All
income earned on the Cash Investment will be owned by the Seller and shall be
distributed at least once every 365 days. The Escrow Agent will not be liable or
responsible for any loss resulting from any investment or reinvestment made as
provided in this Agreement at the written direction of the Seller.
9. Liability of the Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Agreement. The Escrow Agent will not make any payment or disbursement from or
out of the Escrow Account except as provided by this Agreement. The Escrow Agent
may rely upon and act upon any instrument received by it pursuant to the
provisions of this Agreement which it reasonably believes to be in conformity
with the requirements of this Agreement. The Escrow Agent agrees to use the same
degree of care and skill as is customary for an escrow agent in similar
circumstances. The Escrow Agent will not be liable for any action taken or not
taken by it under the terms hereof in the absence of breach of its obligations
hereunder or gross negligence or willful misconduct on its part.
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<PAGE>
In receiving the amounts deposited into the Escrow Account, the Escrow
Agent acts only as a depository for the Purchaser and the Seller and assumes no
responsibility except pursuant to the provisions of this Agreement. No
withdrawals shall be permitted from the Escrow Account except as provided herein
or as required by law or court order.
All of the terms and conditions in connection with the Escrow Agent's
duties and responsibilities, and the rights of the Purchaser and the Seller or
anyone else, with respect to the Escrow Account, are contained solely in this
Agreement and in any signature card required by the Escrow Agent pertaining to
the Escrow Account, and the Escrow Agent is not expected or required to be
familiar with the provisions of any other agreement, and shall not be charged
with any responsibility or liability in connection with the observance of the
provisions of any such other agreement.
The Escrow Agent may act or refrain from acting in respect of any matter
referred to herein in full reliance upon and by and with the advice of counsel
which may be selected by it, and shall be fully protected in so acting or in
refraining from acting upon the advice of such counsel.
Except as herein expressly provided, none of the provisions of this
Agreement shall require the Escrow Agent to expend or risk its own funds or
otherwise incur financial liability or expense in the performance of any of its
duties hereunder.
The Escrow Agent is hereby authorized to comply with and obey all orders,
judgements, decrees or writs entered or issued by any court, and in the event
the Escrow Agent obeys or complies with any such order, judgment, decree or writ
of any court, in whole or in part, it shall not be liable to any of the Parties
hereto, nor to any other person or entity, by reason of such compliance,
notwithstanding that it shall be determined that any such order, judgment,
decree or writ be entered without jurisdiction or be invalid for any reason or
be subsequently reversed, modified, annulled or vacated.
Should any controversy arise between the Purchaser and the Seller or
between the Seller, the Purchaser and any other person or entity with respect to
this Agreement, or with respect to the ownership of or the right to receive any
sums from the Escrow Account, the Escrow Agent shall have the right to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of the Parties.
The Purchaser and the Seller agree that the Escrow Agent is acting solely
as an escrow agent hereunder and not as a trustee, and that the Escrow Agent has
no fiduciary duties, obligations or liabilities under this Agreement.
10. Indemnification of the Escrow Agent. The Seller and the Purchaser
will indemnify and hold the Escrow Agent harmless from and against any and all
losses, costs, damages or expenses (including reasonable attorneys' fees) the
Escrow Agent may sustain by reason of its service as escrow agent hereunder,
except to the extent such loss, cost, damage or expense (including reasonable
attorneys' fees) was incurred solely by reason of such acts or omissions for
which the Escrow Agent is liable or responsible under Section 9 hereunder.
11. Fees of Escrow Agent. All fees, if any, of the Escrow Agent for
service as escrow agent hereunder shall be paid by the Purchaser.
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<PAGE>
12. Designations. The Seller and the Purchaser may each, by notice to
the Escrow Agent, designate one or more persons who will execute notices and
from whom the Escrow Agent may take instructions hereunder or to whom the Escrow
Agent may give notices. Such designations may be changed from time to time upon
notice to Escrow Agent from the respective parties. The Escrow Agent will be
entitled to rely conclusively on any action taken by such persons or their
respective successor designees.
13. Resignation of the Escrow Agent. The Escrow Agent may resign as
escrow agent by giving each of the Parties not less than thirty (30) days' prior
written notice of the effective date of such resignation. If on or prior to the
effective date of such resignation the Escrow Agent has not received joint
written instructions from the parties hereto, it will thereupon deposit the
Escrow Account into the registry of a court of competent jurisdiction. The
Parties intend that a substitute escrow agent will be appointed to fulfill the
duties of the Escrow Agent hereunder for the remaining term of this Agreement in
the event of the Escrow Agent's resignation, and if the Purchaser and the Seller
cannot agree on a substitute escrow agent, they will use their best efforts to
derive a procedure to appoint a substitute escrow agent.
14. Notices. All notices, requests, instructions and demands which may
be given by any party hereto to any other party in the course of the
transactions herein contemplated will be given to each party hereto, will be in
writing, will be delivered by posting in the United States mail, certified mail,
return receipt requested, addressed to the respective parties as set forth
below, and will be deemed given when actually received.
A. If to Purchaser:
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
With a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
B. If to the Seller, to its attention:
Judith K. DeMott or Geri E. Davidson
8811 south 19th Street
Phoenix, AZ 85040
With a copy to:
Bonn, Luscher, Padden & Wilkins
805 North Second Street
Phoenix, Arizona 85004
Attention: John M. Welch, Esquire
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<PAGE>
C. If to the Escrow Agent:
With a copy to:
Copies of any notices sent by the Escrow Agent shall be sent to all other
parties hereto.
15. Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns.
16. Amendment and Termination. This Agreement may be amended or
canceled by and upon written notice to the Escrow Agent at any time given
jointly by the Purchaser and the Seller, but the duties and responsibilities of
the Escrow Agent may not be increased without its consent.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not part of this Agreement and will
not be used in construing it.
20. Term. The escrow established by this Agreement shall continue until
the earlier of (i) the mutual agreement of the Parties or (ii) ninety (90) days
following the Closing whereupon all amounts and shares of Common Stock then on
deposit in the Escrow Account shall be paid and delivered to the Seller;
provided, however, that in the event there is an asserted but unresolved claim
("Claim") pursuant to Article 2 or Article 10 of the Purchase Agreement on such
90th day, then any combination of cash and Common Stock (valued at the Share
Value) equal, in combination, to the amount of any and all such Claims shall
remain in the Escrow Account. Such cash and/or Common Stock so remaining in the
Escrow Account shall remain subject to this Agreement until the final resolution
of the applicable Claim(s) that required the retention of such cash and/or
Common Stock; provided, however, that in all events all Common Stock held in the
Escrow Account shall be distributed to the Seller within five (5) years from the
Closing and, to the extent such Common Stock is distributed, Seller shall
replenish the Escrow Account with cash in a like amount, valued at the Share
Value.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be executed by their respective officers hereunto duly authorized, as of the
day and year first above written.
DOCUNET INC.
By:
-------------------------------
Name:
Title:
DATALINK CORPORATION
By:
-------------------------------
Name:
Title:
[ESCROW AGENT]
By:
-------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of August,
1997 by and between Bruce M. Gillis, a resident of Pennsylvania (the
"Employee"), and DocuNet Inc., a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee and
Employee hereby accepts employment with the Company, as Chief Executive Officer
(such position, Employee's "Position") for a period commencing on the date
hereof and continuing until December 31, 2002, subject to the provisions of
Section 9 hereof (as may be extended from time to time by mutual consent of
Employer and Employee, the "Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Board of Directors of
the Company and Employee shall report, throughout the Term, to the Board of
Directors of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of Two Hundred Thousand Dollars
($200,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for its similarly
situated employees from time to time in effect. Increases in the Base Salary may
be granted from time to time at the sole discretion of the Company. In addition
to the Base Salary, commencing with fiscal year 1998, the Company shall pay
Employee, within 30 days after receipt of the final audit for each fiscal year,
such bonus (the "Bonus") as the Board of Directors of the Company shall
determine in its absolute discretion. Such Bonus shall be based on the
guidelines established in advance of each fiscal year, in the absolute
discretion of the Board of Directors, including, but not limited to, the results
of the Company's operations, achievement of business unit targets, if
applicable, individual performance as compared to specific management objectives
set prior to each fiscal year, and the Company's Board of Director's subjective
assessment of Employee's performance. Accrual of any Bonus on the financial
books and records of the Company for Employee shall in no way obligate the
Company to pay a Bonus if Employee is terminated hereunder for any reason.
Payment of Bonus upon termination of Employee is at the sole discretion of the
Company.
<PAGE>
5. Benefits and Expenses. In addition to those benefits
provided to similarly situated employees of the Company, Employee shall be
entitled to those employee benefits (including expense reimbursement) as set
forth on Schedule A hereto ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties or as otherwise
permitted pursuant to Section 6 hereof; and upon the termination of his
employment with the Company, he shall leave with or return to the Company all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection with the Business of the Company, (2) as a
result of tasks assigned to Employee by the Company, or (3) from the use of
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by the Company (collectively, the "Intellectual Property"), shall
be and remain forever the sole and exclusive property of the Company. The
Employee shall promptly disclose to the Company all Intellectual Property, and
the Employee shall have no claim for additional compensation for the
Intellectual Property.
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<PAGE>
(ii) The Employee acknowledges that all the Intellectual
Property that is copyrightable shall be considered a work made for hire under
United States Copyright Law. To the extent that any copyrightable Intellectual
Property may not be considered a work made for hire under the applicable
provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after reasonable
effort to secure Employee's signature on any of the documents referenced in
Section 7(b)(iii) hereof, whether because of Employee's physical or mental
incapacity or for any other reason whatsoever, Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as Employee's agent and attorney-in-fact, to act for and in his behalf and stead
to execute and file any such documents and to do all other lawfully permitted
acts to further the prosecution and issuance of any such copyright, patent or
trademark protection, or other analogous protection, with the same legal force
and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company or any
of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter created or acquired
(collectively, the "Related Companies"), or otherwise engage or participate,
directly or indirectly, in any document management business conducted or
contemplated to be conducted by a Related Company, as the same are conducted or
contemplated to be conducted (as has been determined by the Board) during the
Term with respect to any period during the Term or any other business conducted
by the Company in which the Employee is or has been actively engaged (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8(b) shall
prohibit Employee from owing, as a passive investor, not more than five percent
(5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc;
(c) solicit, call on, divert, take away, influence, induce
or attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Company's or any of its Related
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<PAGE>
Companies' (A) customers or distributors or prospective customers or
distributors (wherever located) with respect to goods or services that are
competitive with those of the Company or any of its Related Companies, (B)
suppliers or vendors or prospective suppliers or vendors (wherever located) to
supply materials, resources or services to be used in connection with goods or
services that are competitive with those of the Company or any of its Related
Companies, (C) distributors, consultants, agents, or independent contractors to
terminate or modify any contract, arrangement or relationship with the Company
or any of its Related Companies or (D) employees (other than family members) to
leave the employ of the Company or any of its Related Companies.
(d) influence or attempt to influence any supplier, customer
or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other than
a family member) to either (i) terminate or modify his employment, consulting,
agency, distributorship or other arrangement with the Company or any of the
Related Companies, or (ii) employ or retain, or arrange to have any other person
or entity employ or retain, any person who has been employed or retained by the
Company or any of the Related Companies as an employee, consultant, agent or
distributor of the Company or the Related Companies at any time during the one
year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such that
Employee is unable to perform his duties and responsibilities hereunder to the
full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to Employee pursuant to a determination by
the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event that
the Board of Directors disagrees with such physician's conclusion, the Board of
Directors may require that Employee submit to a full physical examination by
another licensed physician selected by Employee and approved by the Company. If
the two opinions shall be inconsistent, a third opinion shall be obtained after
full physical examination by a third licensed physician selected by Employee and
approved by the Company. The majority of the three opinions shall be conclusive.
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<PAGE>
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement; (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position; (iii) a material violation of the Company's employee policies, as may
be amended from time to time, or (iv) other conduct of Employee involving any
type of disloyalty to the Company or willful misconduct with respect to the
Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation, plus either (i) if such termination is prior to
the last twelve months of the Term, continuation of the current Base Salary plus
Benefits (including vesting of options and other Benefits) for one year, or (ii)
if such termination is in the last twelve-month period of the Term, continuation
of the Base Salary plus continuation of Benefits (including vesting of options
and other Benefits) for the greater of (x) the remaining portion of the Term, or
(y) six months. Except as specifically set forth in this Section 9.4, the
Company shall have no liability or obligation hereunder by reason of such
termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such
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<PAGE>
termination effective immediately (the "Accelerated Termination Date"). In the
event the parties mutually agree to an alternative date of termination, that
date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the earlier of the Request Date or the
Accelerated Termination Date), Base Salary and Benefits. If the Company does not
terminate the Employee immediately upon receipt of the termination notice and
Employee performs his duties in a satisfactory manner, as determined in the sole
discretion of the Company, until the Request Date, Employee shall also be
entitled to an amount equal to one month's Base Salary (in effect at such time).
In addition, in the event of a termination of Employee's employment pursuant to
Section 9.5(a) at the end of the Term upon sixty (60) prior written notice and
upon the satisfactory completion, in the sole discretion of the Company, of
Employee's duties during the 60-day period after receipt of such termination
notice, Employee shall be entitled to receive an amount equal to one month's
Base Salary (in effect at such time) multiplied by the number of the complete
12-month periods of service completed prior to giving notice of termination.
Except as specifically set forth in this Section 9.5(b), all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plan then in force and applicable to
Employee. Except as specifically set forth in this Section 9.5, the Company
shall have no liability or obligation hereunder by reason of such termination.
9.6. Sale of Company/Change of Control.
(a) If there is a Sale of the Company or a Change of Control
during the Term, then the Company or the successor to all or substantially all
of the Company's assets, capital stock or business (the "Successor Entity"), as
the case may be, must offer Employee employment pursuant to a written contract
offer (the "Offer") within five (5) days of such Sale of the Company or Change
of Control. Employee shall, within fifteen (15) days after receipt of such
Offer, either (i) accept the terms of the Offer, such acceptance indicated by
return of a copy of the Offer duly executed, (ii) elect in writing, provided to
the Company or the Successor Entity, as the case may be, to remain employed
under this Agreement for the remainder of the Term, or (iii) elect to terminate
Employee's employment hereunder upon sixty (60) days prior notice, such
termination to be effective at the expiration of said sixty (60) day period, or
sooner, if desired by the Company or the Successor Entity.
(b) For purposes of this Section 9.7, (i) a "Change of
Control" means the sale, transfer, assignment or other disposition (including by
merger or consolidation) by stockholders of the Company, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the then outstanding stock of the Company to one or more
Persons, other than (i) any such sales, transfers, assignments or other
dispositions by such stockholders to their respective Affiliates, (ii) any such
transaction effected primarily to reincorporate the Company in another
jurisdiction or (iii) any transaction in connection with the simultaneous
acquisition of document management companies and the initial public offering of
the common stock of the Company or its affiliate; (ii) "Affiliate" means, with
respect to any stockholder of the Company, (w) any Person directly or indirectly
controlling, controlled by or under common control with such stockholder, (x)
any Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such stockholder, (y) any officer, director or general
partner of such stockholder, or (z) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the
outstanding voting securities of any Person described in clauses (w) through (y)
of this sentence; and (iii) "Person" means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity or association.
-6-
<PAGE>
(c) For purposes of this Section 9.7, a "Sale of the
Company" means a sale, transfer, assignment or other disposition (including by
merger or consolidation), of all of the outstanding stock of the Company, or of
all or substantially all of the assets of the Company, a liquidation or
dissolution of the Company. A "Sale of the Company" shall not include the
consummation of a public offering of Common Stock of the Company or its
affiliate pursuant to a registration statement or any transaction effected
primarily to reincorporate the Company in another jurisdiction.
(d) In the event of termination of Employee's employment
hereunder pursuant to clause (iii) in Section 9.7(a) above, Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary and Benefits. In addition, in such case Employee shall
be entitled to receive Base Salary and Benefits for the eighteen (18) months
following the effective date of such termination (the "Additional Amount").
Employee, at his sole option, may receive the Additional Amount paid either (i)
monthly for eighteen (18) months, or (ii) in one payment on the effective date
of such termination, in which case the value of the Benefits otherwise payable
will be monetized, and such payment of the Additional Amount will be discounted
at the then current Federal Short Term Rate as defined in the Internal Revenue
Code of 1986, as amended.
(e) In the event Employee chooses to continue employment
hereunder pursuant to clause (ii) in Section 9.7(a) above and Employee's
employment is thereafter terminated prior to the expiration of the Term for any
reason other than Death, Disability or termination pursuant to Section
9.3(a)(iv), Employee shall be entitled to receive all the benefits and
compensation referred to in Section 9.7(d) above. In the event Employee chooses
to continue employment hereunder pursuant to clause (ii) in Section 9.7(a)
above, at the expiration of the Term, Employee shall be entitled to receive an
amount equal to one month's Base Salary (in effect at such time) multiplied by
the number of complete 12-month periods of service completed prior to such
termination.
(f) If this Agreement is assumed by any Successor Entity,
any payments set forth herein shall be the obligation of such Successor Entity.
Except as specifically set forth in this Section 9.7, (i) all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee, and (ii) the Company shall have no liability or obligation hereunder
by reason of such termination.
(g) If the Successor Entity fails to make the Offer,
Employee shall be entitled to receive all of the benefits and compensation
referred to in Section 9.7(d) above.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which is or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
(d) In the event that they are still in effect, that
Employee shall disclose the existence and terms of the restrictive covenants set
forth in this Agreement to any employer that the Employee may work for during
the term of this Agreement (which employment is not hereby authorized) or after
the termination of the Employee's employment at the Company.
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<PAGE>
11. Survival of Provisions. The provisions of this Agreement
set forth in Sections 6, 7, 8 and 20 hereof shall survive the termination of
Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other parties hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such successor assumes in writing all of the obligations of the Company
under this Agreement, subject, however, to Employee's rights as to termination
as provided in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
If to Company:
S. David Model
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature between the parties
hereto relating to the employment of Employee with the Company. This Agreement
may not be changed or modified, except by an Agreement in writing signed by each
of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
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<PAGE>
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in
Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By: By: /s/ Bruce M. Gillis
------------------- ---------------------------------
Title: Title:
[CORPORATE SEAL]
/s/ Andrew Bacas
_______________________________
[EMPLOYEE]
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<PAGE>
SCHEDULE A
EMPLOYEE BENEFITS OF BRUCE M. GILLIS
1. Automobile: Automobile allowance comparable to other executive management
of the Company ("Executive Management").
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $ per year.
4. Life Insurance: Policy with death benefit to Employee equal to three times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 18th day of August,
1997 by and between James D. Brown, a resident of Pennsylvania (the "Employee"),
and DocuNet Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee
and Employee hereby accepts employment with the Company, as Senior Vice
President- Finance and Chief Financial Officer (such position, Employee's
"Position") for a period commencing on the date hereof and continuing until
December 31, 2000, subject to the provisions of Section 9 hereof (as may be
extended from time to time by mutual consent of Employer and Employee, the
"Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Chief Executive Officer
of the Company and Employee shall report, throughout the Term, to the Chief
Executive Officer of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of One Hundred Thirty Thousand Dollars
($130,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for its similarly
situated employees from time to time in effect. Increases in the Base Salary may
be granted from time to time at the sole discretion of the Company. In addition
to the Base Salary, commencing with fiscal year 1998, the Company shall pay
Employee, within 30 days after receipt of the final audit for each fiscal year,
such bonus (the "Bonus") as the Board of Directors of the Company shall
determine in its absolute discretion. Such Bonus shall be based on the
guidelines established in advance of each fiscal year, in the absolute
discretion of the Board of Directors, including, but not limited to, the results
of the Company's operations, achievement of business unit targets, if
applicable, individual performance as compared to specific management objectives
set prior to each fiscal year, and the Company's Chief Executive Officer's
subjective assessment of Employee's performance. Accrual of any Bonus on the
financial books and records of the Company for Employee shall in no way obligate
the Company to pay a Bonus if Employee is terminated hereunder for any reason.
Payment of Bonus upon termination of Employee is at the sole discretion of the
Company.
5. Benefits and Expenses. In addition to those benefits
provided to similarly situated employees of the Company, Employee shall be
entitled to those employee benefits (including expense reimbursement) as set
forth on Schedule A hereto ("Benefits").
<PAGE>
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly
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<PAGE>
as possible after the removal shall serve its specific purpose. Employee shall
not make, retain, remove and/or distribute any copies of any of the foregoing
for any reason whatsoever except as may be necessary in the discharge of his
assigned duties and shall not divulge to any third person the nature of and/or
contents of any of the foregoing or of any other oral or written information to
which he may have access or with which for any reason he may become familiar,
except as disclosure shall be necessary in the performance of his duties or as
otherwise permitted pursuant to Section 6 hereof; and upon the termination of
his employment with the Company, he shall leave with or return to the Company
all originals and copies of the foregoing then in his possession, whether
prepared by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection with the Business of the Company, (2) as a
result of tasks assigned to Employee by the Company, or (3) from the use of
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by the Company (collectively, the "Intellectual Property"), shall
be and remain forever the sole and exclusive property of the Company. The
Employee shall promptly disclose to the Company all Intellectual Property, and
the Employee shall have no claim for additional compensation for the
Intellectual Property.
(ii) The Employee acknowledges that all the
Intellectual Property that is copyrightable shall be considered a work made for
hire under United States Copyright Law. To the extent that any copyrightable
Intellectual Property may not be considered a work made for hire under the
applicable provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after
reasonable effort to secure Employee's signature on any of the documents
referenced in Section 7(b)(iii) hereof, whether because of Employee's physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact, to act for and in his
behalf and stead to execute and file any such documents and to do all other
lawfully permitted acts to further the prosecution and issuance of any such
copyright, patent or trademark protection, or other analogous protection, with
the same legal force and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company or
any of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter
-3-
<PAGE>
created or acquired (collectively, the "Related Companies"), or otherwise engage
or participate, directly or indirectly, in any document management business
conducted or contemplated to be conducted by a Related Company, as the same are
conducted or contemplated to be conducted (as has been determined by the Board)
during the Term with respect to any period during the Term or any other business
conducted by the Company in which the Employee is or has been actively engaged
(the "Restricted Business") within any geo area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8(b) shall
prohibit Employee from owing, as a passive investor, not more than five percent
(5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc;
(c) solicit, call on, divert, take away, influence, induce
or attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Company's or any of its Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Company or
any of its Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Company or any of its Related Companies, (C) distributors, consultants, agents,
or independent contractors to terminate or modify any contract, arrangement or
relationship with the Company or any of its Related Companies or (D) employees
(other than family members) to leave the employ of the Company or any of its
Related Companies.
(d) influence or attempt to influence any supplier,
customer or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other
than a family member) to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company or any
of the Related Companies, or (ii) employ or retain, or arrange to have any other
person or entity employ or retain, any person who has been employed or retained
by the Company or any of the Related Companies as an employee, consultant, agent
or distributor of the Company or the Related Companies at any time during the
one year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such
that Employee is unable to perform his duties and responsibilities hereunder to
the full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to Employee pursuant to a determination by
the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
-4-
<PAGE>
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event that
the Board of Directors disagrees with such physician's conclusion, the Board of
Directors may require that Employee submit to a full physical examination by
another licensed physician selected by Employee and approved by the Company. If
the two opinions shall be inconsistent, a third opinion shall be obtained after
full physical examination by a third licensed physician selected by Employee and
approved by the Company. The majority of the three opinions shall be conclusive.
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement, (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position; (iii) a material violation of the Company's employee policies, as may
be amended from time to time, or (iv) other conduct of Employee involving any
type of disloyalty to the Company or willful misconduct with respect to the
Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee.
-5-
<PAGE>
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation, plus either (i) if such termination is prior to
the last twelve months of the Term, continuation of the current Base Salary plus
Benefits (including vesting of options and other Benefits) for one year, or (ii)
if such termination is in the last twelve-month period of the Term, continuation
of the Base Salary plus continuation of Benefits (including vesting of options
and other Benefits) for the greater of (x) the remaining portion of the Term, or
(y) six months. Except as specifically set forth in this Section 9.4, the
Company shall have no liability or obligation hereunder by reason of such
termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such termination effective immediately (the "Accelerated
Termination Date"). In the event the parties mutually agree to an alternative
date of termination, that date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the earlier of the Request Date or the
Accelerated Termination Date), Base Salary and Benefits. If the Company does not
terminate the Employee immediately upon receipt of the termination notice and
Employee performs his duties in a satisfactory manner, as determined in the sole
discretion of the Company, until the Request Date, Employee shall also be
entitled to an amount equal to one month's Base Salary (in effect at such time).
In addition, in the event of a termination of Employee's employment pursuant to
Section 9.5(a) at the end of the Term upon sixty (60) prior written notice and
upon the satisfactory completion, in the sole discretion of the Company, of
Employee's duties during the 60-day period after receipt of such termination
notice, Employee shall be entitled to receive an amount equal to one month's
Base Salary (in effect at such time) multiplied by the number of the complete
12-month periods of service completed prior to giving notice of termination.
Except as specifically set forth in this Section 9.5(b), all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plan then in force and applicable to
Employee. Except as specifically set forth in this Section 9.5, the Company
shall have no liability or obligation hereunder by reason of such termination.
9.6. Sale of Company/Change of Control.
(a) If there is a Sale of the Company or a Change of
Control during the Term, then the Company or the successor to all or
substantially all of the Company's assets, capital stock or business (the
"Successor Entity"), as the case may be, must offer Employee employment pursuant
to a written contract offer (the "Offer") within five (5) days of such Sale of
the Company or Change of Control. Employee shall, within fifteen (15) days after
receipt of such Offer, either (i) accept the terms of the Offer, such acceptance
indicated by return of a copy of the Offer duly executed, (ii) elect in writing,
provided to the Company or the Successor Entity, as the case may be, to remain
employed under this Agreement for the remainder of the Term, or (iii) elect to
terminate Employee's employment hereunder upon sixty (60) days prior notice,
such termination to be effective at the expiration of said sixty (60) day
period, or sooner, if desired by the Company or the Successor Entity.
(b) For purposes of this Section 9.7, (i) a "Change of
Control" means the sale, transfer, assignment or other disposition (including by
merger or consolidation) by stockholders of the Company, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the then outstanding stock of the Company to one or more
Persons, other than
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<PAGE>
(i) any such sales, transfers, assignments or other dispositions by such
stockholders to their respective Affiliates, (ii) any such transaction effected
primarily to reincorporate the Company in another jurisdiction or (iii) any
transaction in connection with the simultaneous acquisition of document
management companies and the initial public offering of the common stock of the
Company or its affiliate; (ii) "Affiliate" means, with respect to any
stockholder of the Company, (w) any Person directly or indirectly controlling,
controlled by or under common control with such stockholder, (x) any Person
owning or controlling ten percent (10%) or more of the outstanding voting
securities of such stockholder, (y) any officer, director or general partner of
such stockholder, or (z) any Person who is an officer, director, general
partner, trustee or holder of ten percent (10%) or more of the outstanding
voting securities of any Person described in clauses (w) through (y) of this
sentence; and (iii) "Person" means an individual, partnership, corporation,
joint venture, association, trust, unincorporated association, other entity or
association.
(c) For purposes of this Section 9.7, a "Sale of the
Company" means a sale, transfer, assignment or other disposition (including by
merger or consolidation), of all of the outstanding stock of the Company, or of
all or substantially all of the assets of the Company, a liquidation or
dissolution of the Company. A "Sale of the Company" shall not include the
consummation of a public offering of Common Stock of the Company or its
affiliate pursuant to a registration statement or any transaction effected
primarily to reincorporate the Company in another jurisdiction.
(d) In the event of termination of Employee's employment
hereunder pursuant to clause (iii) in Section 9.7(a) above, Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary and Benefits. In addition, in such case Employee shall
be entitled to receive Base Salary and Benefits for the eighteen (18) months
following the effective date of such termination (the "Additional Amount").
Employee, at his sole option, may receive the Additional Amount paid either (i)
monthly for eighteen (18) months, or (ii) in one payment on the effective date
of such termination, in which case the value of the Benefits otherwise payable
will be monetized, and such payment of the Additional Amount will be discounted
at the then current Federal Short Term Rate as defined in the Internal Revenue
Code of 1986, as amended.
(e) In the event Employee chooses to continue employment
hereunder pursuant to clause (ii) in Section 9.7(a) above and Employee's
employment is thereafter terminated prior to the expiration of the Term for any
reason other than Death, Disability or termination pursuant to Section
9.3(a)(iv), Employee shall be entitled to receive all the benefits and
compensation referred to in Section 9.7(d) above. In the event Employee chooses
to continue employment hereunder pursuant to clause (ii) in Section 9.7(a)
above, at the expiration of the Term, Employee shall be entitled to receive an
amount equal to one month's Base Salary (in effect at such time) multiplied by
the number of complete 12-month periods of service completed prior to such
termination.
(f) If this Agreement is assumed by any Successor Entity,
any payments set forth herein shall be the obligation of such Successor Entity.
Except as specifically set forth in this Section 9.7, (i) all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee, and (ii) the Company shall have no liability or obligation hereunder
by reason of such termination.
(g) If the Successor Entity fails to make the Offer,
Employee shall be entitled to receive all of the benefits and compensation
referred to in Section 9.7(d) above.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which is or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
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<PAGE>
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
(d) In the event that they are still in effect, that
Employee shall disclose the existence and terms of the restrictive covenants set
forth in this Agreement to any employer that the Employee may work for during
the term of this Agreement (which employment is not hereby authorized) or after
the termination of the Employee's employment at the Company.
11. Survival of Provisions. The provisions of this Agreement
set forth in Sections 6, 7, 8 and 20 hereof shall survive the termination of
Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other parties hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such successor assumes in writing all of the obligations of the Company
under this Agreement, subject, however, to Employee's rights as to termination
as provided in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
13. If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
If to Company:
Bruce Gillis
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature between the parties
hereto relating to the employment of Employee with the Company. This Agreement
may not be changed or modified, except by an Agreement in writing signed by each
of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
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<PAGE>
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained
in Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By: By: /s/ Bruce M. Gillis
------------------- -----------------------------------
Title: Title:
[CORPORATE SEAL]
/s/ S. David Model
_________________________________
[EMPLOYEE]
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SCHEDULE A
EMPLOYEE BENEFITS OF ANDREW R. BACAS
1. Automobile: Automobile allowance comparable to other executive management
of the Company ("Executive Management").
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $ per year.
4. Life Insurance: Policy with death benefit to Employee equal to three times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 18th day of
August, 1997 by and between S. David Model, a resident of Connecticut (the
"Employee"), and DocuNet Inc., a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee
and Employee hereby accepts employment with the Company, as Chief Operating
Officer (such position, Employee's "Position") for a period commencing on the
date hereof and continuing until December 31, 2000, subject to the provisions of
Section 9 hereof (as may be extended from time to time by mutual consent of
Employer and Employee, the "Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Chief Executive Officer
of the Company and Employee shall report, throughout the Term, to the Chief
Executive Officer of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of One Hundred Fifty Thousand Dollars
($150,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for its similarly
situated employees from time to time in effect. Increases in the Base Salary may
be granted from time to time at the sole discretion of the Company in accordance
with customary procedures in effect for similarly situated employees of the
Company. In addition to the Base Salary, commencing with fiscal year 1998, the
Company shall pay Employee, within 30 days after receipt of the final audit for
each fiscal year, such bonus (the "Bonus") as the Board of Directors of the
Company shall determine in accordance with the Company's customary procedures in
effect for similarly situated employees. Such Bonus shall be based on the
guidelines established in advance of each fiscal year, including, but not
limited to, the results of the Company's operations, achievement of business
unit targets, if applicable, individual performance as compared to specific
management objectives set prior to each fiscal year, and the Company's Chief
Executive Officer's subjective assessment of Employee's performance. Accrual of
any Bonus on the financial books and records of the Company for Employee shall
in no way obligate the Company to pay a Bonus if Employee is terminated
hereunder for any reason. Payment of Bonus upon termination of Employee is at
the sole discretion of the Company.
<PAGE>
5. Benefits and Expenses. In addition to those benefits
provided to similarly situated employees of the Company, Employee shall be
entitled to those employee benefits (including expense reimbursement) as set
forth on Schedule A hereto ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties or as otherwise
permitted pursuant to Section 6 hereof; and upon the termination of his
employment with the Company, he shall leave with or return to the Company all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection with the Business of the Company, (2) as a
result of tasks assigned to Employee by the Company, or (3) from the use of
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by the Company (collectively, the "Intellectual Property"), shall
be and remain forever the sole and exclusive property of the Company. The
Employee shall promptly disclose to the Company all Intellectual Property, and
the Employee shall have no claim for additional compensation for the
Intellectual Property.
(ii) The Employee acknowledges that all the
Intellectual Property that is copyrightable shall be considered a work made for
hire under United States Copyright Law. To the extent that any copyrightable
Intellectual Property may not be considered a work made for hire under the
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<PAGE>
applicable provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after
reasonable effort to secure Employee's signature on any of the documents
referenced in Section 7(b)(iii) hereof, whether because of Employee's physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact, to act for and in his
behalf and stead to execute and file any such documents and to do all other
lawfully permitted acts to further the prosecution and issuance of any such
copyright, patent or trademark protection, or other analogous protection, with
the same legal force and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company or
any of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter created or acquired
(collectively, the "Related Companies"), or otherwise engage or participate,
directly or indirectly, in any document management business conducted or
contemplated to be conducted by a Related Company, as the same are conducted or
contemplated to be conducted (as has been determined by the Board) during the
Term with respect to any period during the Term or any other business conducted
by the Company in which the Employee is or has been actively engaged (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8(b) shall
prohibit Employee from owing, as a passive investor, not more than five percent
(5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc;
(c) solicit, call on, divert, take away, influence, induce
or attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Company's or any of its Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Company or
any of its Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply
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<PAGE>
materials, resources or services to be used in connection with goods or services
that are competitive with those of the Company or any of its Related Companies,
(C) distributors, consultants, agents, or independent contractors to terminate
or modify any contract, arrangement or relationship with the Company or any of
its Related Companies or (D) employees (other than family members) to leave the
employ of the Company or any of its Related Companies.
(d) influence or attempt to influence any supplier,
customer or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other
than a family member) to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company or any
of the Related Companies, or (ii) employ or retain, or arrange to have any other
person or entity employ or retain, any person who has been employed or retained
by the Company or any of the Related Companies as an employee, consultant, agent
or distributor of the Company or the Related Companies at any time during the
one year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such
that Employee is unable to perform his duties and responsibilities hereunder to
the full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to Employee pursuant to a determination by
the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event that
the Board of Directors disagrees with such physician's conclusion, the Board of
Directors may require that Employee submit to a full physical examination by
another licensed physician selected by Employee and approved by the Company. If
the two opinions shall be inconsistent, a third opinion shall be obtained after
full physical examination by a third licensed physician selected by Employee and
approved by the Company. The majority of the three opinions shall be conclusive.
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
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<PAGE>
under or through him by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement, (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position, (iii) a material violation of the Company's employee policies, as may
be amended from time to time, or (iv) other conduct of Employee involving any
type of disloyalty to the Company or willful misconduct with respect to the
Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and other Compensation, plus either (i) if such termination is prior to
the last twelve months of the Term, continuation of the current Base Salary plus
Benefits (including vesting of options and other Benefits) for one year, or (ii)
if such termination is in the last twelve-month period of the Term, continuation
of the Base Salary plus continuation of Benefits (including vesting of options
and other Benefits) for the greater of (x) the remaining portion of the Term, or
(y) six months. Except as specifically set forth in this Section 9.4, the
Company shall have no liability or obligation hereunder by reason of such
termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such termination effective immediately (the "Accelerated
Termination Date"). In the event the parties mutually agree to an alternative
date of termination, that date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid
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(as of the earlier of the Request Date or the Accelerated Termination Date),
Base Salary and Benefits. If the Company does not terminate the Employee
immediately upon receipt of the termination notice and Employee performs his
duties in a satisfactory manner, as determined in the sole discretion of the
Company, until the Request Date, Employee shall also be entitled to an amount
equal to one month's Base Salary (in effect at such time). In addition, in the
event of a termination of Employee's employment pursuant to Section 9.5(a) at
the end of the Term upon sixty (60) prior written notice and upon the
satisfactory completion, in the sole discretion of the Company, of Employee's
duties during the 60-day period after receipt of such termination notice,
Employee shall be entitled to receive an amount equal to one month's Base Salary
(in effect at such time) multiplied by the number of the complete 12-month
periods of service completed prior to giving notice of termination. Except as
specifically set forth in this Section 9.5(b), all Base Salary, Benefits and
Bonuses shall cease at the time of such termination, subject to the terms of any
benefit or compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.5, the Company shall have no liability
or obligation hereunder by reason of such termination.
9.6. Sale of Company/Change of Control.
(a) If there is a Sale of the Company or a Change of
Control during the Term, then the Company or the successor to all or
substantially all of the Company's assets, capital stock or business (the
"Successor Entity"), as the case may be, must offer Employee employment pursuant
to a written contract offer (the "Offer") within five (5) days of such Sale of
the Company or Change of Control. Employee shall, within fifteen (15) days after
receipt of such Offer, either (i) accept the terms of the Offer, such acceptance
indicated by return of a copy of the Offer duly executed, (ii) elect in writing,
provided to the Company or the Successor Entity, as the case may be, to remain
employed under this Agreement for the remainder of the Term, or (iii) elect to
terminate Employee's employment hereunder upon sixty (60) days prior notice,
such termination to be effective at the expiration of said sixty (60) day
period, or sooner, if desired by the Company or the Successor Entity.
(b) For purposes of this Section 9.7, (i) a "Change of
Control" means the sale, transfer, assignment or other disposition (including by
merger or consolidation) by stockholders of the Company, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the then outstanding stock of the Company to one or more
Persons, other than (i) any such sales, transfers, assignments or other
dispositions by such stockholders to their respective Affiliates, (ii) any such
transaction effected primarily to reincorporate the Company in another
jurisdiction or (iii) any transaction in connection with the simultaneous
acquisition of document management companies and the initial public offering of
the common stock of the Company or its affiliate; (ii) "Affiliate" means, with
respect to any stockholder of the Company, (w) any Person directly or indirectly
controlling, controlled by or under common control with such stockholder, (x)
any Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such stockholder, (y) any officer, director or general
partner of such stockholder, or (z) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the
outstanding voting securities of any Person described in clauses (w) through (y)
of this sentence; and (iii) "Person" means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity or association.
(c) For purposes of this Section 9.7, a "Sale of the
Company" means a sale, transfer, assignment or other disposition (including by
merger or consolidation), of all of the outstanding stock of the Company, or of
all or substantially all of the assets of the Company, a liquidation or
dissolution of the Company. A "Sale of the Company" shall not include the
consummation of a public offering of Common Stock of the Company or its
affiliate pursuant to a registration statement or any transaction effected
primarily to reincorporate the Company in another jurisdiction.
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<PAGE>
(d) In the event of termination of Employee's employment
hereunder pursuant to clause (iii) in Section 9.7(a) above, Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary and Benefits. In addition, in such case Employee shall
be entitled to receive Base Salary and Benefits for the eighteen (18) months
following the effective date of such termination (the "Additional Amount").
Employee, at his sole option, may receive the Additional Amount paid either (i)
monthly for eighteen (18) months, or (ii) in one payment on the effective date
of such termination, in which case the value of the Benefits otherwise payable
will be monetized, and such payment of the Additional Amount will be discounted
at the then current Federal Short Term Rate as defined in the Internal Revenue
Code of 1986, as amended.
(e) In the event Employee chooses to continue employment
hereunder pursuant to clause (ii) in Section 9.7(a) above and Employee's
employment is thereafter terminated prior to the expiration of the Term for any
reason other than Death, Disability or termination pursuant to Section
9.3(a)(iv), Employee shall be entitled to receive all the benefits and
compensation referred to in Section 9.7(d) above. In the event Employee chooses
to continue employment hereunder pursuant to clause (ii) in Section 9.7(a)
above, at the expiration of the Term, Employee shall be entitled to receive an
amount equal to one month's Base Salary (in effect at such time) multiplied by
the number of complete 12-month periods of service completed prior to such
termination.
(f) If this Agreement is assumed by any Successor Entity,
any payments set forth herein shall be the obligation of such Successor Entity.
Except as specifically set forth in this Section 9.7, (i) all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee, and (ii) the Company shall have no liability or obligation hereunder
by reason of such termination.
(g) If the Successor Entity fails to make the Offer,
Employee shall be entitled to receive all of the benefits and compensation
referred to in Section 9.7(d) above.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which is or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
(d) In the event that they are still in effect, that
Employee shall disclose the existence and terms of the restrictive covenants set
forth in this Agreement to any employer that the Employee may work for during
the term of this Agreement (which employment is not hereby authorized) or after
the termination of the Employee's employment at the Company.
11. Survival of Provisions. The provisions of this Agreement
set forth in Sections 6, 7, 8, 9 and 20 hereof shall survive the termination of
Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such
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<PAGE>
successor assumes in writing all of the obligations of the Company under this
Agreement, subject, however, to Employee's rights as to termination as provided
in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
If to Company:
Bruce Gillis
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature between the parties
hereto relating to the employment of Employee with the Company. This Agreement
may not be changed or modified, except by an Agreement in writing signed by each
of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
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<PAGE>
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained
in Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By:___________________ By:_____________________________
Title: Title:
[CORPORATE SEAL]
________________________________
[EMPLOYEE]
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SCHEDULE A
EMPLOYEE BENEFITS OF S. DAVID MODEL
1. Automobile: Automobile allowance comparable to other executive management
of the Company ("Executive Management").
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $ per year.
4. Life Insurance: Policy with death benefit to Employee equal to three times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of August,
1997 by and between Andrew R. Bacas, a resident of Virginia (the "Employee"),
and DocuNet Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee
and Employee hereby accepts employment with the Company, as Senior Vice
President, Corporate Development (such position, Employee's "Position") for a
period commencing on the date hereof and continuing until December 31, 2000,
subject to the provisions of Section 9 hereof (as may be extended from time to
time by mutual consent of Employer and Employee, the "Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Chief Executive Officer
of the Company and Employee shall report, throughout the Term, to the Chief
Executive Officer of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of One Hundred Thirty Thousand Dollars
($130,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for its similarly
situated employees from time to time in effect. Increases in the Base Salary may
be granted from time to time at the sole discretion of the Company. In addition
to the Base Salary, commencing with fiscal year 1998, the Company shall pay
Employee, within 30 days after receipt of the final audit for each fiscal year,
such bonus (the "Bonus") as the Board of Directors of the Company shall
determine in its absolute discretion. Such Bonus shall be based on the
guidelines established in advance of each fiscal year, in the absolute
discretion of the Board of Directors, including, but not limited to, the results
of the Company's operations, achievement of business unit targets, if
applicable, individual performance as compared to specific management objectives
set prior to each fiscal year, and the Company's Chief Executive Officer's
subjective assessment of Employee's performance. Accrual of any Bonus on the
financial books and records of the Company for Employee shall in no way obligate
the Company to pay a Bonus if Employee is terminated hereunder for any reason.
Payment of Bonus upon termination of Employee is at the sole discretion of the
Company.
5. Benefits and Expenses. In addition to those benefits
provided to similarly situated employees of the Company, Employee shall be
entitled to those employee benefits (including expense reimbursement) as set
forth on Schedule A hereto ("Benefits").
<PAGE>
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties or as otherwise
permitted pursuant to Section 6 hereof; and upon the termination of his
employment with the Company, he shall leave with or return to the Company all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection with the Business of the Company, (2) as a
result of tasks assigned to Employee by the Company, or (3) from the use of
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by the Company (collectively, the "Intellectual Property"), shall
be and remain forever the sole and exclusive property of the Company. The
Employee shall promptly disclose to the Company all Intellectual Property, and
the Employee shall have no claim for additional compensation for the
Intellectual Property.
(ii) The Employee acknowledges that all the
Intellectual Property that is copyrightable shall be considered a work made for
hire under United States Copyright Law. To the extent that any copyrightable
Intellectual Property may not be considered a work made for hire under the
applicable provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right,
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<PAGE>
title, or interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after
reasonable effort to secure Employee's signature on any of the documents
referenced in Section 7(b)(iii) hereof, whether because of Employee's physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact, to act for and in his
behalf and stead to execute and file any such documents and to do all other
lawfully permitted acts to further the prosecution and issuance of any such
copyright, patent or trademark protection, or other analogous protection, with
the same legal force and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company or
any of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter created or acquired
(collectively, the "Related Companies"), or otherwise engage or participate,
directly or indirectly, in any document management business conducted or
contemplated to be conducted by a Related Company, as the same are conducted or
contemplated to be conducted (as has been determined by the Board) during the
Term with respect to any period during the Term or any other business conducted
by the Company in which the Employee is or has been actively engaged (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted Area; provided, that nothing contained in this Section 8(b) shall
prohibit Employee from owing, as a passive investor, not more than five percent
(5%) of the outstanding securities of any class of any publicly-traded
securities of any publicly held company listed on a well-recognized national
securities exchange or on an interdealer quotation system of the National
Association of Securities Dealers, Inc;
(c) solicit, call on, divert, take away, influence, induce
or attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Company's or any of its Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Company or
any of its Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Company or any of its Related Companies, (C) distributors, consultants, agents,
or independent contractors to terminate or modify any contract, arrangement or
relationship with the Company or any of its Related Companies or (D) employees
(other than family members) to leave the employ of the Company or any of its
Related Companies.
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<PAGE>
(d) influence or attempt to influence any supplier,
customer or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other
than a family member) to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company or any
of the Related Companies, or (ii) employ or retain, or arrange to have any other
person or entity employ or retain, any person who has been employed or retained
by the Company or any of the Related Companies as an employee, consultant, agent
or distributor of the Company or the Related Companies at any time during the
one year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such
that Employee is unable to perform his duties and responsibilities hereunder to
the full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to Employee pursuant to a determination by
the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician. In the event that
the Board of Directors disagrees with such physician's conclusion, the Board of
Directors may require that Employee submit to a full physical examination by
another licensed physician selected by Employee and approved by the Company. If
the two opinions shall be inconsistent, a third opinion shall be obtained after
full physical examination by a third licensed physician selected by Employee and
approved by the Company. The majority of the three opinions shall be conclusive.
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
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<PAGE>
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement, (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position; (iii) a material violation of the Company's employee policies, as may
be amended from time to time, or (iv) other conduct of Employee involving any
type of disloyalty to the Company or willful misconduct with respect to the
Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation, plus either (i) if such termination is prior to
the last twelve months of the Term, continuation of the current Base Salary plus
Benefits (including vesting of options and other Benefits) for one year, or (ii)
if such termination is in the last twelve-month period of the Term, continuation
of the Base Salary plus continuation of Benefits (including vesting of options
and other Benefits) for the greater of (x) the remaining portion of the Term, or
(y) six months. Except as specifically set forth in this Section 9.4, the
Company shall have no liability or obligation hereunder by reason of such
termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such termination effective immediately (the "Accelerated
Termination Date"). In the event the parties mutually agree to an alternative
date of termination, that date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the earlier of the Request Date or the
Accelerated Termination Date), Base Salary and Benefits. If the Company does not
terminate the Employee immediately upon receipt of the termination notice and
Employee performs his duties in a satisfactory manner, as determined in the sole
discretion of the Company, until the Request Date, Employee shall also be
entitled to an amount equal to one month's Base Salary (in effect at such time).
In addition, in the event of a termination of Employee's employment
-5-
<PAGE>
pursuant to Section 9.5(a) at the end of the Term upon sixty (60) prior written
notice and upon the satisfactory completion, in the sole discretion of the
Company, of Employee's duties during the 60-day period after receipt of such
termination notice, Employee shall be entitled to receive an amount equal to one
month's Base Salary (in effect at such time) multiplied by the number of the
complete 12-month periods of service completed prior to giving notice of
termination. Except as specifically set forth in this Section 9.5(b), all Base
Salary, Benefits and Bonuses shall cease at the time of such termination,
subject to the terms of any benefit or compensation plan then in force and
applicable to Employee. Except as specifically set forth in this Section 9.5,
the Company shall have no liability or obligation hereunder by reason of such
termination.
9.6. Sale of Company/Change of Control.
(a) If there is a Sale of the Company or a Change of
Control during the Term, then the Company or the successor to all or
substantially all of the Company's assets, capital stock or business (the
"Successor Entity"), as the case may be, must offer Employee employment pursuant
to a written contract offer (the "Offer") within five (5) days of such Sale of
the Company or Change of Control. Employee shall, within fifteen (15) days after
receipt of such Offer, either (i) accept the terms of the Offer, such acceptance
indicated by return of a copy of the Offer duly executed, (ii) elect in writing,
provided to the Company or the Successor Entity, as the case may be, to remain
employed under this Agreement for the remainder of the Term, or (iii) elect to
terminate Employee's employment hereunder upon sixty (60) days prior notice,
such termination to be effective at the expiration of said sixty (60) day
period, or sooner, if desired by the Company or the Successor Entity.
(b) For purposes of this Section 9.7, (i) a "Change of
Control" means the sale, transfer, assignment or other disposition (including by
merger or consolidation) by stockholders of the Company, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the then outstanding stock of the Company to one or more
Persons, other than (i) any such sales, transfers, assignments or other
dispositions by such stockholders to their respective Affiliates, (ii) any such
transaction effected primarily to reincorporate the Company in another
jurisdiction or (iii) any transaction in connection with the simultaneous
acquisition of document management companies and the initial public offering of
the common stock of the Company or its affiliate; (ii) "Affiliate" means, with
respect to any stockholder of the Company, (w) any Person directly or indirectly
controlling, controlled by or under common control with such stockholder, (x)
any Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such stockholder, (y) any officer, director or general
partner of such stockholder, or (z) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the
outstanding voting securities of any Person described in clauses (w) through (y)
of this sentence; and (iii) "Person" means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity or association.
(c) For purposes of this Section 9.7, a "Sale of the
Company" means a sale, transfer, assignment or other disposition (including by
merger or consolidation), of all of the outstanding stock of the Company, or of
all or substantially all of the assets of the Company, a liquidation or
dissolution of the Company. A "Sale of the Company" shall not include the
consummation of a public offering of Common Stock of the Company or its
affiliate pursuant to a registration statement or any transaction effected
primarily to reincorporate the Company in another jurisdiction.
(d) In the event of termination of Employee's employment
hereunder pursuant to clause (iii) in Section 9.7(a) above, Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary and Benefits. In addition, in such case Employee shall
be entitled to receive Base Salary and Benefits for the eighteen (18) months
following the effective date of such termination (the "Additional Amount").
Employee, at his sole option, may receive the Additional Amount paid either (i)
monthly for eighteen (18) months, or (ii) in one payment on the effective
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<PAGE>
date of such termination, in which case the value of the Benefits otherwise
payable will be monetized, and such payment of the Additional Amount will be
discounted at the then current Federal Short Term Rate as defined in the
Internal Revenue Code of 1986, as amended.
(e) In the event Employee chooses to continue employment
hereunder pursuant to clause (ii) in Section 9.7(a) above and Employee's
employment is thereafter terminated prior to the expiration of the Term for any
reason other than Death, Disability or termination pursuant to Section
9.3(a)(iv), Employee shall be entitled to receive all the benefits and
compensation referred to in Section 9.7(d) above. In the event Employee chooses
to continue employment hereunder pursuant to clause (ii) in Section 9.7(a)
above, at the expiration of the Term, Employee shall be entitled to receive an
amount equal to one month's Base Salary (in effect at such time) multiplied by
the number of complete 12-month periods of service completed prior to such
termination.
(f) If this Agreement is assumed by any Successor Entity,
any payments set forth herein shall be the obligation of such Successor Entity.
Except as specifically set forth in this Section 9.7, (i) all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee, and (ii) the Company shall have no liability or obligation hereunder
by reason of such termination.
(g) If the Successor Entity fails to make the Offer,
Employee shall be entitled to receive all of the benefits and compensation
referred to in Section 9.7(d) above.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which is or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
(d) In the event that they are still in effect, that
Employee shall disclose the existence and terms of the restrictive covenants set
forth in this Agreement to any employer that the Employee may work for during
the term of this Agreement (which employment is not hereby authorized) or after
the termination of the Employee's employment at the Company.
11. Survival of Provisions. The provisions of this Agreement
set forth in Sections 6, 7, 8 and 20 hereof shall survive the termination of
Employee's employment hereunder.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other parties hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such successor assumes in writing all of the obligations of the Company
under this Agreement, subject, however, to Employee's rights as to termination
as provided in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
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<PAGE>
13. If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
If to Company:
Bruce Gillis
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature between the parties
hereto relating to the employment of Employee with the Company. This Agreement
may not be changed or modified, except by an Agreement in writing signed by each
of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
-8-
<PAGE>
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained
in Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By:___________________ By:_____________________________
Title: Title:
[CORPORATE SEAL]
_______________________________
[EMPLOYEE]
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<PAGE>
SCHEDULE A
EMPLOYEE BENEFITS OF ANDREW R. BACAS
1. Automobile: Automobile allowance comparable to other executive management
of the Company ("Executive Management").
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $ per year.
4. Life Insurance: Policy with death benefit to Employee equal to three times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the __ day of ______,
1997 by and between John Semasko, a resident of Oregon (the "Employee"), and
DocuNet Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee
and Employee hereby accepts employment with the Company, as __________________
(such position, Employee's "Position") for a period commencing on the date
hereof and continuing until December 31, 2000, subject to the provisions of
Section 9 hereof (as may be extended upon mutual agreement of Employee and
Employer, the "Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Chief Operating Officer
of the Company and Employee shall report, throughout the Term, to the Chief
Operating Officer of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of Seventy Five Thousand Dollars
($75,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for the similarly
situated employees set forth on Schedule A attached hereto (the "Similarly
Situated Employees"), from time to time in effect. Increases in the Base Salary
may be granted from time to time at the sole discretion of the Company in
accordance with customary procedures in effect for Similarly Situated Employees
of the Company, except as otherwise determined by the Compensation Committee (as
hereafter defined). In addition to the Base Salary, commencing with fiscal year
1998, the Company shall pay Employee, within 30 days after receipt of the final
audit for each fiscal year, such bonus (the "Bonus") as the Company shall
determine with the manner of such determination to be substantially comparable
to the manner applicable to the Similarly Situated Employees, except as
otherwise determined by the Compensation Committee. As used herein, the term
"Compensation Committee" shall mean a majority of the non-employee members of
the compensation committee of the Board of Directors (the "Board") of the
Company. Such Bonus shall be based on the guidelines established in advance of
each fiscal year, including, but not limited to, the results of the Company's
operations, achievement of business unit targets, if applicable, individual
performance as compared to specific management objectives set prior to each
year, and the Company's
<PAGE>
Chief Operating Officer's subjective assessment of Employee's performance.
Accrual of any Bonus on the financial books and records of the Company for
Employee shall in no way obligate the Company to pay a Bonus if Employee is
terminated hereunder for any reason. Payment of Bonus upon termination of
Employee is at the sole discretion of the Company.
5. Benefits and Expenses. In addition to those benefits
provided to Similarly Situated Employees of the Company (except as otherwise
determined by the Compensation Committee), Employee shall be entitled to those
employee benefits (including expense reimbursement) as set forth on Schedule B
hereto ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties or as otherwise
permitted pursuant to Section 6 hereof; and upon the termination of his
employment with the Company, he shall leave with or return to the Company all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection
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<PAGE>
with the Business of the Company, (2) as a result of tasks assigned to Employee
by the Company, or (3) from the use of premises or personal property (whether
tangible or intangible) owned, leased or contracted for by the Company
(collectively, the "Intellectual Property"), shall be and remain forever the
sole and exclusive property of the Company. The Employee shall promptly disclose
to the Company all Intellectual Property, and the Employee shall have no claim
for additional compensation for the Intellectual Property.
(ii) The Employee acknowledges that all the
Intellectual Property that is copyrightable shall be considered a work made for
hire under United States Copyright Law. To the extent that any copyrightable
Intellectual Property may not be considered a work made for hire under the
applicable provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after
reasonable effort to secure Employee's signature on any of the documents
referenced in Section 7(b)(iii) hereof, whether because of Employee's physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact, to act for and in his
behalf and stead to execute and file any such documents and to do all other
lawfully permitted acts to further the prosecution and issuance of any such
copyright, patent or trademark protection, or other analogous protection, with
the same legal force and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company
or any of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter created or acquired
(collectively, the "Related Companies"), or otherwise engage or participate,
directly or indirectly, in any document management business conducted or
contemplated to be conducted by a Related Company, as the same are conducted or
contemplated to be conducted (as has been determined by the Board) during the
Term with respect to any period during the Term or any other business conducted
by the Company in which the Employee is or has been actively engaged (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted
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<PAGE>
Area; provided, that nothing contained in this Section 8(b) shall prohibit
Employee from owing, as a passive investor, not more than five percent (5%) of
the outstanding securities of any class of any publicly-traded securities of any
publicly held company listed on a well-recognized national securities exchange
or on an interdealer quotation system of the National Association of Securities
Dealers, Inc;
(c) solicit, call on, divert, take away, influence,
induce or attempt to do any of the foregoing, in each case within the Restricted
Area, with respect to the Company's or any of its Related Companies' (A)
customers or distributors or prospective customers or distributors (wherever
located) with respect to goods or services that are competitive with those of
the Company or any of its Related Companies, (B) suppliers or vendors or
prospective suppliers or vendors (wherever located) to supply materials,
resources or services to be used in connection with goods or services that are
competitive with those of the Company or any of its Related Companies, (C)
distributors, consultants, agents, or independent contractors to terminate or
modify any contract, arrangement or relationship with the Employer or any of its
Related Companies or (D) employees (other than family members) to leave the
employ of the Company or any of its Related Companies.
(d) influence or attempt to influence any supplier,
customer or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other
than a family member) to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company or any
of the Related Companies, or (ii) employ or retain, or arrange to have any other
person or entity employ or retain, any person who has been employed or retained
by the Company or any of the Related Companies as an employee, consultant, agent
or distributor of the Company or the Related Companies at any time during the
one year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such
that Employee is unable to perform his duties and responsibilities hereunder to
the full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to the Employee pursuant to a determination
by the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician.
-4-
<PAGE>
In the event that the Board of Directors disagrees with such physician's
conclusion, the Board of Directors may require that Employee submit to a full
physical examination by another licensed physician selected by Employee and
approved by the Company. If the two opinions shall be inconsistent, a third
opinion shall be obtained after full physical examination by a third licensed
physician selected by Employee and approved by the Company. The majority of the
three opinions shall be conclusive.
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through his by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement; (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position; (iii) any material violation of the Company's employee policies as
applied to Similarly Situated Employees, as may be amended from time to time;
(iv) fraud, embezzlement, theft or proven dishonesty in the course of his
employment or conviction of a felony; or (v) other conduct of Employee involving
any type of disloyalty to the Company or willful misconduct with respect to the
Company; provided that in no event shall the refusal of Employee to relocate
more than 60 miles from his current geographic location be deemed to constitute
disloyalty for purposes of clause (v) above; and provided further that in the
event of a "Change of Control", "Sale of the Company" or in the event Bruce M.
Gillis is no longer either Chairman of the Board or Chief Executive Officer of
the Company, "cause" shall have only the meaning set forth in clauses (i) and
(iv) above. For purposes hereof, "Change of Control" shall mean the sale,
transfer, assignment or other disposition (including by merger or consolidation)
by stockholders of the Company, in one transaction or a series of related
transactions, of more than fifty percent (50%) of the voting power represented
by the then outstanding stock of the Company to one or more Persons, other than
(i) any such sales, transfers, assignments or other dispositions by such
stockholders to their respective Affiliates, (ii) any such transaction effected
primarily to reincorporate the Company in another jurisdiction or (iii) any
transaction in connection with the simultaneous acquisition of document
management companies and the initial public offering of the common stock of the
Company or its affiliate. For these purposes, (i) "Affiliate" means, with
respect to any stockholder of the Company, (w) any Person directly or indirectly
controlling, controlled by or under common control with such stockholder, (x)
any Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such stockholder, (y) any officer, director or general
partner of such stockholder, or (z) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the
outstanding voting securities of any Person described in clauses (w) through (y)
of this sentence; and (ii) "Person" means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity or association. For purposes hereof, "Sale of the Company" means a
sale, transfer, assignment or other disposition (including by merger or
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<PAGE>
consolidation), of all of the outstanding stock of the Company, or of all or
substantially all of the assets of the Company, a liquidation or dissolution of
the Company. A "Sale of the Company" shall not include the consummation of a
public offering of Common Stock of the Company or its affiliate pursuant to a
registration statement or any transaction effected primarily to reincorporate
the Company in another jurisdiction.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee: provided that,
if such notice is given during the one hundred eighty (180) days immediately
preceding the end of the Term, such date shall be at least sixty (60) day after
the date of such notice.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation, plus continuation of the current Base Salary
and continuation of Benefits (including vesting of options and other Benefits)
for the remaining portion of the Term. Except as specifically set forth in this
Section 9.4, the Company shall have no liability or obligation hereunder by
reason of such termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such termination effective immediately (the "Accelerated
Termination Date"). In the event the parties mutually agree to an alternative
date of termination, that date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the earlier of the Request Date or the
Accelerated Termination Date) Base Salary, Benefits and Other Compensation. If
the Company does not terminate the Employee immediately upon receipt of the
termination notice and Employee performs his duties in a satisfactory manner, as
determined in the sole discretion of the Company, until the Request Date,
Employee shall also be entitled to an amount equal to one month's Base Salary
(in effect at such time). Except as specifically set forth in this Section
9.5(b), all Base Salary, Benefits and Bonuses shall cease at the time of such
termination. Except as specifically set forth in this Section 9.5, the Company
shall have no liability or obligation hereunder by reason of such termination.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which is or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
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<PAGE>
(d) In the event they are still in effect, that Employee
shall disclose the existence and terms of the restrictive covenants set forth in
this Agreement to any employer that the Employee may work for during the term of
this Agreement (which employment is not hereby authorized) or after the
termination of the Employee's employment at the Company.
11. Survival of Provisions. The provisions of this
Agreement set forth in Sections 6, 7, 8, 9 and 20 hereof shall survive the
termination of Employee's employment hereunder.
11A. Indemnification The Company shall indemnify the
Employee from and against any and all losses, costs, damages or expenses the
Employee may sustain by reason of his employment hereunder in the same manner
and to the same extent as the executive officers of the Company.
12. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such successor assumes in writing all of the obligations of the Company
under this Agreement, subject, however, to Employee's rights as to termination
as provided in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
If to Company:
Bruce M. Gillis
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all
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<PAGE>
prior and contemporaneous discussions, agreements and understandings of every
nature between the parties hereto relating to the employment of Employee with
the Company. This Agreement may not be changed or modified, except by an
Agreement in writing signed by each of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained
in Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
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<PAGE>
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By:___________________ By:_____________________________
Title: Title:
[CORPORATE SEAL]
________________________________
[EMPLOYEE]
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<PAGE>
SCHEDULE A
James Bunker Jane Semasko
Gary Blackwelder Mitchell Taube
Mark Creglow John Semasko
David Crowder David C. Utz, Jr.
Jeff Kalmon David Yezbak
Rex Lamb
Ovidio Pugnale
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<PAGE>
SCHEDULE B
EMPLOYEE BENEFITS
1. Automobile: Automobile allowance comparable to the Similarly Situated
Employees.
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $_____ per year.
4. Life Insurance: Policy with death benefit to Employee equal to two times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the __ day of ______,
1997 by and between Rex Lamb, a resident of Nebraska (the "Employee"), and
DocuNet Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company for a period of time in the future upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Employment and Term. The Company hereby employs Employee
and Employee hereby accepts employment with the Company, as National Director -
Imaging Sales (such position, Employee's "Position") for a period commencing on
the date hereof and continuing until December 31, 2000, subject to the
provisions of Section 9 hereof (as may be extended upon mutual agreement of
Employee and Employer, the "Term").
2. Duties. During the Term, Employee shall serve the Company
faithfully and to the best of his ability and shall devote his full time,
attention, skill and efforts to the performance of the duties required by or
appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Chief Operating Officer
of the Company and Employee shall report, throughout the Term, to the Chief
Operating Officer of the Company.
3. Other Business Activities. During the Term, Employee will
not, without the prior written consent of the Company, directly or indirectly
engage in any other business activities or pursuits whatsoever, except
activities in connection with any charitable or civic activities, personal
investments and serving as an executor, trustee or in other similar fiduciary
capacity; provided, however, that such activities do not interfere with his
performance of his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder and
for Employee's covenant not to compete as provided for in Section 8 hereof, an
initial base salary at the annual rate of One Hundred Thirty Thousand Dollars
($130,000) (as the same may hereafter be increased, the "Base Salary"). The Base
Salary shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company or
which are requested to be withheld by Employee, and which shall be withheld and
paid in accordance with the Company's normal payroll practice for the similarly
situated employees set forth on Schedule A attached hereto (the "Similarly
Situated Employees"), from time to time in effect. Increases in the Base Salary
may be granted from time to time at the sole discretion of the Company in
accordance with customary procedures in effect for Similarly Situated Employees
of the Company, except as otherwise determined by the Compensation Committee (as
hereafter defined). In addition to the Base Salary, commencing with fiscal year
1998, the Company shall pay Employee, within 30 days after receipt of the final
audit for each fiscal year, such bonus (the "Bonus") as the Company shall
determine with the manner of such determination to be substantially comparable
to the manner applicable to the Similarly Situated Employees, except as
otherwise determined by the Compensation Committee. As used herein, the term
"Compensation Committee" shall mean a majority of the non-employee members of
the compensation committee of the Board of Directors (the "Board") of the
Company. Such Bonus shall be based on the guidelines established in advance of
each fiscal year, including, but not limited to, the results of the Company's
operations, achievement of business unit targets, if applicable, individual
performance as compared to specific management objectives set prior to each
year,
<PAGE>
and the Company's Chief Operating Officer's subjective assessment of Employee's
performance. Accrual of any Bonus on the financial books and records of the
Company for Employee shall in no way obligate the Company to pay a Bonus if
Employee is terminated hereunder for any reason. Payment of Bonus upon
termination of Employee is at the sole discretion of the Company.
5. Benefits and Expenses. In addition to those benefits
provided to Similarly Situated Employees of the Company (except as otherwise
determined by the Compensation Committee), Employee shall be entitled to those
employee benefits (including expense reimbursement) as set forth on Schedule B
hereto ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that
the Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason, either directly or indirectly, divulge to any
third-party or use for his own benefit, or for any purpose other than the
exclusive benefit of the Company, any confidential, proprietary, business and
technical information or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information") revealed, obtained or
developed in the course of his employment with the Company. Nothing herein
contained shall restrict Employee's ability to make such disclosures as may be
necessary or appropriate to the effective and efficient discharge of the duties
required by or appropriate for his Position or as such disclosures may be
required by law; and further provided, that nothing herein contained shall
restrict Employee from divulging or using for his own benefit or for any other
purpose any Proprietary Information that is readily available to the general
public so long as such information did not become available to the general
public as a direct or indirect result of Employee's breach of this Section 6.
Failure by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Employee shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his Position and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Employee shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the discharge of his assigned duties
and shall not divulge to any third person the nature of and/or contents of any
of the foregoing or of any other oral or written information to which he may
have access or with which for any reason he may become familiar, except as
disclosure shall be necessary in the performance of his duties or as otherwise
permitted pursuant to Section 6 hereof; and upon the termination of his
employment with the Company, he shall leave with or return to the Company all
originals and copies of the foregoing then in his possession, whether prepared
by Employee or by others.
(b) (i) Employee agrees that all right, title and interest
in and to any innovations, designs, systems, analyses, ideas for marketing
programs, and all copyrights, patents, trademarks and trade names, or similar
intangible personal property which have been or are developed or created in
whole or in part by Employee (1) at any time and at any place while the Employee
is employed by Company and which, in the case of any or all of the foregoing,
are related to and used in connection
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<PAGE>
with the Business of the Company, (2) as a result of tasks assigned to Employee
by the Company, or (3) from the use of premises or personal property (whether
tangible or intangible) owned, leased or contracted for by the Company
(collectively, the "Intellectual Property"), shall be and remain forever the
sole and exclusive property of the Company. The Employee shall promptly disclose
to the Company all Intellectual Property, and the Employee shall have no claim
for additional compensation for the Intellectual Property.
(ii) The Employee acknowledges that all the
Intellectual Property that is copyrightable shall be considered a work made for
hire under United States Copyright Law. To the extent that any copyrightable
Intellectual Property may not be considered a work made for hire under the
applicable provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after
reasonable effort to secure Employee's signature on any of the documents
referenced in Section 7(b)(iii) hereof, whether because of Employee's physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee's agent and attorney-in-fact, to act for and in his
behalf and stead to execute and file any such documents and to do all other
lawfully permitted acts to further the prosecution and issuance of any such
copyright, patent or trademark protection, or other analogous protection, with
the same legal force and effect as if executed by Employee.
8. Covenant not to Compete. The Employee shall not, during the
Term, including any extensions of the Term, and for a period of one (1) year
thereafter (the "Restricted Period"), do any of the following directly or
indirectly without the prior written consent of the Company:
(a) compete, directly or indirectly, with the Company or
any of its respective affiliates or subsidiaries, or any of their respective
successors or assigns, whether now existing or hereafter created or acquired
(collectively, the "Related Companies"), or otherwise engage or participate,
directly or indirectly, in any document management business conducted or
contemplated to be conducted by a Related Company, as the same are conducted or
contemplated to be conducted (as has been determined by the Board) during the
Term with respect to any period during the Term or any other business conducted
by the Company in which the Employee is or has been actively engaged (the
"Restricted Business") within any geographic area located within the United
States of America, its possessions or territories (the "Restricted Area");
(b) become interested (whether as owner, stockholder,
lender, partner, co-venturer, director, officer, employee, agent, consultant or
otherwise), directly or indirectly, in any person, firm, corporation,
association or other entity that engages in the Restricted Business within the
Restricted
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<PAGE>
Area; provided, that nothing contained in this Section 8(b) shall prohibit
Employee from owing, as a passive investor, not more than five percent (5%) of
the outstanding securities of any class of any publicly-traded securities of any
publicly held company listed on a well-recognized national securities exchange
or on an interdealer quotation system of the National Association of Securities
Dealers, Inc;
(c) solicit, call on, divert, take away, influence, induce
or attempt to do any of the foregoing, in each case within the Restricted Area,
with respect to the Company's or any of its Related Companies' (A) customers or
distributors or prospective customers or distributors (wherever located) with
respect to goods or services that are competitive with those of the Company or
any of its Related Companies, (B) suppliers or vendors or prospective suppliers
or vendors (wherever located) to supply materials, resources or services to be
used in connection with goods or services that are competitive with those of the
Company or any of its Related Companies, (C) distributors, consultants, agents,
or independent contractors to terminate or modify any contract, arrangement or
relationship with the Employer or any of its Related Companies or (D) employees
(other than family members) to leave the employ of the Company or any of its
Related Companies.
(d) influence or attempt to influence any supplier,
customer or potential customer of the Company or any of the Related Companies to
terminate or modify any written or oral agreement or course of dealing with the
Company or the Related Companies; or
(e) influence or attempt to influence any person (other
than a family member) to either (i) terminate or modify his employment,
consulting, agency, distributorship or other arrangement with the Company or any
of the Related Companies, or (ii) employ or retain, or arrange to have any other
person or entity employ or retain, any person who has been employed or retained
by the Company or any of the Related Companies as an employee, consultant, agent
or distributor of the Company or the Related Companies at any time during the
one year period immediately preceding the termination of Employee's employment
hereunder.
9. Termination. Employee's employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9. Upon termination, Employee shall be entitled only
to such compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of the disability of the Employee such
that Employee is unable to perform his duties and responsibilities hereunder to
the full extent required by this Agreement by reasons of illness, injury or
incapacity for a period of more than ninety (90) consecutive days or more than
one hundred twenty (120) days, in the aggregate, during any seven hundred thirty
(730) day period ("Disability"), Employee's employment hereunder may be
terminated by the Company by notice to the Employee pursuant to a determination
by the Board of Directors.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and benefits payable or provided in accordance
with the terms of any then existing compensation or benefit plan or arrangement
("Other Compensation"), including payment prescribed under any disability or
life insurance plan or arrangement in which he is a participant or to which he
is a party as an employee of the Company. Except as specifically set forth in
this Section 9.1(b), the Company shall have no liability or obligation to
Employee for compensation or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, except as hereinafter
provided, the determination as to whether Employee is Disabled shall be made by
a licensed physician selected by Employee and shall be based upon a full
physical examination and good faith opinion by such physician.
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<PAGE>
In the event that the Board of Directors disagrees with such physician's
conclusion, the Board of Directors may require that Employee submit to a full
physical examination by another licensed physician selected by Employee and
approved by the Company. If the two opinions shall be inconsistent, a third
opinion shall be obtained after full physical examination by a third licensed
physician selected by Employee and approved by the Company. The majority of the
three opinions shall be conclusive.
9.2. Termination by Death. In the event that Employee dies
during the Term, Employee's employment hereunder shall be terminated thereby and
the Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation through the end of the month in which he
dies. Except as specifically set forth in this Section 9.2, the Company shall
have no liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through his by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.
9.3. Termination By Company for Cause.
(a) The Company may terminate Employee's employment
hereunder at any time for "cause" upon written notice to Employee based upon a
good faith determination by the Board of Directors. The good-faith nature of the
determination shall not in and of itself mean that "cause" exists. For purposes
of this Agreement, "cause" shall mean: (i) any breach by Employee of any of his
obligations under Sections 6, 7 or 8 of this Agreement; (ii) gross incompetence
in the performance by Employee of the duties required by or appropriate for his
Position; (iii) any material violation of the Company's employee policies as
applied to Similarly Situated Employees, as may be amended from time to time;
(iv) fraud, embezzlement, theft or proven dishonesty in the course of his
employment or conviction of a felony; or (v) other conduct of Employee involving
any type of disloyalty to the Company or willful misconduct with respect to the
Company; provided that in no event shall the refusal of Employee to relocate
more than 60 miles from his current geographic location be deemed to constitute
disloyalty for purposes of clause (v) above; and provided further that in the
event of a "Change of Control", "Sale of the Company" or in the event Bruce M.
Gillis is no longer either Chairman of the Board or Chief Executive Officer of
the Company, "cause" shall have only the meaning set forth in clauses (i) and
(iv) above. For purposes hereof, "Change of Control" shall mean the sale,
transfer, assignment or other disposition (including by merger or consolidation)
by stockholders of the Company, in one transaction or a series of related
transactions, of more than fifty percent (50%) of the voting power represented
by the then outstanding stock of the Company to one or more Persons, other than
(i) any such sales, transfers, assignments or other dispositions by such
stockholders to their respective Affiliates, (ii) any such transaction effected
primarily to reincorporate the Company in another jurisdiction or (iii) any
transaction in connection with the simultaneous acquisition of document
management companies and the initial public offering of the common stock of the
Company or its affiliate. For these purposes, (i) "Affiliate" means, with
respect to any stockholder of the Company, (w) any Person directly or indirectly
controlling, controlled by or under common control with such stockholder, (x)
any Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such stockholder, (y) any officer, director or general
partner of such stockholder, or (z) any Person who is an officer, director,
general partner, trustee or holder of ten percent (10%) or more of the
outstanding voting securities of any Person described in clauses (w) through (y)
of this sentence; and (ii) "Person" means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity or association. For purposes hereof, "Sale of the Company" means a
sale, transfer, assignment or other disposition (including by merger or
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<PAGE>
consolidation), of all of the outstanding stock of the Company, or of all or
substantially all of the assets of the Company, a liquidation or dissolution of
the Company. A "Sale of the Company" shall not include the consummation of a
public offering of Common Stock of the Company or its affiliate pursuant to a
registration statement or any transaction effected primarily to reincorporate
the Company in another jurisdiction.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary and Benefits shall cease at the
time of such termination, subject to the terms of any benefit or compensation
plan then in force and applicable to Employee. Except as specifically set forth
in this Section 9.3, the Company shall have no liability or obligation hereunder
by reason of such termination.
9.4. Termination By Company Without Cause.
(a) The Company may terminate Employee's employment
hereunder at any time, for any reason, with or without cause, effective upon the
date designated by the Company upon written notice to Employee: provided that,
if such notice is given during the one hundred eighty (180) days immediately
preceding the end of the Term, such date shall be at least sixty (60) day after
the date of such notice.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation, plus continuation of the current Base Salary
and continuation of Benefits (including vesting of options and other Benefits)
for the remaining portion of the Term. Except as specifically set forth in this
Section 9.4, the Company shall have no liability or obligation hereunder by
reason of such termination.
9.5. Termination By Employee
(a) Employee may terminate Employee's employment hereunder
at any time effective upon the date designated by Employee in written notice of
the termination of his employment hereunder pursuant to this Section 9.5(a) (the
"Request Date"); provided that, such date shall be at least sixty (60) days
after the date of such notice. Notwithstanding the foregoing, upon receipt by
the Company of such written notice of termination, the Company in its sole
discretion, may deem such termination effective immediately (the "Accelerated
Termination Date"). In the event the parties mutually agree to an alternative
date of termination, that date shall be considered the Request Date.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the earlier of the Request Date or the
Accelerated Termination Date) Base Salary, Benefits and Other Compensation. If
the Company does not terminate the Employee immediately upon receipt of the
termination notice and Employee performs his duties in a satisfactory manner, as
determined in the sole discretion of the Company, until the Request Date,
Employee shall also be entitled to an amount equal to one month's Base Salary
(in effect at such time). Except as specifically set forth in this Section
9.5(b), all Base Salary, Benefits and Bonuses shall cease at the time of such
termination. Except as specifically set forth in this Section 9.5, the Company
shall have no liability or obligation hereunder by reason of such termination.
10. Other Agreements. Employee represents and warrants to the
Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this
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<PAGE>
Agreement or Employee's employment hereunder, or which is or would be
inconsistent or in conflict with this Agreement or Employee's employment
hereunder, or would prevent, limit or impair in any way the performance by
Employee of his obligations hereunder,
(b) That Employee's execution of this Agreement and
Employee's employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by
which Employee is bound, and
(c) That Employee is free to execute this Agreement and to
enter into the employ of the Company pursuant to the provisions set forth
herein.
(d) In the event they are still in effect, that Employee
shall disclose the existence and terms of the restrictive covenants set forth in
this Agreement to any employer that the Employee may work for during the term of
this Agreement (which employment is not hereby authorized) or after the
termination of the Employee's employment at the Company.
11. Survival of Provisions. The provisions of this Agreement
set forth in Sections 6, 7, 8, 9 and 20 hereof shall survive the termination of
Employee's employment hereunder.
11A. Indemnification The Company shall indemnify the Employee
from and against any and all losses, costs, damages or expenses the Employee may
sustain by reason of his employment hereunder in the same manner and to the same
extent as the executive officers of the Company.
12. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Employee and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Employee nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party hereto, except that, without such
consent, the Company may assign this Agreement to an Affiliate or any successor
to all or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise, provided
that such successor assumes in writing all of the obligations of the Company
under this Agreement, subject, however, to Employee's rights as to termination
as provided in Section 9.5 hereof.
13. Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing and sent by certified or
registered mail, return receipt requested, addressed as follows:
If to Employee:
------------------------------
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
If to Company:
Bruce M. Gillis
DocuNet Inc.
715 Matson's Ford Road
Villanova, PA 19085
with a copy to:
Barry M. Abelson
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
14. Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all
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<PAGE>
prior and contemporaneous discussions, agreements and understandings of every
nature between the parties hereto relating to the employment of Employee with
the Company. This Agreement may not be changed or modified, except by an
Agreement in writing signed by each of the parties hereto.
15. Waiver. The waiver of the breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
16. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Nebraska.
17. Invalidity. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.
18. Section Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
19. Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or day which is a holiday in Philadelphia,
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
20. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained
in Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, or other limitations permitted by applicable
law.
(b) In the event that Employee shall be in breach of any of
the restrictions contained in Section 8 hereof, then the Restricted Period shall
be extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
21. Arbitration. In the event that the parties are unable to
resolve any disputes arising hereunder, such dispute shall be submitted for a
binding determination by a neutral third party designated by the President of
the Philadelphia office of the American Arbitration Association.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: DOCUNET INC.
By:___________________ By:_____________________________
Title: Title:
[CORPORATE SEAL]
_______________________________
[EMPLOYEE]
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<PAGE>
SCHEDULE A
James Bunker Jane Semasko
Gary Blackwelder Mitchell Taube
Mark Creglow John Semasko
David Crowder David C. Utz, Jr.
Jeff Kalmon David Yezbak
Rex Lamb
Ovidio Pugnale
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<PAGE>
SCHEDULE B
EMPLOYEE BENEFITS
1. Automobile: Automobile allowance comparable to the Similarly Situated
Employees.
2. Vacation: 20 business days of vacation per year.
3. Major medical and hospitalization insurance: Major medical and
hospitalization insurance and other benefits available through Company's
cafeteria plan effected by the Company's contribution on behalf of Employee
to Company's cafeteria plan in an amount equal to $_____ per year.
4. Life Insurance: Policy with death benefit to Employee equal to two times
initial Base Salary.
5. Expense Reimbursement: The Company will reimburse Employee for business
trade and entertainment expenses normally reimbursed under the Company's
general expense reimbursement policy, as may be in effect from time to
time.
6. Other Benefits: Participation in 401(k) Plan, Supplemental Retirement Plan
and Short-Term disability policy, and any other benefit plan which may be
generally available to the class of employees of which Employee is
employed.
A-1
5608 S. 50th Street
LEASE AGREEMENT
This LEASE AGREEMENT, executed in two or more counterparts is made and
entered into this 26 day of March, 1996, by and between Marlyn D. Schwartz
(hereinafter the landlord), whose address for the purpose of the Lease is 5300
Old Cheney Road, Lincoln, Nebraska, 68516 and Rex Lamb d/b/a Docutech
(hereinafter the Tenant), whose address for the purpose of this Lease is 5046
Rentworth Ct., Lincoln NE 68516.
WIINESSETH:
IN CONSIDERATION of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Premises.
A. Demised Premises. Landlord does hereby demise and lease unto
Tenant, and Tenant does lease and take from Landlord the following
described premises, hereinafter referred to as the "Demised Premises," now
erected in the 5608 S. 50th Street Building, (hereinafter the Building) in
the City of Lincoln, Lancaster County, Nebraska:
a store unit measuring approximately 6,832 sq. ft. with 4,000 sq. ft.
finished space and 2,832 sq. ft. unfinished space.
Any measurements herein specified are from the outside of the exterior
walls to the centerline of the interior walls. The approximate boundaries
and location of the Demised Premises are outlined in red on the site plan
of the Building, which is marked Exhibit B attached hereto and made a part
hereof, and the Building itself is outlined in green on said Exhibit.
B. Common Areas. In addition to the occupancy of the Demised Premises,
Tenant and Tenant's concessionaires, officers, employees, agents, customers
and invites also shall have the right to the nonexclusive use of automobile
parking areas, access roads, truck loading area, delivery area, walkways,
bus stops, landscaped areas, driveways and sidewalks which now are or
hereafter may be located upon some portion of the Shopping Center. Such
parking areas, access roads, truck loading areas, delivery areas, walkways,
bus stops, landscaped areas, driveways and sidewalk hereinafter are
collectively referred to as the "Common Areas". Landlord agrees to make the
Common Areas continuously available to tenant for nonexclusive use by
Tenant and the other aforementioned groups of persons during the term of
this Lease, except when portions thereof may be unavailable for use by
reason of repair work. The nonexclusive use of
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<PAGE>
the common Areas by Tenants and Tenant's concessionaires, officers,
employees, agents, customers and invites at all times shall be subject to
such reasonable rules and regulations as Landlord from time to time may
establish and shall be in common with those rules and regulations for other
tenants of the Shopping Center.
2. Commencement of Term. The term of this Lease shall commence thirty (30)
days following receipt by Tenant of written notice by Landlord that the Demised
Premises are ready for Tenant Improvements, or the date Tenant first opens for
business to the public, whichever is the first to occur (hereinafter referred to
as the Commencement Date) which shall be defined as May 1, 1996.
3. Term. The term of this Lease shall commence on the Commencement Date and
shall end at 11:59 P.M. on April 30, 1998. As used herein, the term "lease year"
shall mean the twelve (12) calendar month period beginning on the first day of
January and ending on the last day of the following December except that the
first Lease Year, which shall be only a fractional Lease Year, shall begin on
the Commencement Date of the term of this Lease and shall end on the last day or
the following December.
4. Options To Extend. If Tenant is not then in default under any terms and
provisions of this Lease, Tenant shall have the option to extend the term of
this Lease for an additional term (sometimes in this Lease referred to as the
"first additional term") of two years, from and after the expiration of the
initial term of the Lease. In order to exercise such option, Tenant shall
provide Landlord with advance written notice of Tenant's intent to exercise
option no less than 120 days prior to the expiration of the initial term of the
Lease. In the event that Tenant fails to provide such notice to Landlord as
provided herein, such option shall lapse and shall be rendered null and void. In
the event that Tenant exercises its option to extend this Lease as provided
herein, such extension shall be on the same terms and conditions as their
initial term of this Lease, except that the amount of the rent for such
extension shall be determined in the manner provided under Paragraph 5B below.
If Tenant exercises its first option to extend the term of this Lease,
Tenant is not then in default under any of the terms and provisions of this
Lease, and Tenant shall have the option to further extend the term of the Lease
for a second additional term (sometimes in this Lease referred to as the "second
additional terms) of two (2) years, from and after the expiration of the first
additional term of this Lease, upon the giving of written notice of the exercise
of such option to Landlord at least one hundred twenty (120) days prior to the
expiration of the first additional term of the Lease. Said second extension
shall be on the same terms and conditions as the basic term with the exception
of rent which shall be determined in the manner provided under Paragraph 5B.
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<PAGE>
5. Rent.
A. Cash Rent. Tenant agrees to pay Landlord at the office of Landlord
or at such other place as may be designated by Landlord for each year of
the basic term an annual rent of Forty Four Thousand One Hundred Sixty
Dollars ($44,160.00) for the first through and including the second full
lease year, payable in advance in equal monthly installments of Three
Thousand Six Hundred Eighty Dollars ($3,680.00). If the lease term
commences on a day other than the first day of a calendar month, the rent
for that first fractional month shall be prorated and paid on the first day
of the month next succeeding, and the last fractional month shall be
similarly prorated, but paid in advance.
B. Option Term Rent. In the event the Tenant exercises the option to
extend this Lease in the manner provided under Paragraph 4, the rental rate
shall be adjusted for the extended term by taking the total rents of the
premises owned by this Landlord less Tenant's current rent, divided by the
total square footage of the premises included in the above base rents which
shall equal an "average rent per square foot", then multiply the "average
rent per square foot" times the Tenant's square feet as described in
Paragraph 1A directly or indirectly, which will equal the new annual rent
for the duration of the extended term. Such amount shall be payable in
advance in equal monthly installments commencing on April 30, 1998 and
continuing on the first day of each month thereafter for the duration of
the extended term.
C. Additional Rent. Any other sums of money or charges to be paid by
the Tenant pursuant to the provisions of any other sections of this Lease
shall be designated as "Additiona1 Rent". (See Addendum}
D. Interest. If any rent or additional rent is not paid when due
interest shall be due on the amount remaining to be paid at the rate of 14%
per annum or the maximum interest rate permitted under law, whichever is
the lesser, from the date such amount was due until such rent or additional
rent is paid.
6. Real Estate Taxes. Omitted
A. Tenant's Proportionate Share. Omitted
B. When Due. Omitted
C. Fractional Year. Omitted
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<PAGE>
7. Insurance. Omitted
A. Hazard Insurance. Omitted
B. Public Liability. Omitted
C. General. Omitted
8. Utilities. Tenant shall pay before delinquency all charges for water,
gas, heat, electricity, power, telephone service, sanitary sewer (including
cleaning), and other similar charges incurred by Tenant with respect to and
during its Lease of the Demised Premises.
9. Common Areas Maintenance and Costs.
A. Maintenance of Common Areas. Landlord shall operate and maintain
the Common Areas during the term of this Lease in good order and repair in
accordance with reasonable standards of shopping center cleanliness and
maintenance.
B. Cost of Common Area Maintenance. Omitted
C. Definition of Costs of Common Area Maintenance. Omitted
10. Maintenance and Repair - Demised Premises.
A. By Tenant. Tenant shall repair and maintain in good order and
condition all interior portions, including the maintenance of the building
service facilities such as the wiring, plumbing, heating and air
conditioning systems, and all glass, including plate glass, exterior doors
and automatic door operators of the Demised Premises.
B. By Landlord. Landlord at all times will keep and maintain the
exterior and structura1 parts of the building, including but not limited
to, the roof, the walls (except interior painting or decorating, and
excepting any plate glass], floors (except floor covering), foundation,
canopy, sewers and utility services, unless any such repair or replacement
thereof is occasioned by reason of acts of neglect of Tenant, its agent,
servants or employees.
11. Alterations. Tenant, at its own expense during the term of this Lease,
may make such nonstructural alterations to the interior of the Demised Premises
it deems appropriate, provided that: (i) the structural integrity of the Demised
Premises shall not be affected or diminished; (ii) the value of thereby
diminished; and (iii) the exterior appearance (including the store front) is not
thereby altered or changed. In all other instances, Tenant shall secure prior
written approval and consent
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<PAGE>
of Landlord before making any alterations, which consent shall not be
unreasonably acceptable to Landlord. At the time Landlord's approval of any
alterations is sought, Tenant shall submit to Landlord plans and specifications
for such work, together with a statement of the estimated costs of such work.
All such alterations shall be completed in a good and workmanlike manner with
first-class materials. Tenant shall make no additions or alterations whatsoever
to the exterior of the Demised Premises without the prior written consent of
Landlord. Upon the termination of this Lease any additions or alterations made
to the interior of the Demised Premises by Tenant shall remain a part of the
Demised Premises and be surrendered therewith.
12. Tenant's Assignment or Subletting. Provided that Tenant is not then in
default under any term of this Lease, Tenant shall have the right, with
Landlord's written consent, to assign this Lease or to sublet any portion of the
Demised Premises to any third party. Any assignment by Tenant shall be subject
to those limitations in uses provided for in any agreement declaring
restrictions to the use and operation of the Shopping Center and further subject
to any provisions of leases with other tenants of the Shopping Center
prohibiting competing uses with their use of the Shopping Center. In the event
of any assignment or subletting, Tenant shall remain liable for all rent
payments due and for all covenants and obligations of Tenant under this Lease.
13. Damages to or Destruction of Demised Premises. If the Demised Premises
or any portions thereof are so damaged or destroyed by fire or other casualty so
as to render the Demised Premises unfit for occupancy, and the Demised Premises
cannot reasonably be repaired and restored within one hundred eighty (180)
calendar days from such damage, then Tenant and Landlord shall have the right of
cancelling this Lease by giving written notice to the other within thirty (30)
days of such damage, and the proceeds of the fire and extended coverage
insurance policy shall be paid to and be the sole property of Landlord. Tenant
shall be entitled to receive a prorated refund of any rent and other charges
paid in advance. If Tenant elects not to give notice of cancellation or if
damage is such that the Demised Premises can be restored/repaired within 180
calendar days, then Landlord shall repair and restore the Demised Premises to
the former condition just prior to the loss, and the insurance proceeds shall be
applied to such repairs and restoration. From the date of such fire or casualty
until the Demised Premises are restored in accordance with the provisions set
forth above, Tenant shall pay only such portion of rent accruing from time to
time as the value of the portion of the Demised Premises not made untenantable
by reason of such casualty shall bear to the value of the Demised Premises
hereby leased.
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14. Condemnation.
A. Complete Taking. In the event that the whole of the Demised
Premises are taken for public or quasi-public purposes by the government of
the United States, the State of Nebraska, the City of Lincoln, or any
government or power whatsoever, or by any corporation under the right of
eminent domain, or should the whole of the Demised Premises be condemned by
any court, city, county, state or governmenta1 authority of office,
department or bureau of any city, county, state or of the United States,
then in any such event this Lease shall terminate as of the date title to
the Demised Premises vests in the condemning authority. For the purposes
hereof, such date of vesting in the condemnor terminating this Lease shall
operate as though it were the date originally intended by the parties for
expiration of the tenancy created hereunder, and the rent reserved herein
shall be adjusted in the light of the condemnation, so that Tenant shall
pay rent to Landlord only up to the date of vesting in the condemnor. Any
prepaid or advance rental or other amounts to be paid by Tenant under this
Lease paid by Tenant to Landlord or third party for that part of the term
extending beyond the date on which the title vests in the condemnor shall
be refunded within three (3) days after Landlord has received an award of
just compensation from the condemning authority for the taking of the
Demised Premises, provided Tenant shall have duly performed all the
covenants and conditions of this Lease by it to be performed.
B. Generally. It is recognized by both parties that the Landlord and
Tenant each shall have separate rights of damages against the public
authority on account of any condemnation or taking under the power of
eminent domain of any part or all of said Demised Premises, and it is
expressly provided herein that neither party waives or forgoes any claim it
may have on behalf of its property or leasehold value.
15. Permitted Use. No portion of the Demised Premises shall be used for (i)
any purpose or use which would diminish the value of said property, or (ii) any
use prohibited by any agreement running with the land declaring restrictions on
use. The Demised Premises may otherwise be used for any lawful purpose.
16. Covenant Against Mechanics Liens. Tenant shall do all things necessary
to prevent the filing of any mechanic's other liens against the Demised
Premises, or the interest of any mortgages or holders of any deed of trust
covering the Demised Premises by reason of any work, labor, services performed
or any materials supplied or claimed to have been performed or supplied to
Tenant, or anyone holding the Demised Premises, or any part thereof, through or
under Tenant. If any such lien shall at any
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<PAGE>
time be filed, Tenant shall either cause the same to be vacated and cancelled
or record within thirty (30) days after the date of the filing thereof or, if
Tenant in good faith determines that such lien should be contested, Tenant shall
furnish such security by surety bond or otherwise as may be necessary or be
prescribed by law to release the same as a lien against the real property and to
prevent any foreclosure of such lien during the pendency of such contest. If
Tenant shall fail to vacate or release such lien in the manner and within the
time period aforesaid, then, in addition to any other right or remedy of
Landlord resulting from Tenant's said default, Landlord may, but shall not be
paying the amount claimed to be duo or by procuring the release of such lien by
giving security, or in such other manner as may be prescribed by law. Tenant
shall repay to Landlord, on demand, all sums disbursed or deposited by Landlord
pursuant to the foregoing provisions of this paragraph, including Landlord's
cost and expenses and reasonable attorney's fees incurred in connection
therewith. However, nothing contained herein shall imply any consent or
agreement on the part of the Landlord, Landlord's mortgagees or holds of deeds
of trust of the Demised Premises to subject their respective estates or interest
to liability under any mechanic's or other lien law, whether or not the
performance or the furnishing of such work, labor, services or materials to
Tenant or anyone holding the Demised premises, or any part thereof, through or
under Tenant, shall have been consented to by Landlord and/or any of such
parties.
17. Fixtures and Machinery. It is mutually agreed that all personal
property on the Demised Premises, including merchandise of every kind, nature
and description, furnishing, equipment, trade fixtures and including
refrigeration equipment (but expressly including air conditioning equipment and
heating equipment, except air condition equipment installed by the Tenant, if
any) and all other property hereafter placed or kept on the Demised Premises by
Tenant, are and shall continue to be the sole property of the Tenant, unless the
same shall have been installed to replace equipment previously installed by
Landlord. Tenant may, during the term of this Lease or any extensions thereof
remove any furniture, fixtures or equipment as it may so desire, provided Tenant
sha11 repair all damages resulting from such removal, as nothing herein is
intended to impose any such removal, as nothing herein is intended to impose any
restrictions on the use of the furniture, fixtures or equipment an the Tenant
may deem necessary or desirable in the operation of its business.
18. Quiet Enjoyment. Landlord covenants that Landlord is the sole owner in
fee simple of or has a leasehold interest in the Demised Premises, has good and
marketable title thereof, and has full right to lease the Demised Premises for
the term aforesaid, and for the term of all extensions permitted to the Tenant
hereunder, and that Tenant upon payment of rent and performing Tenant's
obligations in this Lease may peaceably and quietly have, hold, and enjoy the
said Demised Premises for the
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<PAGE>
said term and all extentions thereof until terminated an provided in the Lease.
l9. Subordination. Landlord may assign its rights under this Lease as
security to the holders of one or more mortgages, trust deed or other
encumbrance now or hereafter in force against all or any part of the land or
improvements constituting the Demised Premises of the Shopping Center. Upon the
request of Landlord, Tenant will subordinate its rights hereunder to the lien of
one or more mortgages, trust deed or other encumbrance now or hereafter in force
against all or any part or the land improvements constituting the Demised
Premises or the Shopping Center, and to a11 advances made or hereafter to be
made upon the security thereof; provided, however, that any such mortgage, deed
of trust or other security document shall provide that the secured party, in the
event of its acquiring title to the Demised Premises or the Shopping Center,
whether through foreclosure, judicial process or otherwise, shall recognize the
validity of this Lease and shall honor the rights of Tenant hereunder so long as
Tenant (a) is not in default under this Lease at the time such secured party
acquired title to the Demised Premises or the Shopping Center and (b) agrees to
attorn to such mortgagee as if it were the original Landlord hereunder.
20. Tenant's Default. If Tenant defaults in the payment of any rent or
other sums due and payable to Landlord under this Lease and such default
continues for a period of ten (10) days after written notice of such default has
been given by Landlord to Tenant, or if Tenant shall violate or default in the
performance of any covenants, agreements, stipulations or other conditions
contained herein (other than the payment of rent and other sums payable under
this Lease) and such violation or default continues for a period of thirty (30)
days after written notice of such violation or default has been given by
Landlord to Tenant, or, in the case of a default not curable within thirty (30)
days, if Tenant shall fail to commence to cure the same within thirty (30) days
and thereafter proceed diligently to complete the cure thereof, then Landlord at
its option may reenter and repossess the Demised Premises with or without
process of law, declare this Lease terminated and the term of this Lease ended
forthwith, or pursue any other remedy available under law. Landlord may use such
legal force as may be necessary to remove all persons and property then located
in the Demised Premises. Landlord shall have full and uncontested right to take
possession of Tenant's fixtures, inventory and other property in or about the
Demised Premises, holding the same as additional security for the rent and other
sums due hereunder. Notwithstanding such reentry and repossession by Landlord
and the holding of such fixtures, inventory or other personal property, the
liability of Tenant for the payment of the rent and other sums due hereunder and
for the performance of Tenant's other obligations hereunder for the balance or
the term of this Lease shall not be relinquished or extinguished and Landlord at
any time may commence one or more actions to collect any sums due
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from Tenant under this Lease. In the event of any such reentry and repossession,
Landlord may deem appropriate and any such reletting shall not relieve Tenant of
any of its obligations to Landlord under this Lease, except to the extent of any
net rentals actually received by Landlord from such reletting after deducting
all of Landlord's expense, including but not limited to legal expenses,
brokerage commissions and the costs of remodeling the Demised Premises so as to
render it suitable for reletting.
21. Signs. Tenant shall have the right to attaching, affixing, painting or
exhibiting signs on the Demised Premises, provided only (a) that any and all
signs shall comply with the ordinance of the city or municipality in which the
property is located and the laws of the State of Nebraska; (b) such signs shall
not change the structure of the building; (c) such signs if and when taken down
shall not damage any buildings; and (d) such signs shall be subject to the
written approval of the Landlord, which approval shall not be unreasonably
withheld.
22. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to
the other for any business interruption or any lose or damage to property or
injury or death of persons occurring on the Demised Premises or in any manner
growing out of Tenant's use of the Demised Premises, whether or not caused by
the fault or negligence of the Landlord or Tenant, or their respective agents,
employees, subtenants, licensees or assignees. This release shall apply only to
the extent that such business interruption, loss or damage to property, or
injury or death of persons is covered by insurance maintained by the Landlord or
Tenant, and to the extent that recovery is made of proceeds thereunder, and
regardless of whether such insurance protects the Landlord or Tenant or both.
Nothing herein shall be construed to impose any other or greater liability upon
either of the parties to this Lease than would have existed in the absence of
this paragraph. This paragraph shall be effective only so long as its provisions
do not adversely affect the right of the insured, whether Landlord or Tenant or
both, to recover under the applicable policy or policies of insurance, and if
prohibited under the terms of such policy or policies, shall be deemed wholly
without force or effect.
23. Estoppe1 Certificates. Tenant, from time to time upon written request
from Landlord, agrees to execute, acknowledge, and deliver to Landlord, in form
reasonably satisfactory to Landlord and/or Landlord's mortgagee, a written
statement certifying that Tenant has accepted the Demised Premises, that this
Lease is unmodified and in full force and effect or, if there have been
modifications, that this Lease is in full force and effect as modified, setting
forth the modifications, that Landlord is not in default hereunder, the date to
which the rent and other amounts payable by Tenant have been paid in advance, if
any, and such additional facts as reasonably may be required by Landlord or
Landlord's mortgagee. Tenant understand and agrees
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that any such statement delivered pursuant to this paragraph may be relied upon
by any prospective purchase of the Demised Premises, any prospective; mortgagee
of the Demised Premises and their respective successors and assigns.
24. Surrender of Premises at End of Term. Tenant agrees that upon the
termination of this Lease it will surrender, yield up and deliver the Demised
Premises in good and clean condition, except the effects of reasonable wear and
tear and depreciation arising from lapse of time, or damage without fault or
liability of Tenant. Tenant shall remove its inventory, equipment, furniture,
trade fixtures. Any personal property or fixtures which Tenant in its discretion
elects not to remove shall be presumed to be abandoned and shall thereupon be
the property of Landlord. Nothing herein in to be construed to require that
Tenant remove any property which has become a fixture of the Demised Premises.
25. Paragraph Titles. The Titles of the various paragraphs of this Lease
have been inserted as a matter of convenience and for reference only, and shall
to be deemed in any manner to define, limit or describe the scope or intent of
the particular paragraphs to which they refer or to affect the meaning or
construction of the language contained in the body of such paragraphs.
26. Severability. If any provision of this Lease shall be declared legally
invalid or unenforceable, then the remaining provisions of this Lease
nevertheless shall continue in full force and effect and shall be enforceable to
the fullest extent permitted by law.
27. Time to Essence. Time is of the essence of this Lease, and all
provisions of this Lease relating to the time of performance of any obligation
under this lease shall be strictly construed.
28. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Nebraska.
29. Multiple Counterparts. This Lease may be executed in multiple
counterparts, each of which shall be deemed to be an original for all purposes.
30. Definitions. Except as otherwise expressly stated in this Lease, the
"term" of this Lease shall include the original term and any additional term as
to which Tenant exercises its options, if any, and references to this "lease"
shall include this instrument and any properly executed amendment thereof or
supplement thereto.
31. Waivers. One or more waivers by Landlord or Tenant of breach of any
covenant or condition by the other of them shall
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not be construed as a waiver of the subsequent breach of the same covenant or
condition, and the consent or approval by Landlord or Tenant to or of any act by
either requiring the other's consent or approval shall not be deemed to waive
or render unnecessary either part's consent to or approval of any subsequent
similar act by the other party.
32. Binding Agreement. All rights and liabilities herein given to or
imposed upon the respective parties hereto shall extend to and bind the
respective heirs, executors, administrators, personal representatives,
successors and assigns of such parties. No rights, however, shall inure to the
benefit of any assigns of Tenant unless the assignment thereof to such assignee
has been approved by Landlord in writing, if such approval is required by this
Lease.
33. Short-Form-Lease. Both parties agree not to record this Lease but to
execute a "short form" of lease in form recordable and reasonably satisfactory
to Landlord's attorney. In no event shall such "short form" lease set forth the
rental and other charges payable by Tenant under this Lease, and any such "short
form" lease sha11 expressly state that it is executed pursuant to the provisions
contained in this Lease and is not intended to vary the terms and conditions of
this Lease. Upon completion of the recording and/or filing of such short form
lease and agreement, if any, they shall be delivered to Tenant, and if
necessary, such recordings and/or filings shall be made in duplicate so that
recorded and/or filed counterparts thereof may so be delivered to Tenant.
34. Relationship of Parties. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, computation of rent, nor any other provision
contained herein, nor any acts of the parties hereto shall be deemed to create
any relationship between the parties hereto other than the relationship of
Landlord and Tenant.
35. Notices. Whenever under this Lease a provision is made for notice of
any kind, such notice and the service thereof shall be seemed sufficient if such
notice to Tenant and Landlord is in writing addressed to Tenant and Landlord at
the address shown in the preamble to this Lease. Either party may be notice to
the other party change the address at which it wishes to receive any notice
given under this Lease.
36. Delays in Performance. The performance by Landlord and Tenant of any of
their respective obligations or undertakings provided for in this Lease, shall
be excused and no default shall be deemed to exist in the event and so long as
the performance of any such obligation or undertaking is prevented, delayed,
retarded or hindered by any act of God, fire, earthquake, flood, explosion,
action of the elements, war, riot, failure of
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transportation, strikes, lockouts, action of labor unions, condemnation, laws,
orders of government or civil or military authorities, inability to procure
labor, equipment, matarials or supplies in the open market, or any other cause
directly beyond the control of Landlord or Tenant, as the case may be.
37. Indemnification. Landlord and Tenant agree to indemnify and defend each
other against and to hold each other harmless from any and all claims or demand
of any third party arising from or based upon any alleged act, omission or
negligence of the indemnifying party or its contractors, concessionaires,
licensees, agents, servants, invitees, employees or any one else for whom the
indemnifying party may be responsible. In the event that either party shall
without fault on its part be made a party to any litigation commenced by any
third party against the other party, then such other party shall protect and
hold the party harmless from and with respect to such litigation, and shall pay
all costs, expenses and attorneys' fees incurred or paid by the party without
fault in connection with such litigation, together with any judgments rendered
against the party without fault.
38. Cumulative Rights. The rights, options, elections and remedies of both
parties contained in this Lease shall be cumulative and may be exercised on one
or more occasions and none of them shall be construed as excluding any other or
any additional right, priority or remedy allowed or provided by law.
39. Holdover. In the event that Tenant remains in possession of the Demised
Premises after the termination of this Lease without the exercise of any option
to extend the term of this Lease or without the execution of a new Lease, then
Tenant shell be deemed to be occupying the Demised Premise as a tenant from
month to month, subject to all of the conditions, provisions and obligations of
this Lease, but without any rights to extend the term of this Lease.
40. Entry by Landlord. Landlord shall have the right to enter upon the
Demised Premises at all reasonable hours for the purpose or inspecting the
Demised Premises or for any other lawful purpose; provided, however, that such
entry shall not unreasonably interfere with the conduct of Tenant's business.
41. Execution Required. The submission of this document for examination
does not constitute an offer to lease or a reservation of or option for the
Demised Premises and shall become effective only upon execution by both Tenant
and Landlord.
42. Number and Gender. Where the context of this Lease requires, singular
words shall be read as if plural, plural words shall be read as if singular and
words of neuter gender shall be read as if masculine or feminine.
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43. Entire Agreement. Tenant and Landlord hereby agree that this Lease as
written represents the entire agreement between the parties hereto and that
there are not other agreements, written or verbal, between the parties hereto
pertaining to the Demised Premises or the subject matter hereof. This Lease may
not be amended or supplement orally but only by an agreement in writing which
has been signed by the party against whom enforcement of any such amendment or
supplement is sought.
44. Local Regulations. Tenant will comply with all lawful requirements of
the local board of health, police, fire department and governmental authorities
respecting the manner in which it uses the Demised Premises. The Tenant at its
expense will supply any apparatus, appliance or material and w111 have done any
work for, in, or about the Demised Premises which may be required or ordered by
any law or lawful authority.
45. Corporate Tenant. The persons executing the Lease on behalf of Tenant
hereby covenant, represent and warrant that Tenant is fully incorporated, that
the corporation is in good standing and that the person(s) executing this Lease
on behalf of Tenant is an officer or are officers of such Tenant, and that he or
they as such officert(s) is/are duly authorized to sign and execute this lease.
A copy of a resolution for such authority shall be supplied to Landlord upon
request.
46. Consent. In any instance where the consent or approval of either party
is required under the term of this Lease, such consent or approval shall not be
unreasonably withheld. Landlord and Tenant agree to execute and deliver any
instruments in writing necessary to carry out and agreement, term, conditions or
assurance in this Lease whenever occasion shall arise and request for such
instruments shall be made.
47. Deposit. Tenant has placed $___________ upon signing with landlord to
be used by landlord in the event tenant should cause any damage (excepting
normal wear) or an application for monetary or other defaults. This deposit will
not bear any interest nor will it be placed in a separate account.
48. Landlords work shall consist of the following only as indicated in
Rider C.
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IN WITNESS WHEREOF, the parties hereto have set their hand this date May
24, 1996.
LANDLORD: TENANT:
/s/ Marlyn Schwartz /s/ Rex Lamb
- --------------------------- ----------------------------
Marlyn Schwartz Rex Lamb d/b/a Docutech
ACKNOWLEDGMENT
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
I, Sharon Y Schwartz, a Notary Public DO HEREBY CERTIFY that Rex Lamb and
________________ of Docutech who (is) personally know to me to be the same
person whose name (is) subscribed to the foregoing instrument appeared before me
this day in person and acknowledged that (he) signed, sealed and delivered the
said instrument as (his) free and voluntary act for the uses and purposes
therein set forth.
Given under my hand and notarial seal, this 24th day of May, 1996.
/s/ Sharon Y. Schwartz
----------------------------
Notary Public
My commission expires March 27, 2000
GENERAL NOTARY - State of Nebraska
SHARON Y. SCHWARTZ
My Comm. Exp. March, 2000
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ACKNOWLEDGMENT
STATE OF NEBRASKA )
) ss.
CoUNTY OF LANCASTER )
I, Joe S. Rohach, a Notary Public DO HEREBY CERTIFY that Marlyn Schwartz of
Lincoln, NE who (is) personally known to me to be the same person whose name
(is) subscribed to the foregoing instrument appeared before me this day in
person and acknowledged that (she) signed, sealed and delivered the said
instrument as (her) free and voluntary act for the uses and purposes therein set
forth, all as President of Fortune Palace, Inc. a Nebraska corporation, on
behalf of the corporation.
Given under my hand and notarial seal, this 11 day of July, 1996.
/s/ Joe S. Rohach
----------------------------
Notary Public
GENERAL NOTARY - State of Nebraska
JOSEPH S. ROHACH, JR.
My Comm. Exp. March, 1999
My commission expires April 1, 1999
My commission expires _______________
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EXHIBIT A
Legal Description:
Lot 1, Block 4, Rent-Worth Addition & Lot "A", Krein Industrial Plaza Sub
of Lot 6
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Rider C
1. Landlord will do all the interior improvements to the space to be
finished.
2. Landlord will give $10 per yard flooring allowance for the 4,000
square feet finished space (which equals $4,450.00). Any additional costs for
the flooring will be at the Tenant's expense.
3. Unfinished space shall have one (1) existing overhead unit heater. If
Tenant decides to finish the unfinished area at his own expense, the Landlord
will provide the furnace and A/C units adequate to heat and cool the existing
unfinished area.
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LEASE AGREEMENT
THIS LEASE AGREEMENT,executed in two or more counterparts is made and
entered into this ____ day of February 1992, by and between Marlyn Schwartz,
d/b/a Old Cheney Plaza (hereinafter the Landlord), 5600 S. 48th, Lincoln,
Nebraska, 68516, and Rex Lamb d/b/a Docu Tech (hereinafter the Tenant), whose
address for the purpose of this Lease is 5044, 5048, and 5046 Rentworth Court,
Lincoln, NE 68516.
WITNESSETH:
IN CONSIDERATION of the mutual covenants herein contained, the parties
hereto hereby agree as follows:
1. Premises.
a warehouse/office measuring approximately 4300 square feet.
Any measurements herein specified are from the outside of the exterior
walls to the centerline of interior walls. The approximate boundaries and
location of the Demised Premises are outlined in red on the site plan of
the Shopping Center, which is marked Exhibit B attached hereto and made a
part hereof, and the Shopping Center itself is outlined in green on said
Exhibit.
B. Common Areas. In addition to the occupancy of the Demised Premises,
Tenant and Tenant's concessionaires, officers, employees, agents, customers
and invitees also shall have the right to the nonexclusive use of
automobile parking areas, access roads, truck loading area, delivery areas,
walkways, bus stops, landscaped areas, driveways and sidewalks which now
are or hereafter may be located upon some portion of the Shopping Center.
Such parking areas, access roads, truck loading areas, delivery areas,
walkways, bus stops, landscaped areas, driveways and sidewalk hereinafter
are collectively referred to as the "Common Areas". Landlord agrees to make
the Common Areas continuously available to tenant for nonexclusive use by
Tenant and the other aforementioned groups of persons during the term of
this Lease, except when portions thereof may be unavailable for use by
reason of repair work. The nonexclusive use of the Common Areas by Tenant
and Tenant's concessionaires, officers, employees, agents, customers and
invitees at all times shall be subject to such reasonable rules and
regulations as Landlord from time to time may establish and shall be in
common with those rules and regulations for other tenants of the Shopping
Center.
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2. Commencement of Term. The term of this Lease shall commence March 1,
1992.
3. Term. The term of this Lease shall end on February 28, 1995.
4. See pg. 2A
5. Rent.
A. Cash Rent. Tenant agrees to pay to Landlord at the office of
Landlord or at such other place as may be designated by Landlord for each
year of the basic term an annual rent of Eighteen Thousand Six Hundred
Dollars {$18,600) for the first through and including the third full lease
year, payable in advance in equal monthly installments of One Thousand
Eight Hundred Twenty-Five Dollars ($1,825). If the lease term commences on
a day other than the first day of a calendar month, the rent for that first
day of the month next succeeding, and the last fractional month shall be
similarly prorated, but paid in advance. This amount includes the
improvements to be made to 5044 and 5046 Rentworth.
B. Additional Rent. Any other sums of money or charges to be paid by
the Tenant pursuant to the provisions of any other sections of this Lease
shall be designated as "Additional Rent."
D. Interest. If any rent or additional rent is not paid when due
interest shall be due on the amount remaining to be paid at the rate of 14%
per annum or the maximum interest rate permitted under law, whichever is
the lesser, from the date such amount was due until such rent or additional
rent is paid.
E. See pg. 2A
6. Intentionally deleted.
7. Intentionally deleted.
8. Utilities. Tenant shall pay before delinquency all charges for water,
gas, heat, electricity, power, telephone service, sanitary sewer (including
cleaning), and other similar charges incurred by Tenant with respect to and
during its Lease of the Demised Premises.
9. Intentionally deleted.
10. Maintenance and Repair - Demised Premises.
A. By Tenant. Tenant shall repair and maintain in good order and
condition all interior portions, including the maintenance of the building
service facilities such as the wiring, plumbing, heating and air
conditioning systems, and all glass, including plate glass, exterior doors
and automatic door operators of the Demised Premises.
B. By Landlord. Landlord at all times will keep and
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4. Options to Extend. If tenant is not then in default under any of the
terms and provisions of this Lease, Tenant shall have the option to extend the
term of this Lease for an additional tern (sometimes in this Lease referred to
as the First additional term") of 3 one yr. leases, from and after the
expiration of the initial term of this Lease, upon the giving of written notice
of the exercise of such option to Landlord at least one hundred twenty (120)
days prior to the expiration of the initial term of this Lease. The first
extension shall be on the same terms and conditions as the basic term with the
exception of rent, which shall be determined in the manner provided under
Paragraph 5E.
5E. Option Term Rent. If Tenant exercises the option to extend this Lease
in the manner provided under Paragraph 4, then the annual rent last determined
to be payable by Tenant shall be decreased by the amount of the Consumer Price
Index increase determined in the following manner. The Consumer Price Index for
the purpose of this Lease shall be deemed to be the U.S. Department of Labor
Consumer Price Index: U.S. city average, all urban consumers (CPI-U), 1967 =
100, all items. The base Consumer Price Index shall be that determined for the
month of January, 1988. The new base shall be determined to be the Consumer
Price Index for the month of January immediately preceding completion of the
term then in effect. The amount determined to be the difference between the new
base Consumer Price Index and the base Consumer Price Index divided by the base
Consumer Price Index shall constitute the increase in Consumer Price Index for
the purpose of this Lease. Landlord shall give Tenant notice of the Consumer
Price Index increase and the new amount of rent then due as soon as practicable.
2A
<PAGE>
maintain the exterior and structural parts of the building, including but
not limited to, the roof, the walls (except interior painting or
decorating, and excepting any plate glass), floors (except floor covering),
foundation, canopy, sewers and utility services, unless any such repair or
replacement thereof is occasioned by reason of acts or neglect of Tenant,
its agent, servants or employees.
11. Alterations. Tenant, at its own expense during the term of this Lease,
may make such nonstructural alterations to the interior of the Demised Premises
it deems appropriate, provided that: (i) the structural integrity of the Demised
Premises shall not be affected or diminished; (ii) the value of the building
constituting a part of the Demised Premises is not thereby diminished; and (iii)
the exterior appearance (including the store front) is not thereby altered or
changed. In all other instances, Tenant shall secure prior written approval and
consent of Landlord before making any alterations, which consent shall not be
unreasonably withheld by Landlord, but which consent may be conditioned on the
furnishing by Tenant of a bond of surety company reasonably acceptable to
Landlord. At the time Landlord's approval of any alterations is sought, Tenant
shall submit to Landlord plans and specifications for such work, together with a
statement of the estimated costs of such work. All such alterations shall be
completed in a good and workmanlike manner with first-class materials. Tenant
shall make no additions or alterations whatsoever to the exterior of the Demised
Premises without the prior written consent of Landlord. Upon the termination of
this Lease any additions or alterations made to the interior of the Demised
Premises by Tenant shall remain a part of the Demised Premises and be
surrendered therewith.
12. Tenant's Assignment or Subletting. Provided that Tenant is not then in
default under any term of this Lease, Tenant shall have the right, with
Landlord's written consent, to assign this Lease or to sublet any portion of the
Demised Premises to any third party. Any assignment by Tenant shall be subject
to those limitations in uses provided for in any agreement declaring
restrictions to the use and operation of the Shopping Center and further subject
to any provisions of leases with other tenants of the Shopping Center
prohibiting competing uses with their use of the Shopping Center. In the event
of any assignment or subletting, Tenant shall remain liable for all rent
payments due and for all covenants and obligations of Tenant under this Lease.
13. Damages to or Destruction of Demised Premises. If the Demised Premises
or any portions thereof are so damaged or destroyed by fire or other casualty so
as to render the Demised Premises unfit for occupancy, and the Demised Premises
cannot reasonably be repaired and restored within one hundred eighty (180)
calendar days from such damage, then Tenant and Landlord shall have the right of
cancelling this Lease by giving written notice to the other within thirty (30)
days of such damage, and the proceeds of the fire and extended coverage
insurance policy shall be paid to and be the sole property of Landlord. Tenant
shall be entitled to receive a prorated refund of any rent and
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<PAGE>
other charges paid in advance. If Tenant elects not to give notice of
cancellation, then Landlord shall repair and restore the Demised Premises to the
former condition just prior to the loss, and the insurance proceeds shall be
applied to such repairs and restoration. From the date of such fire or casualty
until the Demised Premises are restored in accordance with the provisions set
forth above, Tenant shall pay only such portion of rent accruing from time to
time as the value of the portion of the Demised Premises not made untenantable
by reason of such casualty shall bear to the value of the Demised Premises
hereby leased.
14. Condemnation.
A. Complete Taking. In the event that the whole of the Demised
Premises are taken for public or quasi-public purposes by the government of
the United States, the State of Nebraska, the City of Lincoln, or any
government or power whatsoever, or by any corporation under the right of
eminent domain, or should the whole of the Demised Premises be condemned by
any court, city, county, state or governmental authority or office,
department or bureau of any city, county, state or of the United States,
then in any such event this Lease shall terminate as of the date title to
the Demised Premises vests in the condemning authority. For the purposes
hereof, such date of vesting in the condemnor terminating this Lease shall
operate as though it were the date originally intended by the parties for
expiration of the tenancy created hereunder, and the rent reserved herein
shall be adjusted in the light of the condemnation, so that Tenant shall
pay rent to Landlord only up to the date of vesting in the condemnor. Any
prepaid or advance rental or other amounts to be paid by Tenant under this
Lease paid by Tenant to Landlord or third party for that part of the term
extending beyond the date on which the title vests in the condemnor shall
be refunded within three (3) days after Landlord has received an award of
just compensation from the condemning authority for the taking of the
Demised Premises, provided Tenant shall have duly performed all the
covenants and conditions of this Lease by it to be performed.
B. Generally. It is recognized by both parties that the Landlord and
Tenant each shall have separate rights of damages against the public
authority on account of any condemnation or taking under the power of
eminent domain of any part or all of said Demised Premises, and it is
expressly provided herein that neither party waives or forgoes any claim it
may have on behalf of its property or leasehold value.
15. Permitted Use. For Warehouse storage and Office use only.
16. Covenant Against Mechanics Liens. Tenant shall do all things necessary
to prevent the filing of any mechanic's other liens against the Demised
Premises, or the interest of any mortgages or holders of any deed of trust
covering the Demised Premises, by reason of any work, labor, services performed
or any materials supplied or claimed to have been performed or supplied
4
<PAGE>
to Tenant, or anyone holding the Demised Premises, or any part thereof, through
or under Tenant. If any such lien shall at any time be filed, Tenant shall
either cause the same to be vacated and cancelled of record within thirty (30)
days after the date of the filing thereof or, if Tenant in good faith determines
that such lien should be contested, Tenant shall furnish such security by surety
bond or otherwise as may be necessary or be prescribed by law to release the
same as a lien against the real property and to prevent any foreclosure of such
lien during the pendency of such contest. If Tenant shall fail to vacate or
release such lien in the manner and within the time period aforesaid, then, in
addition to any other right or remedy of Landlord resulting from Tenant's said
default, Landlord may, but shall not be obligated to, vacate or release the same
either by paying the amount claimed to be due or by procuring the release of
such lien by giving security, or in such other manner as may be prescribed by
law. Tenant shall repay to Landlord, on demand, all sums disbursed or deposited
by Landlord pursuant to the foregoing provisions of this paragraph, including
Landlord's cost and expenses and reasonable attorney's fees incurred in
connection therewith. However, nothing contained herein shall imply any consent
or agreement on the part of the Landlord, Landlord's mortgagees or holders of
deeds of trust of the Demised Premises to subject their respective estates or
interest to liability under any mechanic's or other lien law, whether or not the
performance or the furnishing of such work, labor, services or materials to
Tenant or anyone holding the Demised Premises, or any part thereof, through or
under Tenant, shall have been consented to by Landlord and/or any of such
parties.
17. Fixtures and Machinery. It is mutually agreed that all personal
property on the Demised Premises, including merchandise of every kind, nature
and description, furnishings, equipment, trade fixtures and including
refrigeration equipment (but expressly excluding air conditioning equipment and
heating equipment, except air conditioning equipment installed by the Tenant, if
any) and all other property hereafter placed or kept on the Demised Premises by
Tenant, are and shall continue to be the sole property of the Tenant, unless the
same shall have been installed to replace equipment previously installed by
Landlord. Tenant may, during the term of this Lease or any extensions thereof,
remove any furniture, fixtures or equipment as it may so desire, provided Tenant
shall repair all damages resulting from such removal, as nothing herein is
intended to impose any restrictions on the use of the furniture, fixtures or
equipment as the Tenant may deem necessary or desirable in the operation of its
business.
18. Quiet Enjoyment. Landlord covenants that Landlord is the sole owner in
fee simple of or has a leasehold interest in the Demised Premises, has good and
marketable title thereof, and has full right to lease the Demised Premises for
the term aforesaid, and for the term of all extensions permitted to the Tenant
hereunder, and that Tenant upon payment of rent and performing Tenant's
obligations in this Lease may peaceably and quietly have, hold, and enjoy the
said Demised Premises for the said term and all extensions thereof until
terminated as provided in this Lease.
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19. Subordination. Landlord may assign its rights under this Lease as
security to the holders of one or more mortgages, trust deed or other
encumbrance now or hereafter in force against all or any part of the land or
improvements constituting the Demised Premises of the Shopping Center. Upon the
request of Landlord, Tenant will subordinate its rights hereunder to the lien of
one or more mortgages, trust deed or other encumbrance now or hereafter in force
against all or any part of the land and improvements constituting the Demised
Premises or the Shopping Center, and to all advances made or hereafter to be
made upon the security thereof; provided, however, that any such mortgage, deed
of trust or other security document shall provide that the secured party, in the
event of its acquiring title to the Demised Premises or the Shopping Center,
whether through foreclosure, Judicial process or otherwise, shall recognize the
validity of this Lease and shall honor the rights of Tenant hereunder so long as
Tenant (a) is not in default under this Lease at the time such secured party
acquired title to the Demised Premises or the Shopping Center and (b) agrees to
attorn to such mortgagee as if it were the original Landlord hereunder.
20. Tenant's Default. If Tenant defaults in the payment of any rent or
other sums due and payable to Landlord under this Lease and such default
continues for a period of ten (10) days after written notice of such default has
been given by Landlord to Tenant, or if Tenant shall violate or default in the
performance of any covenants, agreements, stipulations or other conditions
contained herein (other than the payment of rent and other sums payable under
this Lease) and such violation or default continues for a period of thirty (30)
days after written notice of such violation or default has been given by
Landlord to Tenant, or, in the case of a default not curable within thirty (30)
days, if Tenant shall fail to commence to cure the same within thirty (30) days
and thereafter proceed diligently to complete the cure thereof, then Landlord at
its option may reenter and repossess the Demised Premises with or without
process of law, declare this Lease terminated and the term of this Lease ended
forthwith, or pursue any other remedy available under law. Landlord may use such
legal force as may be necessary to remove all persons and property then located
in the Demised Premises. Landlord shall have full and uncontested right to take
possession of Tenant's fixtures, inventory and other property in or about the
Demised Premises, holding the same as additional security for the rent and other
sums due hereunder. Notwithstanding such reentry and repossession by Landlord
and the holding of such fixtures, inventory or other personal property, the
liability of Tenant for the payment of the rent and other sums due hereunder and
for the performance of Tenant's other obligations hereunder for the balance of
the term of this Lease shall not be relinquished or extinguished. Landlord
acknowledges that others do have existing liens as of date lease is signed and
that these existing liens have priority over landlords claims. Tenant
acknowledges, agrees and warrants that (1) tenant will inform and receive
approval from other existing and future lien holders that Landlord may, at
Landlord's option, relocate any and all items in the demised premises to another
location, and, (2) Tenant and other lien holders will hold Landlord harmless for
any
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or all damage or loss that may occur in said move and/or storage. Landlord at
any time may commence one or more actions to collect any sums due from Tenant
under this Lease. In the event of any such reentry and repossession, Landlord
shall have the right to relet all or any portion of the Demised Premises under
such terms and conditions as Landlord may deem appropriate and any such
reletting shall not relieve Tenant of any of its obligations to Landlord under
this Lease, except to the extent of any net rentals actually received by
Landlord from such reletting after deducting all of Landlord's expenses,
including but not limited to legal expenses, brokerage commissions and the costs
of remodeling the Demised Premises so as to render it suitable for reletting.
21. Signs. Tenant shall have the right to attaching, affixing, painting or
exhibiting signs on the Demised Premises, provided only (a) that any and all
signs shall comply with the ordinances of the city or municipality in which the
property is located and the laws of the State of Nebraska: (b) such signs shall
not change the structure of the building; (c) such signs if and when taken down
shall not damage any buildings; and (d) such signs shall be subject to the
written approval of the Landlord, which approval shall not be unreasonably
withheld.
Landlord during the last ninety (90) days of this Lease, or extension,
shall have the right to maintain in the windows, or on the building, or on the
Demised Premises "For Rent" or "For Sale" sign, and Tenant will permit, at such
time, prospective tenants or buyers to enter and examine the Demised Premises.
22. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to
the other for any business interruption or any loss or damage to property or
injury or death of persons occurring on the Demised Premises or in any manner
growing out of Tenant's use of the Demised Premises, whether or not caused by
the fault or negligence of the Landlord or Tenant, or their respective agents,
employees, subtenants, licensees or assignees. This release shall apply only to
the extent that such business interruption, loss or damage to property, or
injury or death of persons is covered by insurance maintained by the Landlord or
Tenant, and to the extent that recovery is made of proceeds thereunder, and
regardless of whether such insurance protects the Landlord or Tenant or both.
Nothing herein shall be construed to impose any other or greater liability upon
either of the parties to this Lease than would have existed in the absence of
this paragraph. This paragraph shall be effective only so long as its provisions
do not adversely affect the right of the insured, whether Landlord or Tenant or
both, to recover under the applicable policy or policies of insurance, and if
prohibited under the terms of such policy or policies, shall be deemed wholly
without force or effect.
23. Estoppel Certificates. Tenant, from time to time upon written request
from Landlord, agrees to execute, acknowledge, and deliver to Landlord, in form
reasonably satisfactory to Landlord and/or Landlord's mortgagee, a written
statement certifying that Tenant has accepted the Demised Premises, that this
Lease is unmodified and in full force and effect or, if
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<PAGE>
there have been modifications, that this Lease is in full force and effect as
modified, setting forth the modifications, that Landlord is not in default
hereunder, the date to which the rent and other amounts payable by Tenant have
been paid in advance, if any, and such additional facts as reasonably may be
required by Landlord or Landlord's mortgagee. Tenant understands and agrees that
any such statement delivered pursuant to this paragraph may be relied upon by
any prospective purchaser of the Demised Premises, any prospective; mortgagee of
the Demised Premises and their respective successors and assigns.
24. Surrender of Premises at End of Term. Tenant agrees that upon the
termination of this Lease it will surrender, yield up and deliver the Demised
Premises in good and clean condition, except the affects of reasonable wear and
tear and depreciation arising from lapse of time, or damage without fault or
liability of Tenant. Tenant shall remove its inventory, equipment, furniture,
trade fixtures. Any personal property or fixtures which Tenant in its discretion
elects not to remove shall be presumed to be abandoned and shall thereupon be
the property of Landlord. Nothing herein is to be construed to require that
Tenant remove any property which has become a fixture of the Demised Premises.
25. Paragraph Titles. The titles of the various paragraphs of this Lease
have been inserted as a matter of convenience and for reference only, and shall
to be deemed in any manner to define, limit or describe the scope or intent of
the particular paragraphs to which they refer or to affect the meaning or
construction of the language contained in the body of such paragraphs.
26. Severability. If any provision of this Lease shall be declared legally
invalid or unenforceable, then the remaining provisions of this Lease
nevertheless shall continue in full force and effect and shall be enforceable to
the fullest extent permitted by law.
27. Time to Essence. Time is of the essence of this Lease, and all
provisions of this Lease relating to the time of performance of any obligation
under this lease shall be strictly construed.
28. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Nebraska.
29. Multiple Counterparts. This Lease may be executed in multiple
counterparts, each of which shall be deemed to be an original for all purposes.
30. Definitions. Except as otherwise expressly stated in this Lease, the
"term" of this Lease shall include the original term and any additional term as
to which Tenant exercises its options, if any, and references to this "lease"
shall include this instrument and any properly executed amendment thereof or
supplement thereto.
8
<PAGE>
31. Waivers. One or more waivers by Landlord Or Tenant of a breach of any
convenant or condition by the other of them shall not be construed as a waiver
of the subsequent breach of the same covenant or condition, and the consent or
approval by Landlord or Tenant to or of any act by either requiring the other's
consent or approval shall not be deemed to waive or render unnecessary either
party's consent to or approval of any subsequent similar act by the other party.
32. Binding Agreement. All rights and liabilities herein given to or
imposed upon the respective parties hereto shall extend to and bind the
respective heirs, executors, administrators, personal representatives,
successors and assigns of such parties. No rights, however, shall insure to the
benefit of any assigns of Tenant unless the assignment thereof to such assignee
has been approved by Landlord in writing, if such approval is required by this
Lease.
33. Short-Form-Lease. Both parties agree not to record this Lease but to
execute a "short form" of lease in form recordable and reasonably satisfactory
to Landlord's attorney. In no event shall such "short forms" lease set forth the
rental and other charges payable by Tenant under this Lease, and any such "short
forms" lease shall expressly state that it is executed pursuant to the
provisions contained in this Lease and is not intended to vary the terms and
conditions of this Lease. Upon completion of the recording and/or filing of such
short form lease and agreement, if any, they shall be delivered to Tenant, and
if necessary, such recordings and/or filings shall be made in duplicate so that
recorded and/or filed counterparts thereof may so be delivered to Tenant.
34. Relationship of Parties. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, computation of rent, nor any other provision
contained herein, nor any acts of the parties hereto shall be deemed to create
any relationship between the parties hereto other than the relationship of
Landlord and Tenant.
35. Notices. Whenever under this Lease a provision is made for notice of
any kind, such notice and the service thereof shall be deemed sufficient if such
notice to Tenant and Landlord is in writing addressed to Tenant and Landlord at
the address shown in the preamble to this Lease. Either party may by notice to
the other party change the address at which it wishes to receive any notice
given under this Lease.
36. Delays in Performance. The performance by Landlord and Tenant of any of
their respective obligations or undertakings provided for in this Lease, except
the payment of rent or any other sums of money payable by Tenant under this
Lease, shall be excused and no default shall be deemed to exist in the event and
so long as the performance of any such obligation or undertaking is prevented,
delayed, retarded or hindered by any act of God, fire, earthquake, flood,
explosion, action of the elements, war, riot, failure of transportation,
strikes, lockouts, action of
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labor unions, condemnation, laws, orders of government or civil or military
authorities, inability to procure labor, equipment, materials or supplies in the
open market, or any other cause directly beyond the control of Landlord or
Tenant, as the case may be.
37. Indemnification. Landlord and Tenant agree to indemnify and defend each
other against and to hold each other harmless from any and all claims or demands
of any third party arising from or based upon any alleged act, omission or
negligence of the indemnifying party or its contractors, concessionaires,
licensees, agents, servants, invitees, employees or any one else for whom the
indemnifying party may be or alleged to be responsible. In the event that either
party shall without fault on its part be made a party to any litigation
commenced by any third party against the other party, then such other party
shall protect and hold the party harmless from and with respect to such
litigation, and shall pay all costs, expensed and attorneys' fees incurred or
paid by the party without fault in connection with such litigation, together
with any judgments rendered against the party without fault.
38. Cumulative Rights. The rights, options, elections and remedies of both
parties contained in this Lease shall be cumulative and may be exercised on one
or more occasions and none of them shall be construed as excluding any other or
any additional right, priority or remedy allowed or provided by law.
39. Holdover. In the event that Tenant remains in possession of the Demised
Premises after the termination of this Lease without the exercise of any option
to extend the term of this Lease or without the execution of a new Lease, then
Tenant shall be deemed to be occupying the Demised Premises as a tenant from
month to month, subject to all of the conditions, provisions and obligations of
this Lease, but without any rights to extend the term of this Lease.
40. Entry by Landlord. Landlord shall have the right to enter upon the
Demised Premises at all reasonable hours for the purpose of inspecting the
Demised Premises or for any other lawful purpose; provided, however, that such
entry shall not unreasonably interfere with the conduct of Tenant's business.
41. Execution Required. The submission of this document for examination
does not constitute an offer to lease or a reservation of or option for the
Demised Premises and shall become effective only upon execution by both Tenant
and Landlord.
42. Number and Gender. Where the context of this Lease requires, singular
words shall be read as if plural, plural words shall be read as if singular and
words of neuter gender shall be read as if masculine or feminine.
43. Entire Agreement. Tenant and Landlord hereby agree that this Lease as
written represents the entire agreement between the parties hereto and that
there are not other agreements, written or verbal, between the parties hereto
pertaining to the Demised Premises or the subject matter hereof.
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This Lease may not be amended or supplemented orally but only by an agreement in
writing which has been signed by the party against whom enforcement of any such
amendment or supplement is sought.
44. Local Regulations. Tenant will comply with all lawful requirements of
the local board of health, police, fire department and governmental authorities
respecting the manner in which it uses the Demised Premises. The Tenant at its
expense will supply any apparatus, applicance or material and will have done any
work for, in, or about the Demised Premises which may be required or ordered by
any law or lawful authority.
45. Corporate Tenant. The persons executing the Lease on behalf of Tenant
hereby covenant, represent and warrant that Tenant is fully incorporated, that
the corporation is in good standing and that the person(s) executing this Lease
on behalf of Tenant is an officer or are officers of such Tenant, and that he or
they as such officer(s) is/are duly authorized to sign and execute this Lease. A
copy of a resolution for such authority shall be supplied to Landlord upon
request.
46. Intentionally deleted.
47. Consent. In any instance where the consent or approval of either party
is required under the term of this Lease, such consent or approval shall not be
unreasonably withheld. Landlord and Tenant agree to execute and deliver any
instruments in writing necessary to carry out any agreement, term, conditions or
assurance in this Lease whenever occasion shall arise and request for such
instruments shall be made.
48. Deposit. Tenant has placed _______________ ($_____________) upon
signing to be used by Landlord in the event tenant should cause any damage
(excepting normal wear) or an application for monetary or other defaults. This
deposit will not bear any interest nor will it be placed in a separate account.
49. Any improvements made will be at the tenants expense. Said improvements
will either be for upon completion or advertised over the lease period with
interest at 12%.
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IN WITNESS WHEREOF, the parties hereto have set their hand the date and year
first above written.
LANDLORD: TENANT:
/s/ Marlyn Schwartz /s/ Rex Lamb
- --------------------------- ---------------------------
- ---------------------------
ACKNOWLEDGEMENT
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
The foregoing instrument was acknowledged before me this 24
day of February 1992 by
SHARON COLSON
GENERAL NOTARIAL /s/ Sharon Y Colson
SEAL ------------------------
STATE OF NEBRASKA Notary Public
COMMISSION EXPIRES
SEPTEMBER 23, 1995
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
The foregoing instrument was acknowledged before me this 24
day of February 1992 by
SHARON COLSON
GENERAL NOTARIAL /s/ Sharon Y Colson
SEAL ------------------------
STATE OF NEBRASKA Notary Public
COMMISSION EXPIRES
SEPTEMBER 23, 1995
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
The foregoing instrument was acknowledged before me this _ day of
_______________, 1990 by
--------------------
Notary Public
12
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LEASE
THIS LEASE entered into this 1st day of SEPTEMBER, 1995, by and between
Robert S. Greer and Elvera A. Greer, as Co-Trustees, hereinafter referred to as
"Lessor" and American Micro-Med Corporation, an Indiana Corporation, hereinafter
referred to as "Lessee"; WITNESSETH:
Lessor, in consideration of the rents to be paid by Lessee, and of the
covenants and agreements hereinafter set forth to be mutually kept and performed
by the parties hereto, does hereby grant, demise, lease and let, upon the terms
and conditions hereinafter stated, unto the Lessee, its successors and assigns
the following described premises known as 390 Waverly Road situated in the Town
of Chesterton, County of Porter, State of Indiana, to-wit:
A parcel of land in Government Lot 2 in the Northwest one quarter
of Section 26, Township 37 North Range 6 West of the Second Principal
Meridian, Porter County, Indiana, lying North of the right of way of
the Pere Marquette Railroad Company, more particularly described as
commencing at an iron rail monument marking the intersection of the
West line of Section 36 and the Indian Boundary Line, thence South
00(degree) 04' 55' East along the West section line 466.50 feet,
thence North 89(degree); 5' 35" East parallel with the Indian Boundary
Line 30.00 feet to an iron rod, being the POINT OF BEGINNING, thence
North 89(degree) 25' 35" East parallel with the Indian Boundary Line
246.86 feet to an iron rod, thence South 00(degree) 21' 58" East
178.61 feet to an iron rod, thence South 80(degree) 08' 21" West
parallel with the railroad 251.39 feet to an iron rod, thence North
00(degree) 04' 55" West parallel with the West section line 219.19
feet to the Point of Beginning. Containing 1.129 acres and subject to
all legal highways and easements (see also Exhibit "A" attached and
made a part hereof)
together with the improvements and appurtenances thereunto belonging or
appertaining (hereinafter referred to as the "leased premises"), including the
right of ingress and egress thereto and therefrom at all times.
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II.
The term of this lease shall be from the 1st day of September, 1995, to and
including the 31st day of August, 2000, unless sooner terminated as hereinafter
provided or extended by exercise of the option to renew described in Paragraph
IV.
III.
Lessee agrees and covenants to pay to the Lessor at Centier Bank, N.A., 109
Broadway, Chesterton, Indiana, the following rent, to-wit:
First Year - September 1, 1995 to August 31, 1996 rents to be
$2,400.00 monthly or $28,800.00 yearly.
Second Year - September 1, 1996 to August 31, 1997, rents to be
$2,600.00 monthly or $31,200.00 yearly.
Third Year - September 1, 1997 to August 31, 1998 rents to be
$2,800.00 per month or $33,600.00 yearly.
Fourth Year - September 1, 1998 to August 31, 1999 rents to be
$3,000.00 monthly or $36,000.00 yearly.
Fifth Year - September 1, 1999 to August 31, 2000 rents to be
$3,200.00 monthly or $38,400.00 yearly.
Lessee further agrees to pay said rent in equal monthly payments in advance
on the first day of each month, in each of said years. Said payments to be made
to Centier Bank for deposit in account no. 722786 or at such other place as the
Lessor shall direct.
IV.
In the event, in the sole judgment of Lessee, the leased premises shall be
rendered untenantable by fire, explosion or other casualty, Lessor may at their
option terminate this lease or restore said lease premises to its original
condition. Provided, however, that if Lessor fails to or is unable to restore
said premises to its original undamaged condition within one hundred
2
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twenty (120) days following such casualty loss, then Lessee may at its option
terminate this lease or extend the period within which Lessor is to restore the
premises to its undamaged condition. Lessee shall not be responsible for any
rental payments during the time the leased premises are untenantable and any
rent paid in advance for a period of time during which the leased premises are
untenantable shall be promptly refunded to Lessee or otherwise credited against
future rental obligations in the event the leased premises are repaired and this
lease continued. In the event the leased premises are partially damaged by fire,
explosion or other casualty so that, in the sole judgment of the Lessee, a
portion thereof is rendered untenantable, then Lessor shall promptly restore the
leased premises to its original undamaged condition and the rent shall be
reduced on a prorata basis until the damaged portion of the leased premises is
restored to its original undamaged condition. If Lessor fails to restore the
portion of the leased premises which are rendered untenantable to its original
undamaged condition within a period of 90 days from the date of such casualty
loss, then Lessee shall have the option of terminating this lease, or completing
the repairs and deducting the cost thereof for future rental obligations, or
extending the period of time within which the Lessor may complete the repairs
necessary to restore the leased premises to its original undamaged condition.
V.
Lessee shall upon termination of this lease, surrender up said leased
premises in good order and condition, reasonable use and ordinary wear and tear
excepted. It is understood that the Lessee will paint all interior walls within
60 days prior to the time the Lessee surrenders up the premises.
3
<PAGE>
Lessee herewith deposits with the Lessor a security deposit of $2,400.00 to
ensure that the premises are returned to the Lessor as provided herein. The
Lessor may use any part or all of said deposit to complete the Lessees
obligation upon termination. Unused sums shall be returned to Lessee. This
clause shall not restrict or in any way limit the Lessor from collecting damages
which may exceed the security deposit.
VI.
Lessee shall have the right, at its own expense, to do all decorating,
repair or maintenance inside the leased premises which Lessee, at its option,
shall decide is necessary, including but not limited to the right and privilege
of installing and removing removable type partitions, panels and counters from
time to time as Lessee may consider to be necessary or convenient in its use of
said leased premises. Upon termination of this lease, any and all such removable
type partitions, panels and counters installed by Lessee then remaining in said
leased premises, all of which are hereby agreed to be personal property of
Lessee, may be removed by Lessee, provided that such removal does not materially
affect or injure the leased premises.
VII.
Lessee is also granted the right and privilege to make such alterations and
changes in such parts of the leased premises as it finds necessary for its
purposes, providing that such alterations will not injure the leased premises.
Said alterations and changes may include, but are not limited to, the
rearranging, installation and removal of partitions other than those partitions
specified in Paragraph VI herein. Such alterations and changes when made shall
become a part of the leased premises ant shall become the property of the Lessor
at the expiration of this lease.
4
<PAGE>
VIII.
Lessee is granted the right and privilege of installing at its own expense
any and all heating and air conditioning equipment with all necessary
appurtenances thereto which Lessee may desire to install in the leased premises,
including but not limited to, an air-cooled condenser, wiring, plumbing, air
ducts, and other appurtenances reasonably necessary in connection therewith.
Upon termination of the occupancy of said leased premises by Lessee, any such
equipment so installed by Lessee shall become the property of the Lessor and
shall not be removed by the Lessee.
IX.
It is further covenanted and agreed between the parties hereto, that the
Lessee shall have the right at its sole expense at all times, during the term of
this lease, to erect, maintain and operate a sign in front of the building of
which the leased premises form a part and Lessee shall have the right at its
expense from time to time to remove such sign and erect, maintain and operate a
new or different sign.
X.
Lessor shall at their sole expense, maintain the exterior of said leased
premises and keep the same in good order and repair during the terms of this
lease. Said exterior portion shall include, but not be limited to, the roof,
paved portion of the parking lot, stoned area, and the perimeter fence on the
leased premises.
5
<PAGE>
XI.
The Lessee shall keep the interior of the premises in as good a condition
and repair as the premises were in when first occupied, ordinary wear and tear,
damage by fire, the elements, casualty, or the Lessor's negligence excepted.
Lessee shall be responsible for the normal maintenance and repair of the
building equipment, the plumbing, heating, lighting, electrical equipment,
ventilating, and air-conditioning equipment; provided, however, that Lessor
shall be responsible for replacement of all such building equipment if complete
replacement becomes necessary. Lessee shall promptly pay all sewer, water, and
other utility charges on the premises during the term of this lease.
XII.
Lessee shall have the unrestricted use of the parking area on the leased
premises for its employees and customers and shall maintain said parking area on
the leased premises and keep the same in good order during the term of this
lease. Lessee shall be responsible for picking up loose trash, leaf raking and
general clean-up of the leased premises to and including keeping the grass mowed
on the north side of the building, spraying or cutting the weeds on either side
of the fence and on the north side of the building not less often then monthly
from May 1st to October 31st of each year.
XIII.
In the event Lessor shall receive a bona fide offer to purchase the leased
premises during the term of this lease, which is satisfactory to Lessor, Lessor
agrees to give Lessee the first option of purchasing the leased premises at the
price of the offer so made. Lessor shall give notice of such offer to Lessee by
registered mail directed to the Lessee at the leased premises,
6
<PAGE>
requiring the Lessee to accept such offer in writing within ten (10) days after
the mailing of such notice. If Lessee shall fail to accept such offer within ten
(10) days, then and in that event, the option to purchase granted to Lessee in
this Article XIII shall thereupon expire and the Lessor shall be at liberty to
sell the leased premises to the person, firm or corporation making the original
offer. Such sale shall be subject to this lease and all the terms, covenants and
conditions of such lease.
XIV.
Lessor agrees to warrant and defend the title to the leased premises and so
long as Lessee is not in default, guarantee Lessee's right to peaceably and
quietly hold, enjoy, and occupy the leased premises during the lease term
without any hindrance, interruption, ejection, or molestation by Lessor or by
any other person or persons whomever.
XV.
Lessor shall pay, satisfy and discharge, as they become due, mortgages,
liens and taxes which may exist or be payable for, on, against, or in respect to
said leased premises, or any part thereof, during the term of this lease, and
upon Lessor's failure to do so, Lessee may at its option, but without any duty
to do so, pay, redeem, satisfy, or discharge any such mortgage, lien, or tax and
may retain and apply the rents accruing hereunder toward reimbursement of such
expense. The Lessee shall pay and discharge any special assessment to the extent
that it is due and payable during the term of this lease.
XVI.
All covenants, promises, representations and agreements herein contained
shall be binding upon, apply and inure to the benefit of the successors and
assigns of the Lessor and Lessee.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this lease this
1st day of September, 1995.
AMERICAN MICRO-MED CORPORATION By:
By: /s/ David C. Utz, Jr.
----------------------------
David C. Utz, Jr., President
ATTEST:
/s/ Julie A Utz
- ---------------------
Secretary LESSEE
/s/ Robert S. Greer
--------------------------------
Robert S. Greer, Trustee
/s/ Elvera A. Greer
--------------------------------
Elvera A. Greer, Trustee
LESSOR
8
<PAGE>
STATE OF INDIANA
SS:
COUNTY OF PORTER
Be it remembered that on the 6 day of September, 1995, before me a Notary
Public in and for the County and State aforesaid, personally appeared David C.
Utz, Jr., President, and Julie A. Utz, Secretary, respectively, of American
Micro-Med Corporation, an Indiana Corporation, and each acknowledged the
execution of the above and foregoing instrument on behalf of said corporation as
the voluntary act and deed of said corporation and of said officials for said
corporation, for the uses and purposes set forth.
WITNESS my hand and notarial seal.
/s/ Christine M. Heinold
------------------------------------
Christine M. Heinold, Notary Public
My commission expires: 3-29-99
-----------
County of residence: Porter
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STATE OF INDIANA
SS:
COUNTY OF PORTER
Be it remembered that on this 5th day of September, 1995, before me a
Notary Public in and for the County and State aforesaid, personally appeared
Elvera A. Greer, and acknowledged the execution of the above and foregoing
instrument as their voluntary act and deed for the uses ant purposes set forth.
WITNESS my hand and notarial seal the day and year first above written
/s/ Linda D. Miller
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Linda D. Miller, Notary Public
My commission expires: June 10,1996
County of residence: Porter
This instrument prepared by Michael C. Harris, Attorney, 107 Broadway,
Chesterton, Indiana 46304.
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MAP OF
ACKERMAN'S CORNER GONDERING LOTS
[GRAPHIC OMITTED]
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A 880 -- Lease of Business Premises. JULIUS BLUMBERG, INC. LAW BLANK PUBLISHERS
Parties
THIS LEASE, dated as of the 8th day of February 1994 Between OPORTO DEVELOPMENT
CORP. a domestic corporation with offices at 5 Schuman Road, Millwood, New York
10546 hereinafter referred to as the Landlord, and INTERNATIONAL DATA SERVICES
OF NEW YORK, INC. a domestic corporation with offices at 95 Butternut Road,
Briarcliff Manor, NY 10510 hereinafter referred to as the Tenant,
WITNESSETH: That the landlord hereby demises and leases unto the Tenant, and the
Tenant hereby hires and takes from the Landlord for the term and upon the
rentals hereinafter specified, the premises described as follows, situated in
the Town of Millwood County of Westchester and State of New York
Premises
That certain portion of the first floor of premises 5 Schuman Road, Millwood,
New York 10546 as is designated on the floor plan annexed hereto as Exhibit "A".
Comprising of approximately 1,000 square feet.
Term
The term of this demise shall be for Three (3) Years beginning February 1
1994 and ending January 31 1997
Rent
The rent for the demised term shall be
(SEE RIDER)
The said rent is to be payable monthly in advance on the first day of each
calendar month for the term hereof, in instalments as follows:
Payment of Rent
(SEE RIDER)
at the office of D&J CONCRETE CORP. 5 Schuman Road, Millwood, New York or as may
be otherwise directed by the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
Peaceful Possession
First.--The Landlord covenants that the Tenant, on paying the said rental
and performing the covenants and conditions in this Lease contained, shall and
may peaceably and quietly have, hold and enjoy the demised premises for the term
aforesaid.
Purpose
Second.--The Tenant covenants and agrees to use the demised premises as an
office only.
and agrees not to use or permit the premises to be used for any other purpose
without the prior written consent of the Landlord endorsed hereon.
Default in Payment of Rent
Abandonment of Premises
Re-entry and Reletting by Landlord
Tenant Liable for Deficiency
Lien of Landlord to Secure
Performance Attorney's Fees
Third.--The Tenant shall, without any previous demand therefor, pay to the
Landlord, or its agent, the said rent at the times and in the manner above
provided. In the event of the non-payment of said rent, or any instalment
thereof, at the times and in the manner above provided, and if the same shall
remain in default for ten days after becoming due, or if the Tenant shall be
dispossessed for non-payment of rent, or if the leased premises shall be
deserted or vacated, the Landlord or its agents shall have the right to and may
enter the said premises as the agent of the Tenant, either by force or
otherwise, without being liable for any prosecution or damages therefor, and may
relet the premises as the agent of the Tenant, and receive the rent therefor,
upon such terms as shall be satisfactory to the Landlord, and all rights of the
Tenant to repossess the premises under this lease shall be forfeited. Such
re-entry by the Landlord shall not operate to release the Tenant from any rent
to be paid or covenants to be performed hereunder during the full term of the
lease. For the purpose of reletting, the Landlord shall be authorized to make
such repairs or alterations in or to the leased premises as may be necessary to
place the same in good order and condition. The Tenant shall be liable to the
Landlord for the cost of such repairs or alterations, and all expenses of such
reletting. If the sum realized or to be realized from the reletting is
insufficient to satisfy the monthly or term rent provided in this lease, the
Landlord, at its option, may require the Tenant to pay such deficiency month by
month, or may hold the Tenant in advance for the entire deficiency to be
realized during the term of the reletting. The Tenant shall not be entitled to
any surplus accruing as a result of the reletting. The Landlord is hereby
granted a lien, in addition to any statutory lien or right to distrain that may
exist, on all personal property of the Tenant in or upon the demised premises,
to secure payment of the rent and performance of the covenants and conditions of
this lease. The Landlord shall have the right, as agent of the Tenant, to take
possession of any furniture, fixtures or other personal property of the Tenant
found in or about the premises, and sell the same at public or private sale and
to apply the proceeds thereof to the payment of any monies becoming due under
this lease, the Tenant hereby waiving the benefit of all laws exempting property
from execution, levy and sale on distress or judgment. The Tenant agrees to pay,
as additional rent, all attorney's fees and other expenses incurred by the
Landlord in enforcing any of the obligations under this lease.
Sub-letting and Assignment
Fourth.--The Tenant shall not sub-let the demised premises nor any portion
thereof, nor shall this lease be assigned by the Tenant without the prior
written consent of the Landlord endorsed hereon.
Condition of Premises, Repairs
Alterations and Improvements
Sanitation, Inflammable Materials
Sidewalks
Fifth.--The Tenant has examined the demised premises, and accepts them in
their present condition (except *) and without any representations on the part
of the Landlord or its agents as to the present or future condition of the said
premises. The Tenant shall keep the demised premises in good condition, and
shall redecorate, paint and renovate the said premises as may be necessary to
keep them in repair and good appearance. The Tenant shall quit and surrender the
premises at the end of the demised term in as good condition as the reasonable
use thereof will permit. The Tenant shall not make any alterations, additions,
or improvements to said premises without the
*landlord shall paint the premises with a color selected from the
<PAGE>
chart provided by Landlord to tenant.
prior written consent of the Landlord. All erections, alterations, additions and
improvements, whether temporary or permanent in character, which may be made
upon the premises either by the Landlord or the Tenant, except furniture or
movable trade fixtures installed at the expense of the Tenant, shall be the
property of the Landlord and shall remain and be surrendered with the premises
as a part thereof at the termination of this Lease, without compensation to the
Tenant. The Tenant further agrees to keep said premises and all parts thereof in
a clean and sanitary condition and free from trash, inflammable material and
other objectionable matter. If this lease covers premises, all or a part of
which are on the ground floor, the Tenant further agrees to keep the sidewalks
in front of such ground floor portion of the demised premises clean and free of
obstructions, snow and ice.
Mechanics' Liens
Sixth.--In the event that any mechanics' lien is filed against the premises
as a result of alterations, additions or improvements made by the Tenant, the
Landlord, at its option, after thirty days' notice to the Tenant, may terminate
this lease and may pay the said lien, without inquiring into the validity
thereof, and the Tenant shall forthwith reimburse the Landlord the total expense
incurred by the Landlord in discharging the said lien, as additional rent
hereunder.
Glass
Seventh.--The Tenant agrees to replace at the Tenant's expense any and all
glass which may become broken in and on the demised premises. Plate glass and
mirrors, if any, shall be insured by the Tenant at their full insurable value in
a company satisfactory to the Landlord. Said policy shall be of the full premium
type, and shall be deposited with the Landlord or its agent.
Liability of Landlord
Eighth.--The landlord shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the demised premises,* by
reason of any existing or future condition, defect, matter or thing in said
demised premises or the property of which the premises are a part, or for the
acts, omissions or negligence of other persons or tenants in and about the said
property. The Tenant agrees to indemnify and save the Landlord harmless from all
claims and liability for losses of or damage to property, or injuries to persons
occurring in or about the demised premises.
*unless caused by the negligence of landlord.
Services and Utilities
Ninth. -- Utilities and services furnished to the demised premises for the
benefit of the tenant shall be provided and paid for as follows: Landlord shall
provide heat to the premises; tenant shall be responsible for all other
utilities including but not limited to*
The Landlord shall not be liable for any interruption or delay in any of the
above services for any reason.
*electric, telephone, etc.
Right to Inspect and Exhibit
Tenth.--The Landlord, or its agents, shall have the right to enter the
demised premises at reasonable hours in the day or night to examine the same, or
to run telephone or other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants or users thereof (there being no obligation, however, on the part of
the Landlord to make any such repairs, additions or alterations), or to exhibit
the same to prospective purchasers and put upon the premises a suitable "For
Sale" sign. For three months prior to the expiration of the demised term, the
Landlord, or its agents, may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
Damage by Fire, Explosion, The Elements or Otherwise
Eleventh.--In the event of the destruction of the demised premises or the
building containing the said premises by fire, explosion, the elements or
otherwise during the term hereby created, or previous thereto, or such partial
destruction thereof as to render the premises wholly untenantable or unfit for
occupancy, or should the demised premises be so badly injured that the same
cannot be repaired within ninety days from the happening of such injury, then
and in such case the term hereby created shall, at the option of the Landlord,
cease and become null and void from the date of such damage or destruction, and
the Tenant shall immediately surrender said premises and all the Tenant's
Interest therein to the Landlord, and shall pay rent only to the time of such
surrender, in which event the Landlord may re-enter and repossess the premises
thus discharged from this lease and may remove all parties therefrom. Should the
demised premises be rendered untenantable and unfit for occupancy, but yet be
repairable within ninety days from the happening of said injury, the Landlord
may enter and repair the same with reasonable speed, and the rent shall not
accrue after said injury or while repairs are being made, but shall recommence
immediately after said repairs shall be completed.* But if the premises shall be
so slightly injured as not to be rendered untenantable and unfit for occupancy,
then the Landlord agrees to repair the same with reasonable promptness and in
that case the rent accrued and accruing shall not cease or determine. The Tenant
shall immediately notify the Landlord in case of fire or other damage to the
premises.
*and useable for Tenant's business.
Observation of Laws, Ordinances, Rules and Regulations
Twelfth.--The Tenant agrees to observe and comply with all laws,
ordinances, rules and regulations of the Federal, State, County and Municipal
authorities applicable to the business to be conducted by the Tenant in the
demised premises. The Tenant agrees not to do or permit anything to be done in
said premises, or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on property kept
therein, or which will obstruct or interfere with the rights of other tenants,
or conflict with the regulations of the Fire Department or with any insurance
policy upon said improvements or any part thereof. In the event of any increases
in insurance premiums resulting from the Tenant's occupancy of the premises, or
from any act or omission on the part of the Tenant, the Tenant agrees to pay
said increase in insurance premiums on the improvements or contents thereof as
additional rent.
Signs
Thirteenth.--No sign, advertisement or notice shall be affixed to or placed
upon any part of the demised premises by the Tenant, except in such manner, and
of such size, design and color as shall be approved in advance in writing by the
Landlord, which approval shall not be unreasonably withheld or delayed.
Subordination to Mortgages and Deeds of Trust
Fourteenth.--This lease is subject and is hereby subordinated to all
present and future mortgages, deeds of trust and other encumbrances affecting
the demised premises or the property of which said premises are a part. The
Tenant agrees to execute, at no expense to the Landlord, any instrument which
may be deemed necessary or desirable by the Landlord to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
Sales of Premises
Fifteenth.--In the event of the sale by the landlord of the demised
premises, or the property of which said premises are a part, the Landlord or the
purchaser may terminate this lease on the thirtieth day of April in any year
upon giving the Tenant notice of such termination prior to the first day of
January in the same year.
Rules and Regulations of Landlord
Sixteenth.--The rules and regulations regarding the demised premises,
affixed to this lease, if any, as well us any other and further reasonable rules
and regulations which shall be made by the Landlord, shall be observed by the
Tenant and by the Tenant's employees, agents and customers. The Landlord
reserves the right to rescind any presently existing rules applicable to the
demised premises, and to make such other and further reasonable rules and
regulations as, in its judgment, may from time to time be desirable for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein, which rules, when so made and notice thereof given to the Tenant,
shall have the same force and effect as if originally made a part of this lease.
Such other and further rules shall not, however, be inconsistent with the proper
and rightful enjoyment by the Tenant of the demised premises.
Violation of Covenants, Forfeiture of Lease, Re-entry by Landlord
Non-waiver of Breach
Seventeenth.--In case of violation by the Tenant of any of the covenants,
agreements and conditions of this lease, or of the rules and regulations now or
hereafter to be reasonably established by the Landlord, and upon failure to
discontinue such violation within ten days after notice thereof given to the
Tenant, this lease shall thenceforth, at the option of the Landlord, become null
and void, and the Landlord may re-enter without further notice or demand. The
rent in such case shall become due, be apportioned and paid on and up to the day
of such re-entry, and the Tenant shall be liable for all loss or damage
resulting from such violation as aforesaid. No waiver by the Landlord of any
violation or breach of condition by the Tenant shall constitute or be construed
as a waiver of any other violation or breach of condition, nor shall lapse of
time after breach of condition by the Tenant before the Landlord shall exercise
its option under this paragraph operate to defeat the right of the Landlord to
declare this lease null and void and to re-enter upon the demised premises after
the said breach or violation.
<PAGE>
RIDER TO LEASE
Between OPORTO DEVELOPMENT CORP., Landlord
and INTERNATIONAL DATA SERVICES OF NEW YORK, INC., as Tenants
dated as of February 1, 1994
TWENTY-NINTH: The following are modifications of certain preceding
Articles, on the printed portion of this lease. In the event of a conflict with
the printed portion of this lease this Rider shall govern.
1. ARTICLE FIRST - Upon request by Tenant, Landlord agrees to use its best
efforts to obtain and deliver to Tenant an agreement in recordable form from any
mortgagee, providing in substance that so long as Tenant is not in default in
the obligations for the payment of fixed rent and additional rent and in the
performance of the other terms, covenants and conditions to be performed on its
part under this lease beyond the period for curing the same, its possession of
the demised premises will not be disturbed, notwithstanding the foreclosure of
the mortgage, and Tenant will not be named as a party defendant in any
foreclosure proceeding.
2. ARTICLE THIRD - In no event shall the Tenant be obligated to pay to
Landlord under Article Third more than the total rent that would have been
payable from the date of the default by Tenant until the expiration date of the
lease.
Notwithstanding anything contained in this Article, Landlord agrees to use
reasonable efforts in rerenting the premises, and any rent collected by Landlord
shall be applied in reduction of Tenant's obligation under this Article Third.
3. ARTICLE FOURTH - If Tenant wants to Sublet all or part of the premises,
the Landlord shall have the option to recapture this lease and take possession
of said premises, thus, releasing Tenant from any future obligations therefore
under the lease. Should Tenant desire to sublet the premises, tenant shall
provide notice to Landlord in writing at D & J Concrete Corporation, 5 Schuman
Road, Millwood, New York. Landlord shall advise tenant in writing within ten
(10) business days of receipt of said notice of his intent to either recapture
lease or grant tenant permission to sublet. Landlord's failure to advise tenants
within said time period shall be deemed Landlord's approval to sublet. If tenant
should sublet the demised premises, Landlord and Tenant shall split 50/50 any
profits which exceed the base rental plus other escalations. This provision
shall not prohibit Tenant from subletting a portion of Tenant's premises to a
corporation or individual with a business compatible with Tenant's, or to a
subsidiary or affiliated corporation
4. ARTICLE SEVENTH - Tenant shall be responsible for the exterior window
glass only to the extent it is broken or damaged due to the fault of the tenant.
Tenant shall be unconditionally responsible for all interior glass and mirrors
located within the demised premises. The tenant shall maintain adequate
insurance covering said exterior window glass, which insurance shall name the
landlord as an insured.
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5. ARTICLE EIGHTH - Tenant agrees to indemnify and save the Landlord
harmless from all claims and liability for losses on the demised premises to the
extent said claims, losses, damage, and or injury are the result in whole or in
part of any acts or omission of the Tenant.
6. ARTICLE NINTH - Should tenant utilize any type of chemicals or other
materials in connection with the operation of its business or any other use upon
the premises, whether directly or indirectly, tenant agrees and acknowledges its
obligation to be fully responsible for the proper storage, care, use and
disposal of such chemicals or other materials at its full cost and expense,
which shall include but not be limited to the procurement of any permits,
licenses and all other requirements a pertinent thereto. SHOULD TENANT DEFAULT
IN THE PROVISIONS HEREIN, LANDLORD IS FULLY AUTHORIZED TO TAKE ANY AND ALL STEPS
IT DEEMS NECESSARY TO PROTECT LANDLORD AND THE OTHER TENANT OF THE DEMISED
PREMISES AND LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY DAMAGES SUSTAINED BY
TENANT.
7. ARTICLE TENTH - Landlord shall not exercise any right under Article
Tenth in such a manner as to impair the usability of any material or essential
portion of the demised premises. Entries upon the demised premises pursuant to
Article Tenth shall be accomplished at such times and in such manner, and upon
such reasonable notice, as to minimize, to the extent practicable under the
circumstances, interference with Tenant's use of the demised premises or
inconvenience to Tenant.
8. ARTICLE SEVENTEENTH - If Tenant should default under any of the terms
and conditions of this lease, the Tenant shall have ten (10) business days from
the day notice is given to Tenant of the default to commence to cure any said
default and shall thereafter, with reasonable diligence and good faith, proceed
to remedy or cure such default. However, in no event shall said default be
allowed to continue for a period of more than forty-five days from the date said
notice was given to Tenant of said default.
9. ARTICLE TWENTY-SECOND - Notwithstanding anything to the contrary
contained herein, and to further clarify paragraph 27 of this lease, it is
hereby acknowledged that the sum of TWO THOUSAND and 00/100 ($2,000.00) DOLLARS
is deposited by the Tenant herein with the Landlord herein as security for the
faithful performance of all the covenants and conditions of the lease by the
said Tenant. If the Tenant faithfully performs all the covenants and conditions
on his part to be performed then the sum deposited shall be returned to said
Tenant. Tenant agrees to increase the security on the commencement date of any
rent increases as set forth in paragraph Thirty-First hereof, so that it is
always representative of two (2) months rent.
THIRTIETH: Landlord agrees to make the demised premises available for
Tenant occupancy no later than February 14, 1994. Tenant, upon occupancy, shall
only be obligated to pay the pro-rate remaining portion of that month's rent.
Notwithstanding the foregoing, Landlord shall make the demised premises
available to Tenant no later than March 1, 1994, or the Tenant shall have the
option of being released from all of its obligations under the Lease.
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THlRTY-FIRST: The rent for the term of this lease to the demised premises
at 5 Schuman Road, Millwood, New York shall be as follows:
A. The sum of TWELVE THOUSAND ($12,000.00) DOLLARS per year payable in
equal monthly installments of ONE THOUSAND and 00/100 ($1,000.00) DOLLARS per
month from February 1, 1994 through January 31, 1995; and
B. The sum of TWELVE THOUSAND THREE HUNDRED SIXTY ($12,360.00) DOLLARS per
year payable in equal monthly installments of ONE THOUSAND THIRTY and 00/100
($1,030.00) DOLLARS per month from February 1, 1995 through January 31, 1996;
and
C. The sum of TWELVE THOUSAND SEVEN HUNDRED TWENTY ($12,720.00) DOLLARS per
year payable in equal monthly installments of ONE THOUSAND SIXTY ($1,060.00)
DOLLARS per month from February 1, 1996 through January 31, 1997.
THIRTY-SECOND: So long as Tenant is not otherwise in default under the
terms and conditions of this Lease and upon condition that Tenant give Landlord
at least one hundred twenty (120) days prior written notice by Certified Mail
Return Receipt Requested of its intention to exercise this option, the term of
this Lease shall be extended for an additional two (2) year period upon the
terms and conditions hereof (with the exception of this option to renew which
shall only be for this one time only) at an annual rent of THIRTEEN THOUSAND TWO
HUNDRED FIFTY ($13,250.00) DOLLARS payable in equal monthly installments of ONE
THOUSAND ONE HUNDRED FOUR AND 17/100 ($1,104.17) DOLLARS per month from February
1, 1997 through January 31, 1999.
THIRTY-THIRD: Tenant agrees to pay, as additional rent, any increase in the
real estate taxes which is based on an increase in the assessed value resulting
from a physical improvement to the demised premises by or at the request of
Tenant made after the initial installation and initial occupancy of Tenant. The
base for computing any such increase payable by the Tenant shall be the taxes
payable during the year immediately preceding the year during which the increase
in assessed value takes place. The increase in assessed value shall be
attributable to Tenant regardless of whether Tenant or landlord at the request
of the Tenant make the improvement to the demised premises for the benefit of
the Tenant.
THIRTY-FOURTH: Landlord shall maintain the temperature at the premises at
no less than sixty-eight (68) degrees farhenheit during the hours of 8:00 A.M.
to 6:00 P.M. Monday through Friday, except holidays.
Tenant shall be responsible for payments of the amounts due under the
service contract, a copy of which is annexed hereto, and for payment of any
amounts which may be charged upon any renewal of such service contract, provided
the work performed by the maintenance company is no more extensive than what is
provided under the existing contract, and under no circumstances shall tenant be
responsible for replacement of said HVAC unit or for a substantial replacement
of any portion of said unit. Tenant shall be free to
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engage any other reputable maintenance company satisfactory to Landlord to
perform the work on the HVAC unit.
THIRTY-FIFTH: Tenant agrees to provide and keep in force comprehensive
general public liability insurance against claims arising out of the ownership,
operation and control of the premises, in limits of not less than a combined
single limit of $1,000,000 for bodily injury and property damage. The original
of any such policy or a certificate of insurance thereof shall be delivered to
the Landlord showing that Landlord has been named as insured, and renewals
thereof shall be delivered to the Landlord at least five (5) business days
before the expiration of any existing policy. All such insurance shall be with
companies of recognized responsibility licensed to do business in the State of
New York and shall provide that same may not be canceled by the carrier without
at least twenty (20) days prior written notice to each insured. If Tenant shall
not deliver evidence of the existence of such insurance as required herein,
Landlord may procure such insurance Tenants expense, and Tenant shall, on demand
reimburse Landlord, as additional rent, for the cost thereof together with
interest at the maximum legal rate per annum then chargeable.
THIRTY-SIXTH: (a) Landlord agrees to make available in the parking areas so
designated four (4) total spaces for all employees in any of the outdoor parking
areas. Landlord reserves the right to assign spaces and tenant agrees to comply
with such assignment. Landlord shall light the parking area during the hours
between 7:30 a.m. and 9:00 p.m. Monday through Friday, except on Holidays, and
clean and remove snow and otherwise maintain the parking area. Tenant, however,
shall be responsible for and damage caused by Tenant, its agents, employees,
servants or licensees.
(b) Tenant and its officers, employees, agents, customers and invitee shall
have the right, in common with Landlord and all others to whom Landlord has
granted or may hereafter grant rights to use the common areas as designated from
time to time by Landlord subject to such reasonable rules and regulations as
Landlord may from time to time impose, including the designation of specific
areas in which cars, trucks and other vehicles owned by Tenant, its officers,
employees, agents and invitee (including customers, shippers, etc.) may be
parked.
Tenant agrees after notice thereof to abide by such rules and regulations
and to use its best efforts to cause its officers, employees, agents, customers
and invitee to conform thereto. Landlord may at any time close temporarily any
common area to make repairs or changes therein or to effect construction,
repairs or changes, to prevent the acquisition of public rights in such area, or
to discourage unauthorized parking; and may do such other acts in and to the
common areas as in its judgment may be desirable to improve the convenience
thereof.
Tenant shall upon request promptly furnish to Landlord the license of the
cars and trucks operated by Tenant and its officers and Tenant shall not at any
time interfere with the rights of Landlord and other occupants of the building,
their officers, employees, agents, customers, and invitee to use any part of the
parking areas and other common areas not specifically allocated to Tenant.
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(c) Tenant shall be responsible for providing its own telephone and/or
security services Tenant shall be allowed access to the available centrally
located telephone lines already brought into the building. Tenant, however,
shall be responsible for all costs associated with its use of said lines.
Landlord will not charge Tenant for this access.
THIRTY-SEVENTH: Tenant is hereby given the right to make interior
nonstructural alterations in the demised premise provided that, prior to the
commencement of any work, the Tenant shall submit plans and specifications to
the Landlord and shall obtain Landlord's written approval thereof, which
approval will not be unreasonably withheld and provided further, that such work
shall be done in accordance with all laws, orders, regulations of any
governmental authority having jurisdiction in connection with such work, the
Tenant agrees to obtain the same at its own cost and expense. Such consent by
the Landlord shall not be deemed to relieve Tenant of its obligations with the
requirements set forth in Article Fifth hereof. It is further agreed the Tenant
shall, upon completion, submit to the Landlord waivers of mechanic's liens and
in the event any such goods may be affixed to the realty so as to become part
thereof and which shall not be severable, wholly or in any portion without
material injury to the freehold, the same shall immediately, upon installation,
become the property of the Landlord subject to the exclusions in Article Fifth
hereof. Tenant does hereby agree not to employ any persons in the demised
premises, to perform alterations in the premises the employment of which would
cause a strike by any Union connected with any employees employed directly or
indirectly by the Landlord in the building of which the demised premises are a
part.
THIRTY-EIGHTH: a) Tenant agrees not to employ any contractor for any of the
following or similar services unless the Landlord has first consented in writing
to the contractor: Extermination of vermin, window cleaning, janitorial
services, food canteen service, garbage disposal. Any disapproval by Landlord of
any contractor selected by Tenant must be accompanied by a reputable contractor
designated by the Landlord whose prices must be reasonably competitive.
If the Landlord shall not have approved or disapproved that contractor
designated by the Tenant within seven (7) business days after request is made by
the Tenant to the Landlord, then the contractor so elected by the Tenant be
deemed to have been approved by the Landlord.
b) The Tenant agrees not to operate any coin or token operated vending
machine, or similar device on the demised premises for the sale of goods, wares,
merchandise, food, beverages or services, without the prior written consent of
the Landlord.
c) Landlord represents that the HVAC Unit services only the demised
premises. Tenant agrees to keep in force and effect a repair and maintenance
contract for said HVAC Unit which will provide substantially the same services
as the only indexed hereto and Tenant agrees to pay all costs in connection
therewith as Tenants sole obligation for such HVAC Unit. Tenant to maintain HVAC
Unit and comply with contract as annexed hereto.
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THIRTY-NINTH: With respect to any work to be performed by the Tenant on the
demised premises, in addition to any other limitations set forth in this lease,
(a) Tenant does hereby agree not to employ any persons on the demised premises
in connection with any such alteration or construction work, the employment of
which would cause a strike, stoppage or slowdown by any employees of any Union
employed directly or indirectly by the Landlord in which the demised premises
are a Part, (b) Landlord does not consent to the reservation of any title by any
conditional vendor to any property which may be affixed to the realty so as to
become part thereof, wholly or in any portion without material injury to the
freehold. Landlord, upon tenant's occupancy and periodically thereafter, shall
at tenants request, provide tenant with a list of Unions employed directly or
indirectly, by the building or which the demised premises are a part.
FORTIETH: Notwithstanding anything contained herein to the contrary, the
Tenant shall not be obligated to make any repairs to the roof, exterior walls,
or any structural defects, unless said repairs are made necessary by the acts of
the Tenant, its agents, employees, licensees or invitee, which shall than become
an obligation of tenant to make such repairs.
FORTY-FIRST: Landlord shall not in any way be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if
either the quantity or character of electric service is changed or is no longer
available or suitable for Tenant's requirements. This Article shall apply to the
extent that the cause of such loss, damage or expense is beyond the control of
the Landlord. Landlord shall restore electric service as soon as possible.
FORTY-SECOND: Tenant shall not be required (a) to make any structural
repairs or (b) to comply with any requirements of law or of the Board of Fire
Underwriters which pertain to structural repairs, installations and additions
unless the condition necessitating the repair shall have been caused by Tenant.
All other structural repairs shall be made by Landlord. It shall be the
responsibility of Landlord to make repairs to plumbing, ventilating, heating and
electrical lines and installations except if installed by Tenant or the
condition necessitating the repairs is caused by Tenant. Tenant shall be under
no obligation to comply with any laws, orders and regulations of Federal State,
County and Municipal authorities, or with any direction of any public offices or
officers, pursuant to law or otherwise, unless the said requirements, ordinances
or orders shall be promulgated or issued by reason of the conduct by the Tenant
of its business on the demised premises in a manner different from the proper
and accepted conduct of such business.
FORTY-THIRD: As to any alteration allowed to be made by Tenant pursuant to
this lease, Tenant shall not be required to remove such alteration at or prior
to the expiration of the term. Tenant may attach and affix Tenant's trade
fixtures and equipment to the premises, and all of Tenant's trade fixtures and
equipment, as well as all office furniture and/or equipment, even though so
attached and affixed, may be freely removed by Tenant at any time during the
term and at the expiration thereof.
FORTY-FOURTH: Tenant assumes no responsibility in respect to latent defects
in the premises or improvements conducted by the Landlord. The responsibility
for correcting such defects rests with the Landlord.
6
<PAGE>
FORTY-FIFTH: Intentionally Omitted.
FORTY-SIXTH: Landlord shall not provide any cleaning services within the
demised premises, however, Landlord shall clean and maintain the bathrooms and
common areas in a reasonably clean and sanitary condition and shall clean the
exterior windows at least twice per year throughout the term of this lease.
Tenant agrees to be responsible for removal of waste and other trash in excess
of that normally generated from a business of its nature.
FORTY-SEVENTH: Tenant agrees within a reasonable time after being
requested, to submit such financial information as may be reasonably required by
Landlord's mortgagees.
FORTY-EIGHTH: The parties hereto recognize Benson Commercial Realty, Inc.
as the sole agent or broker who negotiated or consummated the Lease of the
premises herein described and the Landlord agrees to pay the commission agreed
upon for such services by separate Agreement.
This agreement is consummated by the Landlord in reliance upon the
representation by the Tenant that no broker or agent other than recited herein
brought the premises to the Tenant's attention or was in any way the procuring
cause of this Lease, and the Tenant agrees to save the Landlord harmless from
any loss or expense (including attorneys fees) or of any commission claimed by
any broker or agent other than the one named in this paragraph by virtue of
alleged dealings had by such claimant with the Tenant or representative of the
Tenant.
FORTY-NINTH: Wherever Landlord's consent or approval is required hereunder,
such consent or approval shall not be unreasonably withheld or delayed. Without
being limited thereto, this section applies to Article Fourth.
FIFTIETH: It is understood and agreed that this lease is submitted to the
Tenant for signature with the understanding that it shall not bind the Landlord
unless and until it has been executed by the Landlord and delivered to the
Tenant or Tenant's attorney.
FIFTY-FIRST: Any striking out or deletion of any portion of this lease was
done as a matter of convenience for the purpose of execution and the language
omitted is not to be given any effect whatsoever in construing this lease.
OPORTO DEVELOPMENT CORP.
by: /s/ Duarte Pereira
---------------------------------
DUARTE PEREIRA, President
INTERNATIONAL DATA SERVICES
OF NEW YORK, INC.
by: /s/ Mitchell J. Taube
---------------------------------
MITCHELL J. TAUBE, President
7
<PAGE>
Notices
Eighteenth.--All notices and demands, legal or otherwise, incidental to
this lease, or the occupation of the demised premises, shall be in writing. If
the Landlord or its agent desires to give or serve upon the Tenant any notice or
demand, it shall be sufficient to send a copy thereof by registered mail,
addressed to the Tenant at the demised premises, or to leave a copy thereof with
a person of suitable age found on the premises, or to post a copy thereof upon
the door to said premises. Notices from the Tenant to the Landlord shall be sent
by registered mail or delivered to the Landlord at the place hereinbefore
designated for the payment of rent, or to such party or place as the Landlord
may from time to time designate in writing.
Bankruptcy, Insolvency, Assignment for Benefit of Creditors
Nineteenth.--It is further agreed that if at any time during the term of
this lease the Tenant shall make any assignment for the benefit of creditors, or
be decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may, at its option, terminate this
lease, exercise of such option to be evidenced by notice to that effect served
upon the assignee, receiver, trustee or other person in charge of the
liquidation of the property of the Tenant or the Tenant's estate, but such
termination shall not release or discharge any payment of rent payable hereunder
and then accrued, or any liability then accrued by reason of any agreement or
covenant herein contained on the part of the Tenant, or the Tenant's legal
representatives.
Holding Over by Tenant
Twentieth.--In the event that the Tenant shall remain in the demised
premises after the expiration of the term of this lease without having executed
a new written lease with the Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord may, at its option, elect to
treat the Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant provided by law in
that situation, or the Landlord may elect, at its option, to construe such
holding over as a tenancy from month to month, subject to all the terms and
conditions of this lease, except as to duration thereof, and in that event the
Tenant shall pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
Eminent Domain, Condemnation
Twenty-first.--If the property or any part thereof wherein the demised
premises are located shall be taken by public or quasi-public authority under
any power of eminent domain or condemnation, this lease, at the option of the
Landlord, shall forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
Security
Twenty-second.--The Tenant has this day deposited with the Landlord the sum
of $ See Rider paragraph 29 as security for the full and faithful performance by
the Tenant of all the terms, covenants and conditions of this lease upon the
Tenant's part to be performed, which said sum shall be returned to the Tenant
after the time fixed as the expiration of the term herein, provided the Tenant
has fully and faithfully carried out all of said terms, covenants and conditions
on Tenant's part to be performed. In the event of a bona fide sale, subject to
this lease, the Landlord shall have the right to transfer the security to the
vendee for the benefit of the Tenant and the Landlord shall be considered
released by the Tenant from all liability for the return of such security; and
the Tenant agrees to look to the new Landlord solely for the return of the said
security, and it is agreed that this shall apply to every transfer or assignment
made of the security to a new Landlord. The security deposited under the lease
shall not be mortgaged, assigned or encumbered by the Tenant without the written
consent of the Landlord.
provided landlord gives notice to tenant and Transferee acknowledge in writing
receipt of the **
Arbitration
Twenty-third.--Any dispute arising under this lease shall be settled by
arbitration. Then Landlord and Tenant shall each choose an arbitrator, and the
two arbitrators thus chosen shall select a third arbitrator. The findings and
award of the three arbitrators thus chosen shall be final and binding on the
parties hereto.
**security to the tenant.
Delivery of Lease
Twenty-fourth.--No rights are to be conferred upon the Tenant until this
lease has been signed by the Landlord, and an executed copy of the lease has
been delivered to the Tenant.
Lease Provisions Not Exclusive
Twenty-fifth.--The foregoing rights and remedies are not intended to be
exclusive but as additional to all rights and remedies the Landlord would
otherwise have by law.
Lease Binding on Heirs, Successors, Etc.
Twenty-sixth.--All of the terms, covenants and conditions of this lease
shall inure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors and assigns of the parties hereto.
However, in the event of the death of the Tenant, if an individual, the Landlord
may, at its option, terminate this lease by notifying the executor or
administrator of the Tenant at the demised premises.
Twenty-seventh.--This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is delayed in supplying any equipment
or fixtures if Landlord is prevented or delayed from so doing by reason of
governmental preemption in connection with the National Emergency declared by
the President of the United States or in connection with any rule, order or
regulation of any department or subdivision thereof any governmental agency or
by reason of the condition of supply and demand which have been or are affected
by the war.
Twenty-eighth.--This instrument may not be changed orally.
See Rider for additional paragraphs numbered Twenty-ninth through Fifty-first.
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and
seals the day and year first above written.
Witness:
- - ---------------------------------------
- - ---------------------------------------
OPORTO DEVELOPMENT CORP. (Seal)
---------------------------------------
Landlord
By /s/ [ILLEGIBLE]
---------------------------------------
INTERNATIONAL DATA SERVICES
OF NEW YORK, INC. (Seal)
---------------------------------------
Tenant
by: /s/ Mitchell J. Taube
---------------------------------------
MITCHELL J. TAUBE, President
<PAGE>
GUARANTY
In consideration of the execution of the within lease by the Landlord, at
the request of the undersigned and in reliance of this guaranty, the udnersigned
hereby guarantees unto the Landlord, its successors and assigns, the prompt
payment of all rent and the performance of all of the terms, covenants and
conditions provided in said lease, hereby waiving all notice of default, and
consenting to any extensions of time or changes in the manner of payment of
performance of any of the terms and conditions of the said lease the Landlord
may grant the Tenant, and further consenting to the assignment and the
successive assignments of the said lease, and any modifications thereof,
including the sub-letting and changing of the use of the described premises, all
without notice to the undersigned. The undersigned agrees to pay the Landlord
all expenses incurrred in enforcing the [ILLEGIBLE] of the Tenant under the
within lease and in enforcing this guaranty.
Witness: (SEAL)
----------------------------- ---------------------------------
(SEAL)
----------------------------- ---------------------------------
Date:
--------------------------------
Lease
================================================================================
Landlord
to
Tenant
================================================================================
Premises leased:
From:
---------------------------------------------------------------------------
To:
-----------------------------------------------------------------------------
ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT
For value received the undersigned Tenant hereby assigns all of said
Tenant's right, title and interest in and to the within lease from and after
unto heirs, successors, and
assigns, the demised premises to be used and occupied for
and for no other purpose, it being expressly agreed
that this assignment shall not in any manner relieve the undersigned assignor
from liability upon any of the covenants of this lease.
Witness: (SEAL)
----------------------------- ---------------------------------
(SEAL)
----------------------------- ---------------------------------
Date:
--------------------------------
In consideration of the above assignment and the written consent of the
Landlord thereto, the undersigned assignee, hereby
assumes and agrees from and after to make all payments
and to perform all covenants and conditions provided in the within lease by the
Tenant therein to be made and performed.
Witness: (SEAL)
----------------------------- ---------------------------------
(SEAL)
----------------------------- ---------------------------------
Date:
--------------------------------
CONSENT TO ASSIGNEMENT
The undersigned Landlord hereby consents to the assignment of the within
lease to on the express conditions that the original
Tenant , the assignor, herein, shall remain liable for
the prompt payment of the rent and the performance of the covenants provided in
the said lease by the Tenant to be made and performed, and that no further
assignment of said lease or sub-letting of any part of the premises thereby
demised shall be made without the prior written consent of the undersigned
Landlord.
---------------------------------------
Landlord
Date: By
-------------------------------- ------------------------------------
<PAGE>
July 16, 1997
Mr. Joel M. Thomas, General Partner
East Cobb Land Development & Investment Co ., L.P.
P. O. Box 6038
Marietta, GA 30065
RE: First Lease Renewal dated June 6, 1996, for the purpose
of extending and amending lease dated August 1, 1995,
between East Cobb Land Development & Investment Co., L.P.
and Imaging Information Industries/ David Yezbak, President
Dear Mr. Thomas:
In accordance with Article "D" of the above captioned "First Lease Renewal"
(copy attached), I exercise my right to renew the above referenced lease for one
(1) additional year beginning August 1, 1997, and ending July 31, 1998, at a
rental rate of twelve hundred sixty dollars and no/00 ($1,260.00) per month. All
other terms of the original lease dated August 1, 1995, shall, remain the same.
Signed: /s/ David Yezbak
-----------------------------------
David Yezbak, President
Accepted by: /s/ Joel M. Thomas
-------------------------------
Joel M. Thomas, General Partner
Date: 7-18-97
---------------------------------------
<PAGE>
FIRST LEASE RENEWAL
-------------------
This Amendment of Lease for the purpose of extending and amending said Lease
this 6th day of June, 1996, by and between East Cobb Land Development and
Investment Co., L.P. a Georgia Limited Partnership with mailing address of P. O.
Box 6038, Marietta, Georgia 30065 {Landlord), and Imaging Information
Industries/David Yezbak, President with offices at 1818 Lower Roswell Rd.,
Marietta, Georgia 30068 (Tenant).
W i t n e s s :
WHEREAS, BY INDENTURE OF Lease dated August 1, 1995, made between Landlord and
Tenant (the "Lease") there was demised and leased to Tenant certain premises in
the Eastgate Shopping Center, situated at the southeast corner of the
intersection of Hamby Road and Lower Roswell Road, Cobb County, Georgia, and
more particularly described in the Lease : and
Whereas, Landlord and Tenant, desire to amend and extend said Lease for a period
of one (1) year;
Now Therefore, it is agreed between Landlord and Tenant that said Lease
shall be renewed and amended as follows:
A. Present Lease shall expire July 31, 1996, and the Lease renewal period
of one (1) year shall begin August 1, 1996, and end July 31, 1997.
B. During this one (1) year renewal period the rental rate will be twelve
hundred and no/100 dollars ($1,200.00) per month.
C. Landlord agrees to install approximately 1962 sq. ft. of carpet in the
premises replacing existing carpet.
D. Landlord agrees Tenant may renew the Lease for one (1) additional year
beginning August 1, 1997, and ending July 31, 1998 at a rental rate of twelve
hundred sixty dollars and no/100 ($1,260.00} per month by giving Landlord a
written notice sixty (60) days prior to the expiration of this renewal.
E. All other terms and conditions of the original lease dated August 1,
1995, shall remain the same and in full force and effect and are hereby
reaffirmed.
Accepted this 6th day of June, 1996, as to Landlord; and this 6th day of
June, 1996, as to Tenant.
Landlord:
East Cobb Land Dev. & Inv. Co. L.P.
/s/ Joel M. Thomas
-------------------------------
Joel M. Thomas, Genera1 Partner
Tenant:
Imaging Information Industries
/s/ [illegible]
-------------------------------
<PAGE>
1819 Lower Roswell Road - P. O. Box 6038
MARIETTA, GEORGIA 30065
September 9, 1996
Imaging Information Industries
1818 Lower Roswell Rd.
Marietta, Georgia 30068
Gentlemen:
Under the Lease agreement between the East Cobb Land Development & Invetment Co.
and Imaging Information Industries dated August 1, 1995, Paragraph 21. of said
lease calls for Imaging Information Industries to pay their proportionate part
of any property tax increase over the base year which in your case was 1995. The
Property Tax for the year 1995 was $29,684.20 (see attached statement). The
Property Tax for 1996 was $30,853.65 (see attached statement). The difference
between the years 1995 and 1996 taxes was $1,169.45. Imaging Information Ind.
has a square footage in the shopping center equal to 3,143 sq. ft. The total
square footage of the Shopping Center equals 51,500 sq. ft.
3,143 sq. ft. $71.37
- ------------------------ X $1,169.35 = ---------------------------
51,500 sq. ft. share of additional
property taxes for the year
1996.
Please make check payable to East Cobb Land Development & Investment Co. and
send to: P.O. Box 6038, Marietta, Georgia 30065.
Should you have any question, please call me.
Thank you for your kind attention.
Kindest regards,
/s/ Joel M. Thomas
Joel M. Thomas, President
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
95054527 PROPERTY IDENTIFICATION 1838 LOWER ROSWELL RD NE 1840 PHOTO
- ------------------------------------------------------------------------------------------------------------------------------------
LAND LAND O UNIT PH BLD S GROSS x 40%
DIST LOT O PAM S LOT 8 UNIT ACRES H C C VALUE [ILLEGIBLE] [ILLEGIBLE]
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16 1206 013 0009 0.0 0 9 2310300 924120 1658
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROSS
ASSESSMENT - EXEMPTION = NET ASSESSMENT X MILLAGE RATE = TAX
- ------------------------------------------------------------------------------------------------------------------------------------
TAXING AUTHORITY GROSS ASSESSMENT EXEMPTIONS NET ASSESSMENT RATE [ILLEGIBLE] [ILLEGIBLE]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SCHOOL GENERAL 924120 0 924120 .01783 15477.06
- ------------------------------------------------------------------------------------------------------------------------------------
SCHOOL BOND 924120 0 924120 .00460 4250.95
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SCHOOL TAXES 20728.01
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTY GENERAL 924120 0 924120 .00725 6699.87
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTY BOND 924120 0 924120 .00078 720.81
- ------------------------------------------------------------------------------------------------------------------------------------
COUNTY FIRE 924120 0 924120 .00297 2477.64
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COUNTY TAXES 10165.32
- ------------------------------------------------------------------------------------------------------------------------------------
N/A
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CITY TAXES N/A
- ------------------------------------------------------------------------------------------------------------------------------------
STATE 924120 0 924120 .00025 231.03
- ------------------------------------------------------------------------------------------------------------------------------------
EAST COBB LAND DEV & INV CO TOTAL STATE TAXES 231.03
------------------------------------------
TOTAL TAXES DUE - 31124.36
------------------------------------------
10% PENALTY FOR NOT
FILING A TAX RETURN 0.00
------------------------------------------
BALANCE DUE -
BY OCT. 15, 1995 31124.36
------------------------------------------
</TABLE>
- ----------
Total Property Tax for the year 1995 ia $31,124.36
Less Tax Paid by 1st Union National - 1,440.16
----------
Bank on Ground Lease $29,684.20 Adjusted Base
Tax for the
year 1995.
<PAGE>
MORTON G. THALHIMER, INC. Realtors
1313 East Main Street
Richmond, Virginia 23219
(804) 648-5881
THIS DEED OF LEASE, Made at Richmond, Virginia, this 10th day of January, 1996
by and between Financial Enterprises III, a Virginia limited liability company
hereinafter referred to as "Landlord" and TPS Imaging Solutions, Inc. a Virginia
corporation hereinafter referred to as " Tenant" and Morton G. Thalhimer, Inc.
hereinafter referred to as "Agent".
W I T N E S S E T H
For and in consideration of the below stated rent and other terms and
conditions stipulated in this Lease Agreement, hereinafter referred to as the
"Lease", Landlord does hereby lease to Tenant the following described property
located in Building C of Archway 60 Office Centre, 9325 Midlothian Turnpike,
Richmond, Virginia: approx. 1394 Square Feet (including a 10% core charge)
located on the first floor, Suite B.
hereinafter referred to as the "Premises",
for a term of thirty-six (36) months beginning on the 17th day of January, 1996
(The Commencement Date) and ending the last day of January, 1999, (The
Expiration Date) or as may be otherwise specified in Section 2 below, to be used
and occupied by the Tenant for the following purpose: general office use
- --------------------------------------------------------------------------------
and for no other purpose unless agreed to in writing by Landlord and attached
hereto.
Tenant hereby agrees to pay Landlord, as rent for the premises, without
demand, offset, or reduction the sum of Sixteen thousand seven hundred
twenty-eight 00/100 dollars ($ 16,728.00 ) per annum payable in regular monthly
installments of One thousand three hundred ninety-four 00/100 dollars
($1,394.00) in advance beginning on the Commencement Date and
continuing thereafter on the first day of each succeeding month for the term of
the lease. If the term of this lease shall commence or expire on any day other
than the first of the month, the rent for that monthly installment shall be
prorated based upon a 30 day month. All rent payments shall be made at the
office of and made payable to: Morton G. Thalhimer, Inc. at 1313 East Main
Street, Richmond, Virginia 23219, Agent, or such other address as the Landlord
may direct in writing.
1. CONDITION OF PREMISES:
The Tenant has inspected and approves the plans (as may be attached to this
Lease) and/or knows the conditions of the demised premises and Tenant has made
certain that they can be lawfully used for the purposes of the Tenant's business
and the Tenant expressly covenants that there is no expressed or implied
warranty, representation or agreement on the part of the Landlord with reference
to the condition or usability of the premises for Tenants intended use.
2. POSSESSION:
If the Landlord shall be unable to give possession of the premises on the
date of the commencement of the term hereof by reason of the holding over of any
tenant or tenants or for any cause beyond the control of the Landlord (other
than extra work undertaken by the Landlord for the Tenant), then the rent shall
not commence until possession of the premises is given or is available, and the
Tenant agrees to accept such allowance and abatement of rent, as liquidated
damages, in full satisfaction for the failure of the Landlord to give possession
of the premises on the said date, and to the exclusion of all claims and rights
which the Tenant might otherwise have by reason of possession of the entire
premises not being given on the said date. If Landlord is unable to give
possession due to extra work undertaken at tenants request then the rent shall
commence as scheduled without abatement or allowance. If Landlord is otherwise
unable to give possession on the Commencement Date, then Expiration Date shall
be extended from the actual date of occupancy in accordance with the lease term
specified in the lease.
If Tenant shall occupy the premises prior to the Commencement Date of this
lease with Landlord's consent, all the provisions of this lease shall be in full
force and effect as soon as Tenant occupies the premises and the lease
Expiration Date shall not change.
3. SECURITY DEPOSIT:
Tenant shall deposit with Landlord upon execution of this Agreement and
thereafter maintain with Landlord the sum of $ 1,394.00 which shall be held by
Landlord, without interest to Tenant, as security for the full and faithful
performance by Tenant of Tenant's obligations pursuant to this lease. If Tenant
fails to pay any amount which Tenant is obligated to pay pursuant to this lease,
Landlord may, at its option (but Landlord shall not be obligated to), apply any
portion of such security fund to the amount owed by the Tenant. Any such
application by Landlord shall not waive the default created by Tenant's failure
to pay. If any portion of the security deposit is so applied by Landlord, Tenant
shall, within ten (10) days after demand from Landlord, restore the security
deposit held by Landlord to its original amount. The security deposit, less
amount properly charged against same, shall be refunded to Tenant within thirty
(30) days after Tenant has paid all amounts owed and performed all of its
obligations pursuant to this lease or any extension or renewal thereof.
4. RENT ESCALATION:
Beginning on the first twelve (12) month anniversary of the Commencement
Date of the lease and on each succeeding anniversary date thereafter for the
term of the lease and any renewals or extensions thereof, the rental rate for
the premises shall increase 3 % per annum over the rate charged for the
immediately preceeding twelve (12) months.
5. LANDLORD'S REMEDIES:
A. The Tenant covenants to pay rent at the time and in the manner herein
provided and in case of non-payment of said rent or of Landlord's charges
hereunder within 10 days of the date due, at the time and in the manner herein
provided, or in case of violation by the Tenant of any of the terms and
conditions of this lease, or the covenants herein contained, or in case the
leased premises shall be deserted or vacated, the Landlord shall have the right
to re-enter the same and remove all persons and property there from as the agent
of the Tenant, either by force or otherwise, without being liable to any action
or prosecution, and to rent out the said premises as the agent of the Tenant,
and receive the rent therefore, and to apply the same to the payment of the rent
or other charges due under this lease, holding the Tenant liable for any
deficiency; or, at the option of the Landlord, it may declare this lease
forfeited, without any notice to that effect, and may take immediate possession
of said premises, or may take any other action provided by law.
<PAGE>
B. It is further covenanted and agreed that the various rights, remedies,
powers or elections of the Landlord as expressed in this lease, or given by law,
are cumulative, and that none of them shall be deemed to be exclusive of such
other rights, remedies, powers or elections, as are now or may hereafter be
conferred upon the Landlord by law.
C. In the event the Tenant shall be adjudicated a bankrupt, or become
insolvent, or if a receiver is appointed by any court or if the Tenant shall
make an assignment for the benefit of creditors, then upon the election of the
Landlord, this lease shall cease and desist upon ten days' written notice by the
Landlord to the Tenant, and the Landlord shall have all rights and remedies
otherwise provided in this Section 5.
6. LATE CHARGES:
Tenant recognizes and acknowledges that if rent payments are not received
when due, Landlord will suffer damages and additional expense thereby and Tenant
therefore agrees that a late charge equal to ten percent (10%) of the rent due
may be assessed by Landlord as additional rental if Landlord has not received
the monthly installment of annual rent or other rent or additional rent due
pursuant to the lease within five (5) days after its due date. If any check
given in payment of rent is not honored when due, Landlord may require that
subsequent rent payments be made by certified cashier's check.
7. EXEMPTIONS:
The Tenant hereby waives the benefit of any exemptions under the homestead
or bankruptcy laws as to the obligations of this lease, and agrees to pay all
expenses incurred in collecting the same, including reasonable attorney's fees,
in case the same shall not be paid when due.
8. ASSIGNMENT AND SUBLETTING:
The Tenant shall not, without the prior written consent of the Landlord,
(a) assign or convey or encumber this lease or any interests under it; (b) allow
any transfer hereof or any lien upon the Tenant's interest hereunder; (c)
sublet the premises or any part thereof, or (d) permit the use or occupancy of
the premises or any part thereof by any other than the Tenant. In the event
Landlord consents to Tenant subletting the Premises, Tenant shall pay agent a
one time fee of One Hundred Fifty Dollars ($150.00) to cover bookkeeping and
other expenses Agent may incur by virtue of such subletting or assignment. Said
fee shall be due prior to occupancy by new Tenant and payment of same is a
pre-condition to Tenant's right to sublease the Premises.
Any such subletting or assignment by Tenant shall not in any way relieve
Tenant of his duties and/or obligations for performance under this lease or
reduce Landlord's rights hereunder.
9. CARE AND USE OF PREMISES BY TENANT:
A. The tenant will take good care of the Premises and of the fixtures and
improvements therein and shall keep and maintain same in good repair and working
order. Tenant will, at his own cost and to Landlord's satisfaction, repair in a
good and workmanlike manner all damage and injury to the Premises and fixtures
required as a result of Tenant carelessness, misuse, or neglect or as a result
of damage or defacement of the building, or any part thereof by reason of
Tenant's occupancy or the actions of his agent, employees, visitors, assignees
or licencees. Should Tenant fail to perform such repairs or replacements,
Landlord may do so, after ten (10) days notice, and the cost of such repairs or
replacements shall become collectable as additional rent hereunder and shall be
paid by Tenant within ten (10) days after presentation of a statement therefor.
Upon the expiration of this Lease, Tenant shall return all keys and shall quit
and surrender the Premises in clean and good condition, reasonable use and wear
excepted.
Whenever any breakage or damage shall occur to either the premises or the
building or property of which these Premises are a part, Tenant shall
immediately notify Landlord who shall cause same to be repaired or replaced at
Landlord's expenses, unless such damage is Tenants fault, as specified elsewhere
in this Section 9, in which case such repair expenses shall be borne by Tenant.
B. Tenant will not store upon the premises any combustible or explosive
material or do or permit to be done on the Premises anything which either
directly or indirectly is in conflict with or a violation of public law,
ordinance, governmental regulation or any insurance policy carried on the
Premises, or the property of which it is a part, or its operation or, which if
known, might increase the premium of such insurance or adversely affect its
coverage.
C. Tenant will not do or permit to be done any waste or nuisance upon the
Premises or anything which obstructs or interferes with the rights of other
Tenants or which is offensive or annoying to them. Determination of such rights
and offensive behavior, if not otherwise specified shall be at Landlord's
determination. Tenant further agrees to comply with and abide by such rules and
regulations as the Landlord, upon written notice to Tenant, may adopt, Landlord
shall not be responsible for the non-observance or violation of the building
rules and regulations or lease provisions by any other tenant.
D. The Landlord shall have the right to prescribe the weight, size and
proper location of safes and other weighty articles before the same are admitted
into the Building, and any damage done to the Building in the putting in or out
of such articles, or during the time they are in or on the Premises, shall be
made good by the Tenant. All persons employed by or contracted with by Tenant
for repairs, alterations, or the moving of safes, furniture or other bulky
articles in and out of the Building and Premises must be acceptable to Landlord
and shall be at Tenants sole cost and liability, and such work is to be done
only at a time designated by Landlord.
E. Tenant shall not, without the prior written consent of Landlord, place
any signs or advertising matter or material on the exterior of the building or
the interior of the building. If Landlord approves any signage or advertising
matter or material in writing, such signage, matter or material shall be
installed at Tenant's expense and Tenant shall remove same at the termination or
expiration of this Lease and repair any damage caused by such removal.
10. ALTERATIONS:
The Tenant will make no alterations in or additions or improvements to the
Premises without first obtaining the written consent of the Landlord who shall
have the right to approve the plans for, and designate the contractors and/or
workmen to perform any such work, and all additions and improvements made by the
Tenant shall become the property of the Landlord immediately upon completion
thereof, provided, however, that the Landlord, by giving written notice to the
Tenant not less than two (2) months prior to the expiration of this lease, or
any continuance or renewal thereof, may require Tenant to restore such Premises
to the condition in which they were at the commencement of this lease. It is
convenated and agreed by and between the parties hereto that all changes and/or
alterations in the Premises to be made by the Landlord at the expense of the
Landlord are evidenced and shown by a floor plan of the Premises which is
attached hereto and made a part of this lease, such floor plan being identified
by the signature of the Landlord and Tenant; all other alterations, additions or
improvements made by the Tenant, or by the Landlord at the Tenant's request,
shall be solely at the Tenant's expense and liability.
11. SERVICES:
The Landlord shall provide the following free of extra charge, but subject
to the following covenants and conditions:
(a) Janitor service Monday through Friday (excepting legal holidays) in and
about the building in which said Premises are situated, including maintenance of
building exterior and interior space used by all Tenants in common.
(b) Heat to warm the said building during 8:00 A.M. - 6:00 P.M. M-F during
such period as may be necessary, and hot and cold water for the lavatories of
said building.
(c) Use of water, as supplied through the Building piping to the wash
basins, if any, in the Premises. The Tenant shall not, however, waste water so
supplied and shall not, without the Landlord's prior consent in writing, use the
same for refrigeration or for any other than ordinary office purposes.
(d) Elevator service (if applicable) during the ordinary business hours of
each business day. On holidays, Sundays, and at night one elevator will be
subject to call.
(e) Use of electricity, as supplied through the Building circuits, but only
for lighting purposes and for operation of ordinary office machines. The Tenant
shall not, without the Landlord's prior written consent, use such electricity
for refrigeration, special lighting apparatus, x-ray equipment, large electronic
machines, or other special equipment or for any other than ordinary office
purposes.
(f) Air-conditioning (A/C) to the demised premises, during the summer
months, from 8:00 A.M. to 6:00 P.M. Monday-Friday. If Tenant requires additional
A/C due to its computers, special lighting, etc. said A/C will be installed and
separately metered at Tenant's expense, and such electrical usage billed to
Tenant as an extra charge.
(g) Tenant and its employees and customers shall have the non-exclusive
right, in common with Landlord, other tenants of the Building, and their
respective employees, guests and customers, to park automobiles in the parking
area provided by Landlord (if such area is provided, but Landlord shall be under
no obligation to otherwise provide, arrange or pay for Tenant parking) subject
to such reasonable rules and regulations as Landlord may impose from time to
time, including the designation of specific areas in which automobiles of
Tenant, his employees, guests, and customers must be parked, and the number of
parking spaces which may be utilized by Tenant.
The Landlord shall not be liable for the interruption of any of the
above-mentioned services caused by repairs, improvements, alterations, strikes,
lockouts, accidents, inability of the Landlord to procure such services or to
obtain fuel or supplies or other cause or causes beyond the reasonable control
of the Landlord. Any interruption of service shall never be deemed an eviction
or disturbance of the Tenant's use and possession of the Premises or any part
thereof, or render the Landlord liable to the Tenant for damages, or relieve the
Tenant from performance of the Tenant's obligation under this lease.
12. CLAIMS FOR DAMAGES:
All personal property belonging to the Tenant or to any other person,
located in or about the building or the Premises shall be there at the sole risk
of the Tenant or other such person, and neither the Landlord nor the Landlord's
agents shall be liable for the theft or misappropriation thereof, nor for any
damage or injury thereto, nor for damage or injury to said Tenant, his employees
or invitees, or to other persons or to other property in and about the Building
caused by water, fire, snow, frost, or other elements, steam, heat or cold,
dampness, falling plaster, sewers or sewage, gas odors, noise, the bursting or
leaking of pipes, plumbing, electrical wiring and equipment and fixtures of all
kinds, operation or use of elevators, or by any act or neglect of other tenants
or occupants of the Building or of any other person, or caused in any manner
whatsoever. The Tenant shall give to the Landlord, or its duly authorized agent,
immediate written and telephone notice of any accidents to, or defects in any
equipment or part of the Building and of any fire, to the end that the Landlord
may promptly remedy such conditions. The Tenant will protect, indemnify and save
harmless the Landlord from all losses, costs or damages sustained by reason of
any act or other occurrence causing injury to any person and/or property
whomsoever or whatsoever, due directly or indirectly to the use or occupancy of
the premises or any part thereof by the Tenant.
<PAGE>
13. UNTENANTABILITY:
If, during the term of this lease, the Building and/or demised premises
and/or other portions of the Building shall be damaged by fire or other action
of the elements as to be rendered untenantable, and shall not be repaired by the
Landlord and put in tenantable condition within a period of one hundred twenty
(120) days from the time when the Tenant gives the Landlord possession of the
premises for the purpose of making such repairs, it shall be optional with the
Tenant to terminate this lease by a written notice at the end of such period. If
such damage is repaired and the premises are made tenantable within such one
hundred twenty (120) day period, no right to terminate this lease for such cause
shall exist. Whether the lease is terminated or not, an equitable adjustment of
the rental payable for the Tenant shall be made (provided no fault of the Tenant
contributed to the damage and provided no insurance effected by the Landlord
shall have been vitiated or payment refused in consequence of some act of or
default of the Tenant) by crediting the Tenant with the full rental for such
period of time, if any, as the Tenant was necessarily deprived of all use of the
premises, and with a pro rata proportion of the rental payable for such period
of time and such amount of space as the Tenant may be deprived of, if use of
premises is not entirely prevented by the damage and the consequent repairs.
14. SUBORDINATION OF LEASE:
This lease is made, and accepted by the Tenant, subject and subordinate in
law and in equity to any existing, future and/or new mortgages, and/or deeds of
trust secured by the land and building of which the demised Premises are a part,
or which may at any future time be placed thereon, and to any extensions,
modifications and renewals thereof, and to the prior right of the mortgagees or
lendors thereunder. If required by the Landlord, the Tenant will execute,
acknowledge and deliver any and all agreements subordinating this lease to any
deed of trust or morgage now or hereafter executed, secured by the said land and
said buildings. Within (10) days after request theretofore by the Landlord,
Tenant agrees to deliver in recordable form a certificate prepared by Landlord
to any proposed mortgagee or purchaser of the Premises or to Landlord certifying
(if such is the case) that this lease is in full force and effect that there are
no defenses or offsets thereto, or stating those claimed by Tenant, and such
other facts related to this lease, the Premises or Tenant as Landlord may
request. If Tenant does not execute and return such certificate as required
above, Tenant hereby irrevocably appoints Landlord as its attorney in fact to
execute such certificate on behalf of Tenant.
15. QUIET ENJOYMENT:
Provided Tenant is not in default in the performance of any of its
obligations under this lease, Landlord covenants that Tenant shall have and
enjoy quiet and peaceable use and possession of the premises during the term of
this lease and any renewals thereof.
16. RESERVED RIGHTS:
Landlord reserves the following rights:
(a) To change the name or street address of the Building, or of the door
number of the demised premises, without liability of Landlord to Tenant.
(b) To designate all sources furnishing sign painting and lettering, ice,
drinking water, towels and toilet supplies, or other like services used in the
premises;
(c) To enter during the last ninety (90) days of the term, provided Tenant
shall have removed all or substantially all of Tenant's property from the
premises, for the purpose of altering, renovating, remodeling, repairing or
otherwise preparing the premises for re-occupancy;
(d) To grant anyone the exclusive right to conduct any particular business
or undertaking in the building;
(e) To enter the premises at all times (1) for the making of inspections,
repairs, alterations, improvements or additions at or to the premises or
building, as Landlord may deem necessary or desirable, and (2) for any purpose
whatsoever related to the safety, protection, preservation or improvement of the
premises or of the building or of the Landlord's interest;
(f) At any time or times, the Landlord, either voluntarily or pursuant to
governmental requirement, may, at the Landlord's own expense make repairs,
alterations or improvements in or to the Building or any part thereof, and
during operations, may close entrances, doors, corridors, elevators or other
facilities;
(g) In the event repairs, alterations, decorating or other work, done at
the Landlord's expense, shall be done at other than ordinary business hours by
reason of the Tenant's request that they not be done during ordinary business
hours, then the tenant shall pay the Landlord the additional charges, including
overtime costs, incurred by the Landlord in doing work at other than ordinary
business hours.
(h) If the Premises are less than 2,000 square feet in area, Landlord
reserves the right, at its option and upon giving thirty (30) days notice in
advance to Tenant, to transfer and remove Tenant from the Premises to any other
available offices of equal size and area in the Building. Landlord shall bear
the expense of moving the Tenant's furniture, fixtures, phone system and other
personal property as well as the expense of any renovations or alterations
necessary to make the new space similar in arrangements and layout to the
original Premises.
Landlord may exercise any or all of the foregoing rights hereby reserved by
Landlord without being deemed guilty of an eviction or disturbance of Tenant's
use and possession and without being liable in any manner to Tenant and without
elimination or abatement of rent, or other compensation, and such acts shall
have no effect upon this lease.
17. RENEWAL:
It is hereby understood and agreed that a written notice of three (3)
months to the end of said term or any renewal or continuance thereof; from
either party to the other shall be necessary to terminate this Lease at the end
of said term, or at the end of any renewal or continuance thereof; and in the
event that no such notice shall be given then this lease shall be continued in
full force and effect for an additional period of two years at the rent then in
force and subject to all the covenants, terms and conditions herein contained
including this paragraph and any rental escalation provisions contained in this
lease.
18. HOLDING OVER:
Tenant shall pay to Landlord an amount as base monthly rental equal to 200%
of the base monthly rental herein provided during each month or portion thereof
for which Tenant shall retain possession of the Premises or any part thereof
after the termination of the Term or of Tenant's right of possession, whether by
lapse of time or otherwise, and also shall pay all damages sustained by
Landlord, whether direct or consequential, on account thereof. Such hold over
shall be as a tenant at will and all of the terms and provisions of this Lease
shall be applicable during such period. No holding over by Tenant, whether with
or without consent of Landlord, shall operate to extend this Lease except as may
be herein provided. The provisions of this clause shall not be held as a waiver
by Landlord of any right of re-entry, or any other rights of Landlord as
provided under this Lease; nor shall the receipt of said payment or any part
thereof, or any other act in apparent affirmance of tenancy, operate as a waiver
of the right to forfeit this Lease and the Term hereby granted for the period
still unexpired, for any breach of any of the covenants herein, or any other of
Landlord's rights hereunder.
19. LANDLORD'S LIEN:
A. Unless otherwise prohibited by law, in addition to any statutory
Landlord's Lien, Landlord shall have at all times a valid security interest to
secure payment of all rentals and others sums of money becoming due hereunder
from Tenant, and to secure payment of any damages or loss which Landlord may
suffer by reason of the breach by Tenant of any covenant, agreement or condition
contained herein, upon all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant presently, or which may
hereafter be, situated in the Leased Premises, and all proceeds there from, and
such property shall not be removed there-from without the consent of Landlord
until all arrearages in rent as well as any and all sums of money then due to
Landlord hereunder shall first have been paid and discharged and all covenants,
agreements and conditions hereof have been fully complied with and performed by
Tenant.
B. Upon the occurrence of an event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter the Leased Premises and
take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant situated on the Premises,
without liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after giving
Tenant reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale the Landlord or its
assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
Tenant reasonable notice, the requirement of reasonable notice shall be met if
such notice is given in the manner presecribed in paragraph 22 of this lease ten
days before the time of sale. Any sale made pursuant to the provision of this
section shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held in the above-described premises or where the property
is located after the time, place, and method of sale and a general description
of the types of property to be sold have been advertised in a daily newspaper
published in the county in which leased premises is located for five consecutive
days before the date of sale. The proceeds from any such disposition, less any
and all expenses connected with the taking of possession, holding and selling of
the property (including reasonable attorney's fees and legal expense) shall be
applied as a credit against the indebtedness secured by the security interest
granted in this section. Any surplus shall be paid to Tenant or as otherwise
required by law; the Tenant shall pay any deficiencies forthwith. Upon request
by Landlord, Tenant agrees to execute and deliver to Landlord a financing
statement in form sufficient to perfect the security of Landlord in the
aforementioned property and proceeds thereof under the provisions of the Uniform
Commercial Code in force in the state in which leased premises is located. The
statutory lien "distress for rent" is not hereby waived, the security interest
herein granted being in addition and supplementary thereto.
20. LIABILITY INSURANCE:
Landlord and Tenant shall each at all times during the term of this Lease
or any renewal thereof carry with an approved insurance carrier licensed to
operate in this state, public liability insurance, naming the other and Agent as
additional insured, with limits of liability of not less than $500,000 with
respect to personal injury and $300,000 with respect to property damage.
Certificates of such insurance shall be furnished to such other and/or Agent
upon request. Tenant shall notify Landlord promptly of any accident or loss in
the Premises or in the building of which the Premises form a part of any defect
therein or in the equipment and fixtures thereof which Tenant has knowledge.
<PAGE>
21. AGENT COMMISSION:
In consideration of Agent's services in procurring this Lease and as a
covenant running with the land, Landlord covenants with and for the benefit of
the Agent, as follows: Agent is to receive a commission of six percent (6%) of
the rent during the original term and all renewals or extensions thereof or any
expansion of leased space by Tenant, relocation of Tenant by Landlord either
within the Building or to any other property owned or controlled by Landlord or
any new lease of the Leased Premises between any person and Tenant, its
successors or assigns (such phrase used herein to include such entity in which
Tenant, its successors or assigns, may have an interest a stockholder, partner,
lender of money or otherwise); and no sale transfer, assignment, cancellation,
or release including a sale or conveyance to Tenant, its successors or assigns,
shall affect Agent's right to such commission which is hereby made a lien on the
Leased Premises and all equipment thereon, if any. Agent shall have the right to
collect all rents due hereunder so that its commission may be paid in
installments as the rent is received, and retained by Agent before remitting the
rent (less commissions) to Landlord; but if any act be done to deprive Agent of
its right to collect the rent, then the whole amount of its commission then
unpaid shall, at Agent's opinion, immediately become due and payable.
Landlord further covenants with and for the benefit of Agent as a covenant
running with the land, that if Tenant, its successors or assigns, shall at any
time during the original term and all renewals or extensions thereof, (or during
any new lease of the Leased Premises between any person and Tenant, its
successors or assigns,) purchase the building in which the Premises are located,
then in consideration of Agent's consummating this lease, Landlord shall pay
Agent on the date the Premises are transferred at, a commission of six percent
(6%) of the gross amount of the purchase price. Such a sales commission shall be
in addition to the rental commissions provided for in the immediately proceeding
paragraph and is hereby made a lien on the Leased Premises and all equipment
thereon, if any.
Landlord hereby authorizes Agent to institute legal proceedings for the
recovery of any rent due under the provisions of this lease agreement and to
employ an attorney for that purpose, and to charge all costs and fees to
Landlord.
In connection with all acts done or suffered by Agent for Landlord
concerning the Leased Premises, Landlord further agrees to defend, indemnify and
save Agent harmless from all fines, judgments, suits, claims, demands, and
actions of any kind (including any costs and attorney's fees), and from
liability for injury suffered by an employee or contractor (not in the permanent
employ of Agent) engaged by Agent for the benefit of Landlord.
22. NOTICES:
In every instance where it shall be necessary or desirable for the Landlord
to serve notice or demand upon the Tenant such notice or demand shall be deemed
sufficiently given or made if, in writing it is (a) delivered to the Tenant
personally, (b) sent by registered or certified mail, addressed to Tenant at the
building of which the leased premises are a part, or (c) left at the premises
addressed to Tenant, and the time of the giving or making of such notice or
demand shall be deemed to be the time when the same is delivered to Tenant,
mailed or left at the premises as herein provided. Any notice by Tenant to
Landlord must be served by registered or certified mail only, addressed to
Landlord at the address where the last previous rental hereunder was paid.
23. MISCELLANEOUS:
A. The failure of the Landlord to enforce in any one or more instances any
term, condition, rule, regulation or covenant as to which the Tenant shall be
guilty of a breach or be in default, shall not be deemed to waive the right of
the Landlord to enforce the same or any subsequent breach or default
notwithstanding the Landlord had knowledge of such breach or default at the time
of the receipt of any rent or other sums by the Landlord, whether the same be
that originally reserved or that which may be payable under any of the covenants
or agreements herein contained, or any portion thereof. The acceptance by the
Landlord of checks or cash from persons other than the Tenant shall in no event
evidence consent of the Landlord to any assignments or sub-lease by the Tenant.
No waiver or modification of this lease nor any release or surrender of the same
shall be claimed by the Tenant unless such waiver or modification or release or
surrender be in writing and signed by the Landlord.
B. Each provision hereof shall bind and inure to the benefit of the
Landlord and the Tenant and as the case may be; if the Tenant is an individual,
the Tenant's legatees, executors, and administrators; the Landlord's successors
and assigns; if the Tenant is a corporation, its successors; and in the event
that the Landlord consents to the assignment of this lease notwithstanding the
terms hereof, the Tenant's assigns.
C. The parties hereto agree that whenever the word "Tenant" and/or "party"
is used herein it shall be construed to mean Tenants and/or parties, if there
shall be more than one, and generally, feminine or neuter pronouns shall be
substituted for those of the masculine form, and vice versa, and the plural is
to be substituted for the singular number in any place or places herein in which
the context shall require such substitution.
D. Paragraph headings for this Lease are used for convenience only, and are
in no way to be construed as a part of this Lease or as a limitation on the
scope of the particular provision to which they refer.
24. SPECIAL COVENANTS:
Special covenants consisting of 4 paragraph(s) are attached hereto and made
a part hereof.
IN WITNESS WHEREOF, each individual party hereto has hereunto signed his or
her name and affixed his or seal, and each corporate party hereto has caused its
name to be signed and its seal to be affixed by its duly authorized officers.
MORTON G. THALHIMER, INC.
- ---------------------------------------
AGENT
- ---------------------------------------
BY
- ----------------------------------(SEAL) -------------------------------(SEAL)
LANDLORD TENANT
TPS Microimaging, Inc.
- --------------------------------------- -------------------------------(SEAL)
TENANT
- --------------------------------------- By: /s/ [illegible]
ADDRESS -------------------------------------
By: MARTIN L. BRILL /S/ Martin L. Brill Title: President
----------------------------------- ------------------------------
Title: President Date: 1/17/96
-------------------------------- -------------------------------
25. GUARANTEE:
In consideration of Landlord agreeing to lease to Tenant the Demised
Premises, the undersigned, hereby waiving the obligations of the homestead
exemption laws as to this lease agreement, jointly and severally if there be
more than one undersigned, guarantee the payment of rent and the performance of
all provisions of this lease agreement by Tenant, its successors and assigns,
and agree that the mere nonpayment of rent and nonperformance of said provisions
by Tenant or its successor and assigns shall create an immediate liability on
the part of the undersigned to Landlord and its successor and assigns and to
Agent. Landlord and Agent need not first exhaust their legal remedies against
Tenant or its successors and assigns before proceeding against the undersigned.
Neither Landlord nor Agent is required to notify the undersigned of any default
of Tenant under the provisions of this lease agreement Landlord and Tenant may
amend this Lease from time to time and may increase the obligations of Tenant
hereunder without releasing guarantor from any liability under this guaranty.
Date:
- --------------------------------------- -------------------------------------
GUARANTOR
<PAGE>
ADDENDUM NO. 1 TO LEASE DATED JANUARY 10, 1996, BY AND BETWEEN FINANCIAL
ENTERPRISES III, A VIRGINIA LIMITED LIABILITY COMPANY ("LANDLORD"), AND TPS
IMAGING SOLUTIONS, INC., A VIRGINIA CORPORATION ("TENANT"), FOR APPROXIMATELY
1,394 SQUARE FEET OF SPACE LOCATED IN BUILDING C, SUITE B, OF ARCHWAY 60 OFFICE
CENTRE, 9325 MIDLOTHIAN TURNPIKE, RlCHMOND, VIRGINIA
================================================================================
It is covenanted and agreed as follows:
1. Tenant Acknowledgment. Tenant acknowledges and accepts the space in an "as
is" condition.
2. Rental Payments. Rental payments shall be made to the order of Financial
Enterprises III P O Box 630368, Baltimore, Maryland 21263.
3. Notices.
<TABLE>
<CAPTION>
To Landlord: To Tenant: To Agent:
<S> <C> <C>
Ms. Beth Levy TPS Imaging Solutions, Inc. Morton G. Thalhimer, Inc.
Financial Enterprises III 9325 Midlothian Tnpk. P O Box 702
4510 Cox Road Suite B Richmond, VA 23206-0702
Suite 303 Richmond, VA 23236 Attn: Austin H. Newman or
Glen Allen, VA 23060 Mark E. Douglas, SIOR
</TABLE>
4. Expansion. Provided Tenant is not in default of the Lease, and by providing
Landlord with no less than 120 days advance written notice prior to the
anniversary date of the Lease Term, Tenant shall have an Expansion Right in
the form of a First Right of Lease on an additional 1,000 rentable square
feet of space within the Archway 60 Office Centre. Realizing that an exact
fit may be difficult to achieve, provided the proposed expansion space can
reasonably meet Tenant's space requirements, Tenant shall lease the entire
Premises in total.
Landlord shall have up to ninety (90) days to secure and complete any
necessary tenant improvements to the proposed Expansion Premises. All costs
to relocate shall be paid for by Tenant and the new lease rental rate shall
be at market, as reasonably determined by Landlord and Tenant, but in no
event shall the rate per square foot be less than the current rental rate
per square foot being paid by Tenant.
Should Landlord be unable to reasonably meet the growth needs of Tenant as
specified above, this Lease shall become null and void on the next full
anniversary date of the Lease Tenant shall pay to Landlord a penalty equal
to three (3) months rental after the first twelve ( 12) months of occupancy
and two (2) months rental after the twenty-fourth (24) month of occupancy
should Tenant exercise this right to cancel this Lease.
WITNESS the following signatures and seals:
LANDLORD: TENANT:
FINANCIAL ENTERPRISES III TPS IMAGING SOLUTIONS, INC.
By: /s/ Martin L. Brill By: /s/ [illegible]
----------------------------------- -------------------------------
Martin L. Brill
TITLE: President Title: President
- --------------------------------------- -----------------------------------
Date: 1/19/96 Date: 1/17/96
-------------------------------- -----------------------------------
<PAGE>
EXHIBIT A
FIRE / EMERGENCY EXITS
[FLOOR PLAN]
<PAGE>
THIS LEASE AGREEMENT made as of the 31st day of March, 1995, by and between
TECHNICAL PUBLICATIONS SERVICE, INC. (hereinafter called (Landlord") and TPS
MICROGRAPHICS, INC. (hereinafter called "Tenant").
W I T N E S S E T H T H A T:
The parties hereto agree for themselves, their successors and assigns, as
follows:
1. Premises. Landlord hereby leases to Tenant, the Tenant hereby accepts
and rents from Landlord, that certain portion of the property currently occupied
by both Landlord and Tenant, the portion leased hereunder to Tenant being
hereinafter called "Demised Premises", shown and outlined in yellow on the
attached Exhibit 1 (Office Space), Exhibit 2 (Finished Production) and 5,899
square feet of Unfinished Production space within the same building, and
warehouse space within the same building totaling 6,564 square feet not
specifically located, plus parking for not less than 55 automobiles and ingress
and egress to and from the Demised Premises. Landlord and Tenant may with mutual
agreement vary or change the space and location indicated above as to the
location or square footage.
TO HAVE AND TO HOLD the said Demised Premises and appurtenances upon the
terms and conditions hereinafter set forth.
2. Term. The term of this lease shall be for a period of five years and
three months, commencing on April 1, 1995 and terminating on June 30, 2000.
<PAGE>
3. Basic Rent. The basic rent for the initial term shall be $372,141.00 and
shall be payable in monthly installments of $5,907.00 per month on the first
(1st) day of each month in advance.
4. Additional Rent. In addition to the basic rent provided for in paragraph
3 above, Tenant shall pay to Landlord, as additional rent, the following:
a. As additional rent, Tenant shall pay to Landlord each year for five
consecutive lease years beginning April 1, 1995, 50% of the before tax
profits of Tenant after adjusting the salary of David L. Crowder and Dina
G. Crowder to $145,000 00, reducing to a reasonable amount compensation
paid to any other member of David L. Crowder's immediate family, as
applicable, and after deducting from said pretax profits an amount equal to
the total principal payments made by Tenant on the note described in the
Stock Purchase Agreement of even date herewith up to a maximum of
$18,830.27 for the year April 1, 1995 to March 31, 1996; $20,635.02 for the
year April 1, 1996 to March 31, 1997; $22,458.96 for the year April 1, 1997
to March 31, 1998; $24,444.15 for the year April 1, 1998 to March 31, 1999;
and $26,604.76 for the year April 1, 1999 to March 31, 2000. Payment of
the additional rent provided for hereunder shall be made to Landlord by
Tenant within 75 days of the end of each lease year. For purposes of this
paragraph, Tenant's lease year shall be from April 1 to March 31 of each
calendar year. In the event Tenant prepays all or a portion
<PAGE>
of its obligations under the note, such prepayments over $18,830.27 for the
year April 1, 1995 to March 31, 1996; $20,635.02 for the year April 1, 1996
to March 31, 1997; $22,458.96 for the year April 1, 1997 to March 31, 1998;
$24,444.15 for the year April 1, 1998 to March 31, 1999; and $26,604.76 for
the year April 1, 1999 to March 31, 2000 for the applicable year shall
accrue to and be applied in the next subsequent lease years so that such
prepayments will be deducted from pretax profits in succeeding years.
Tenant makes no representations or warranties as to its future level of
profits.
b. Taxes. Tenant shall pay its pro rata share of the annual real
estate taxes assessed or imposed upon the Demised premises by any
governmental authority (based upon the previous years total tax bills) as
each payment is made by the Landlord for said taxes. Tenant's pro rata
share shall be calculated in the same manner as the calculation has been
made on Exhibit 3 attached hereto and made a part hereof, except that
adjustment shall be made by the parties to this lease to reflect actual
changes in the square footage occupancy of Tenant, such changes to be made
only with the mutual written consent of the parties hereto. Changes in
square footage shall cause an adjustment in the Tenant's pro rata share as
of the first day of the next succeeding month in which a change in square
footage has occurred. For purposes of this lease the percentage determined
in accordance with this paragraph for Tenant's pro rata share is referred
to hereinafter as "Tenant's Pro Rata Share Percentage".
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c. Landlord's Refinancing. It is understood that at any time Landlord
may, at its option, obtain fixed rate or other financing on the Demised
Premises. In the event Landlord refinances, Tenant agrees to execute any
and all documents required to subordinate this lease.
d. Late Charge. A late charge of 5% of the amount due shall be paid by
Tenant on any installment not received by Landlord by the 15th day of each
month.
e. Payment of Rental. All rental payments provided herein shall be
made in advance on the 1st day of each month with the first payment due on
the date of this lease to Landlord at its principal office at Forest,
Virginia until notice to the contrary is given by Landlord.
5. Improvements and Delivery of Demised Premises. Tenant hereby
acknowledges that it has examined the Demised Premises, that same are acceptable
for the use for which Tenant intends to occupy the Demised Premises, and that
Tenant is leasing the Demised premises "AS IS" Landlord shall have no obligation
to make any repairs or improvements to the Demised Premises except as herein
specifically provided.
6. Taxes. Tenant covenants and agrees to pay promptly an amount equal to
Tenant's Pro Rata Share Percentage times the amount of all taxes and assessments
of every kind or nature which are now or may hereafter be imposed or assessed
upon the Demised Premises, in the manner heretofore provided in this Lease
4
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Agreement. Tenant shall also be required to pay any taxes or assessments of any
nature imposed or assessed upon fixtures, equipment, merchandise, leasehold
improvements or other property installed in the Demised Premises by Tenant or
brought thereon by Tenant or Tenant's agent, and Tenant agrees that it will
promptly pay all such taxes or assessments as the same become due.
7. Insurance. Landlord will maintain and pay for adequate fire and all risk
insurance, with extended coverage, on the Demised Premises in an amount equal at
least to $_______. Landlord shall also maintain and pay for general liability
insurance in the face amount of at least $________. Any and all policies of
insurance shall name Tenant as an insured. Tenant shall reimburse Landlord 30%
of the cost of the foregoing insurance coverage to be paid to Landlord within
ten (10) business days after payment by Landlord on the premiums for each such
policy. In addition, Tenant will provide and pay for all insurance on its own
contents in the Demised Premises. Landlord and Tenant hereby waive the right of
subrogation against the other as a result of loss or damage to the Property
(personal and real) of Landlord and Tenant.
8. Use of Demised Premises. Tenant shall comply with all laws, ordinances,
orders or regulations of any lawful authority having jurisdiction over the
Demised Premises or the adjacent public streets including without limitation
making at its own expense all alterations to the Demised Premises required by
any such authority; and Tenant shall not do any act or follow any
5
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practice in or about the Demised Premises which shall constitute a nuisance or
violate any law.
9. Landlord's Covenant to Maintain. Landlord will, at its own expense,
subject to Tenant's obligation to reimburse Landlord 30% of the cost of same,
keep and maintain in good order and repair during the full term of this lease
the Demised Premises, including without limitation, the entire interior and
exterior and grounds and all window glass, plate glass, paving, plumbing,
wiring, electrical systems and heating and air conditioning systems and
mechanical systems and other systems; and Tenant will, at the end of the term of
this lease, deliver the Demised premises to the Landlord in as good condition as
they were when received by it, excepting only normal wear and tear. Landlord
shall be responsible for the replacement, if necessary, of any and all
mechanical, HVAC, plumbing, electrical, and other systems in or on said real
estate during the term of this lease and Landlord shall have the right to
inspect the Demised Premises at reasonable times.
10. Damage or Destruction by Casualty. If the Demised Premises are damaged
or destroyed during the term of this lease by fire or other casualty covered by
an ordinary fire insurance policy with extended coverage, Tenant shall give
immediate written notice thereof to Landlord, and Landlord will, to the extent
insurance proceeds cover the cost of same, reconstruct the Demised Premises or
repair such damage as promptly as practicable, and Tenant shall meanwhile be
entitled to an abatement of rental to the extent of
6
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the loss of use suffered by it; provided, however, that if the Demised Premises
shall be damaged or destroyed by casualty to the extent of fifty percent (50%)
or more of their replacement value, Landlord shall thereupon have the option to
terminate this lease or to replace or repair the Demised Premises.
11. Utilities. During the term of this lease, Landlord shall provide and
pay for all lights, heat, janitor service and other utilities, except water,
required by it in the use of the Demised Premises, and Tenant shall reimburse
Landlord an amount equal to the Tenant's Pro Rata Share Percentage times the
amount of the cost of the foregoing utilities as such costs are incurred by
Landlord. With respect to water, during the term of this lease Landlord shall
provide and pay for water required by and used from the Demised Premises and
Tenant shall reimburse Landlord 80% of the cost of such water as said costs are
incurred, subject to adjustment based on usage by Landlord and Tenant.
12. Indemnity. Landlord shall not be liable for any direct, incidental or
consequential damages suffered by Tenant or its employees or agents or any other
person or entity arising out of or in connection with the use of or occupancy of
the Demised Premises and Tenant covenants and agrees that it will defend,
indemnify, protect and save harmless the Landlord from the claims, suits,
judgments, liens, damages, including costs and attorney's fees of all persons
arising from or out of the use or occupancy of
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the Demised Premises by or under Tenant or Tenant's agents, employees or
invitees.
13. Fixtures and Personal Property. Any trade fixtures, equipment and other
personal property owned by Tenant and installed or attached to the Demised
Premises by or at the expense of Tenant shall remain the property of Tenant, and
Tenant shall have the right at any time, provided it is not then in default
hereunder, to remove any and all of such fixtures, provided, however, that in
such event Tenant shall restore the Demised Premises to substantially the same
condition in which they were at the time Tenant took possession.
14. Landlord's Entry. The Landlord shall have the right to enter upon the
Demised Premises at all reasonable times during the term of this lease for the
purposes of inspection, maintenance, repair and alteration and to show the same
to prospective tenants or purchasers.
15. Assigning, Mortgaging, Subletting. Tenant agrees not to assign, sublet,
mortgage, pledge or encumber this Lease Agreement in whole or in part, or sublet
the whole or any part of the Demised Premises, without first obtaining the
written consent of Landlord. Tenant agrees that, in the event of any such
assignment, subletting or licensing made with the written consent of Landlord as
aforesaid, Tenant will nevertheless remain primarily liable for the performance
of all the terms, conditions and covenants of this Lease Agreement.
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16. Default. If the tenant shall continue in default in the payment of any
rental or other sum of money becoming due hereunder for a period of ten (10)
days after notice of such default has been given to Tenant, or if either party
hereto shall default in the performance of any other of the terms, conditions or
covenants contained in this lease to be observed or performed by it and the
party in default does not remedy such default within (30) days after written
notice thereof or, if such default cannot be remedied in such period, does not
within such thirty (30) days commence such act or acts as shall be necessary to
remedy the default and shall not complete such act or acts promptly, or if the
Tenant shall become bankrupt or insolvent, or file any debtor proceedings, or
file in any court pursuant to any statute, either of the United States or of any
State a petition in bankruptcy or insolvency or for reorganization, or file or
have filed against it a petition for the appointment of a receiver or trustee
for all or substantially all of the assets of the Tenant and such appointment
shall not be vacated or set aside within fifteen (15) days from the date of such
appointment, or if the Tenant makes an assignment for the benefit of creditors,
or petitions for or enters into an arrangement, or if the Tenant shall vacate,
fail to operate in or abandon the Demised Premises or any substantial part
thereof or suffer the lease to be taken under any writ of execution and such
writ is not vacated or set aside within fifteen (15) days, then in any such
event the party not in default shall have the right to
9
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terminate and cancel this Lease Agreement; provided, however, that Tenant shall
not have the right to terminate and cancel this Lease Agreement unless and until
it shall have given written notice, by registered or certified mail, of the
default by the Landlord to the holder of holders of any mortgage or deed of
trust covering the Demised Premises and shall have given said holder or holders
a reasonable opportunity to cure such default, including time to get possession
of the premises by an expeditious trustee's sale or foreclosure action, if this
should be necessary to effect such cure; and if the Tenant is the party in
default the Landlord, without excluding other rights or remedies that it may
have, shall have the immediate right of re-entry and may remove all persons and
property from the Demised Premises and dispose of such property as it sees fit,
all without resort to legal process and without being deemed guilty of trespass,
or becoming liable for any loss or damage which may be occasioned thereby. If
the Landlord should elect to re-enter as herein provided, or should it take
possession pursuant to legal proceedings, it may either terminate this Lease
Agreement or it may from time to time without terminating this Lease Agreement,
make such alterations and repairs as may be necessary in order to relet the
Demised Premises, and relet the Demised Premises for such term and at such
rentals and upon such other terms and conditions as the Landlord may deem
advisable. No such re-entry or taking possession of the Demised Premises by the
Landlord shall be construed as an election to terminate this lease
10
<PAGE>
unless a written notice of such intention be given by the Landlord to the Tenant
at the time of such re-entry; but, notwithstanding any such re-entry and
reletting without termination, the Landlord may at any time thereafter elect to
terminate this lease for such previous breach. In the event of any termination
by Landlord, whether before or after re-entry. Landlord may recover from Tenant
damages incurred by reason of such breach, including the cost of recovering the
Demised premises and the difference in value between the rental which would be
payable by the Tenant hereunder for the remainder of the term and the reasonable
rental value of the Demised Premises for the remainder of the term. Any event of
default under and pursuant to this lease shall constitute an event of default
under and pursuant to all other leases by and between Landlord and Tenant.
17. Remedies Cumulative-Nonwaiver. No remedy herein or otherwise conferred
upon or reserved to Landlord or Tenant shall be considered exclusive of any
other remedy, but the same shall be distinct, separate and cumulative and shall
be in addition to every other remedy given hereunder, or now or hereafter
existing at law or in equity or by statute, and every power and remedy given by
this lease to Landlord or Tenant may be exercised from time to time as often as
occasion may arise, or as may be deemed expedient. No delay or omission of
Landlord or Tenant to exercise any right or power arising from any default on
the part of the other shall
11
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impair any such right or power, or shall be construed to be a waiver of any such
default or an acquiescence thereto.
18. Eminent Domain. If any substantial part of the Demised Premises is
taken under the power of eminent domain (including any conveyance made in lieu
thereof), and such taking shall make the operation of Tenant's business on the
Demised Premises impractical, Landlord at its option and at its own expense may
repair and restore the Demised Premises to a tenantable condition, and the
rental to be paid by Tenant hereunder shall be proportionately and equitably
adjusted.
19. Option to Purchase by Tenant. Tenant shall have the option to purchase
a 50% interest in the real property of which the Demised Premises is a part,
said property consisting of a building and 10 acres of land, more or less,
during the last three months of the term of this lease, i.e. from April 1, 2000
through June 30, 2000 (the "Option Period"). The purchase price for said 50%
interest shall be $907,191.50 (the $907,191.50 having been determined in
accordance with Schedule A attached hereto and made a part hereof), plus
one-half of the cost of all capital improvements made to said real estate or
fixtures thereon by Landlord during the term of this lease. Tenant shall receive
a credit against the purchase price aforesaid for an amount equal to the total
additional rent paid to Landlord pursuant to the provisions of paragraph 4(a)
hereinabove. Tenant shall give Landlord written notice of its election to
exercise the option
12
<PAGE>
provided for hereunder during the Option Period. The closing of the sale of the
50% interest described above shall take place at the offices of Edmunds &
Williams, P.C., 800 Main Street, Lynchburg, Virginia 24504, or such other
location as the parties may agree in writing, within 60 days of receipt by
Landlord of Tenant's election to exercise the option but in no event before June
30, 2000. In the event of the exercise by Tenant of its option hereunder,
Landlord shall convey said 50% interest by general warranty deed with English
Covenants of Title. Landlord shall bear the cost of preparing the deed and shall
pay the grantor's tax on the transfer. All other costs of closing shall be borne
by Tenant.
20. Notices. All notices provided for in this Lease Agreement shall be in
writing and shall be deemed to be given when sent by prepaid registered or
certified mail to the parties as follows:
To the Landlord in care of:
John A. White
Technical Publications Service, Inc.
110 Vista Centre Drive
Forest, VA 24551
To the Tenant at:
David L. Crowder
TPS Micrographics, Inc.
110 Vista Centre Drive
Forest, VA 24551
13
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Either party may, from time to time, by notice as hereinabove provided,
designate a different address to which notices to it shall be sent.
21. Holding Over. If Tenant remains in possession of the Demised Premises
or any part thereof after the expiration of the term of this lease with
Landlord's acquiescence and without any written agreement of the parties, Tenant
shall be only a tenant at will, and there shall be no renewal of this lease or
exercise of an option by operation of law.
22. Subordination. Tenant will, upon request by Landlord, acquiesced in by
the holder of any loan secured by a deed of trust on the Demised Premises,
subject and subordinate all or any of its right under this Lease Agreement to
any and all mortgages and deeds of trust hereafter placed on the property of
which the Demised Premises are a part; provided, however, that Tenant will not
be disturbed in the use or enjoyment of the Demised Premises so long as it is
not in default hereunder. Tenant agrees that this Lease Agreement shall remain
in full force and effect notwithstanding any default or foreclosure under any
such mortgage or deed of trust and that it will attorn to the mortgagee, trustee
or beneficiary of such mortgage or deed of trust, and their successors or
assigns, and to the purchaser or assignee under any such foreclosure. Tenant
will, upon request by Landlord, execute and deliver to Landlord, or to any other
person designated by
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Landlord, any instrument or instruments required to give effect to the
provisions of this Article.
23. Transfer of Landlord's Interest. In the event of the sale, assignment
or transfer by Landlord of its interest in the Demised Premises or in this lease
(other than a collateral assignment to secure a debt of Landlord) to a successor
in interest who expressly assumes the obligations of Landlord hereunder,
Landlord shall thereupon be released or discharged from all of its covenants and
obligations hereunder, except such obligations as shall have accrued prior to
any such sale, assignment or transfer; and Tenant agrees to look solely to such
successor in interest of Landlord for performance of such obligations. Any
securities given by Tenant to Landlord to secure performance of Tenant's
obligations hereunder may be assigned and transferred by Landlord to such
successor in interest of Landlord; and, upon acknowledgment by such successor of
receipt of such security and its express assumption of the obligation to account
to Tenant for such security in accordance with the terms of this lease. Landlord
shall thereby be discharged of any further obligation relating thereto.
Landlord's assignment of the lease or of any or all of its rights herein shall
in no manner affect Tenant's obligations hereunder. Tenant shall thereafter
attorn and look to such assignee, as Landlord, provided Tenant has first
received written notice of such assignment of Landlord's interest.
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24. Warranty. Landlord warrants, subject to the rights of secured
creditors, that it has full right and authority to lease the Demised Premises
upon the terms and conditions herein set forth and that Tenant shall peacefully
and quietly hold and enjoy the Demised Premises for the full term hereof so long
as it does not default in the performance of any of its covenants hereunder.
25. Short Form Lease. Upon the commencement of the term of this lease, the
parties hereto shall at the request of either party execute a memorandum or
shore form lease agreement, in recordable form, specifying the commencement and
termination dates of the term hereof and including any such other provisions
hereof as either party may desire to incorporate therein.
26. Estoppe1 Certificate. Within ten (10) days after request therefor by
Landlord or any mortgagee or trustee under a mortgage or deed of trust covering
the Demised Premises, or if, upon any sale, assignment or other transfer of the
Demised Premises by Landlord, an estoppel certificate shall be required from
Tenant, Tenant shall deliver in recordable form a statement to any proposed
mortgagee or other transferee, or to Landlord, certifying any facts that are
then true with respect to this Lease Agreement, including without limitation (if
such be the case) that this Lease Agreement is in full force and effect, that
Tenant is in possession, that Tenant has commenced the payment of rent, and that
there are no defenses or offsets to the Lease Agreement claimed by Tenant.
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27. Nature and Extent of Agreement. This instrument contains the complete
agreement of the parties regarding the terms and conditions of the lease of the
Demised Premises, and there are no oral or written conditions, terms,
understandings or other agreements pertaining thereto which have not been
incorporated herein. This instrument creates only the relationship of landlord
and tenant between the parties hereto as to the Demised Premises; and nothing
herein shall, in any way be construed to impose upon either party hereto any
obligations or restrictions not herein expressly set forth.
28. Binding Effect. This Lease Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
under sale as of the day and year first above written.
LANDLORD:
TECHNICAL PUBLICATIONS SERVICE, INC.
By: /s/ illegible,
---------------------------
TENANT:
TPS MICROGRAPHICS, INC.
By: /s/ illegible
---------------------------
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COMMONWEALTH OF VIRGINIA )
( To-wit
CITY OF LYNCHBURG )
I, Mary W. Tinsley, a Notary Public in and for the Commonwealth of Virginia
at large, do hereby certify that John A. White of TECHNICAL PUBLICATIONS
SERVICE, INC., personally appeared before me this day and acknowledged the due
execution of the foregoing instrument.
My Commission Expires: November 30, 1997.
WITNESS my hand and seal, this 31th day of March, 1995
/s/ Mary W Tinsley
-----------------------
Notary Public
(NOTARIAL SEAL)
COMMONWEALTH OF VIRGINIA )
( To-wit:
CITY OF LYNCHBURG )
I, Mary W Tinsley, a Notary Public in and for the Commonwealth of Virginia
at large, do hereby certify that David L. Crowder of TPS MICROGRAPHICS, INC.,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
My Commission Expires: November 30, 1997.
WITNESS my hand and seal, this 31th day of March, 1995
/s/ Mary W Tinsley
-----------------------
Notary Public
(NOTARIAL SEAL)
18
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[GRAPHIC]
EXHIBIT 1
FLOOR PLAN
<PAGE>
[GRAPHIC]
EXHIBIT 2
FLOOR PLAN
<PAGE>
[ILLEGIBLE]
EXHIBIT 3
<PAGE>
[ILLEGIBLE]
EXHIBIT 4
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, June
20, 1994, is made by and between Northgate Assembly of God of North Sacramento,
dba Arena Christian Center ("Lessor") and Total Information Management
Corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 4047 North Freeway Boulevard, located in
the City of Sacramento, County of Sacramento, State of California, with zip code
95834, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): An approximately 45,000 square
foot building, APN 237-0410-016
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.6.)
1.2(b) Parking: Pro rata share of unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and N/A reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: 4 years and 4 months ("Original Term") commencing September 1,
1994 ("Commencement Date") and ending December 31, 1998 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see Paragraphs
3.2 and 3.3)
1.5 Base Rent: $2,340.00 per month ("Base Rent"), payable on the 1st day of
each month commencing January 1, 1995 (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _________, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $2,340. as Base Rent for the period
January 1, 1995
1.6(b) Lessee's Share of Common Area Operating Expenses: 13.3 percent
(---%) ("Lessee's Share") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ___.
1.7 Security Deposit: $3,000.00 ("Security Deposit"). (Also see Paragraph
5.)
1.8 Permitted Use: micro filming records, record storage, maintenance and
other related record management functions ("Permitted Use") (Also see Paragraph
6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[XX] The Vollman Company, Inc. represents Lessor exclusively ("Lessor's
Broker");
[XX] Hallmark Properties represents Lessee exclusively ("Lessee's Broker"); or
[ ] ____________________ represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $5,340)
for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addends and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 54, and Exhibits A through B, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same representations or warranties with respect
to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
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2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities described
in this Paragraph 2.6, then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas -- Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas -- Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur than Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas -- Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shipper,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas -- Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial Center
to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof;
and
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full-month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii) Trash disposal, property management and securitiy services and
the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Any increase above the Base Real Property Taxes (as defined in
Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with respect to the
Common Areas.
(viii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless
the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such over
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payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the terms hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted Use set
forth in Paragraph 1.8, or any other legal use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its consent
to any written request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in
compliance with all Applicable Requirements, use any ordinary and customary
materials reasonably required to be used by Lessee in the normal course of the
Permitted Use, so long as such use is not a Reportable Use and does not expose
the Premises or neighboring properties to any meaningful risk of contamination
or damage or expose Lessor to any liability therefor. In addition, Lessor may
(but without any obligation to do so) condition its consent to any Reportable
Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion, deems necessary
to protect itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matter pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion
of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a
contract, with copies to Lessor, in customary form and substance for and with a
contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after ten (10) days prior written notice
to Lessee (except in the case of an emergency, in which case no notice shall be
required), perform such obligations on Lessee's behalf, and put the Premises in
good order, condition and repair, in accordance with Paragraph 13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Area) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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systems and equipment, fire hydrants, parking lots, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is a Common
Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated
to paint the exterior or interior surfaces of exterior wall nor shall Lessor be
obligated to maintain, repair or replace windows, doors or patio glass of the
Premises. Lessee expressly waives the benefit of any stautue now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is used
in this Lease to refer to all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing and fencing in, on
or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery
and equipment which can be removed without doing material damage to the
Premises. The term "Alterations" shall mean any modification of the improvements
on the Premises which are provided by Lessor under the terms of this Lease other
than Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or
Utility Installations" are defined as Alterations and/or Utility Installations
made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessor may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof) without Lessor's consent but upon
notice to Lessor, so long as they are not visible from the outside of the
Premises, do not involve puncturing, relocating or removing the roof or any
existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the term of this Lease
as extended does not exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal and to
cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of the Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is defined as any
increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall include,
but not be limited to, requirements of the holder of a mortgage or deed of
trust covering the Premises, increased valuation of the Premises, and/or a
general premium rate increase. The term "Insurance Cost Increase" shall not,
however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9 such amount shall be considered the "Base Premium". If a
dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and to any Lender(s), insuring against loss or damage to the
Premises. Such insurance shall be for full replacement cost, as the same shall
exist from time to time, or the amount required by any Lender(s), but in no
event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of any building, zoning,
safety or land use laws as the result of a covered loss, but not including plate
glass insurance. Said policy or policies shall also contain an agreed valuation
provision in lieu of any co-insurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, Insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is Terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the premiums
for the property insurance of the Building and for the Common Areas or other
building in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
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(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall
not be required to insure Lessee-Owned Alterations and Utility Installations
unless the item in question has become the property of Lessor under the terms of
this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property. Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
its replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installation. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender as set forth in
the most current issue of "Best's Insurance Guide". Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim of any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises, other
than Lessee-Owned Alterations and Utility Installations and Trade Fixtures,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a) irrespective of any deductible amounts of coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 Premises Partial Damage--Insured Loss. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 Partial Damage--Uninsured Loss. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, than Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess or proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue. Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 Waiver Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or desctruction of the Premises and the
Building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as as
otherwise provoked in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "Real Property Taxes" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall be the amount
of Real Property Taxes, which are assessed against the Premises, Building or
Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirely of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportaion of
the Real Property Taxes for all of the land and improvements included within the
tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable propertion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of Paragraph
36.
(b) A change in the control, of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cummulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of full execution and
delivery of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any Guarantors) established under generally accepted accounting principles
consistantly applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.1, or non-curable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the now fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolecence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injuctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of the Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) after the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default of Breach of Lessee's obligation under this
Lease, Lessor may proceed directly against Lessee, any Guarantors or any one
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assingment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease,
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said opinion to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or breach by
Lessee to the sublessee, who shall have the right to cure the default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent, Lessee's share of Common Area Operating
Expenses, or any other monetary payment required to be made by Lessee hereunder
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or porperty, where such failure continues for a period of (3)
days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information whcih Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by Lessee
of any general arrangement or assignment for the benefit of creditors, (ii)
Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of
any guarantor, given to Lessor by Lessee or any guarantor, was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than an accordance with the terms of
such guanranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made udner this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease for which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statue shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Broach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to rent the Premises, or the appointment of
a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provisions shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provisions shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that the late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising and of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, or written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) If Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be intended third party beneficiary of the provisions of
Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commissions or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten
days after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in a form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises of the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relived of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four (4%) per annum, but not exceeding the maximum
rate allowed by law, in addition to the potential late charge provided for in
Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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<PAGE>
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
lacking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding and
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
timer of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease in the event that Lessee holds over in violation of this Paragraph 25
then the Base Rent payable from and after the time of the expiration or earlier
termination of this Lease shall be increased to two hundred percent (200%) of
the Base Rent applicable during the month immediately preceding such expiration
or earlier termination. Nothing contained herein shall be construed as a consent
by Lessor to any holding over by the Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act of omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntary or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
or reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate in the
Premises, provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lessor interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment or subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as any be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and Information required in Paragraph 16.
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37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definitions. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason Lessee's inability to exercise an Option because
of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, right of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: [illegible]
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(C) American Industrial Real Estate Association 1993
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: ________________________________________________ Executed at: __________________________________________________
on: June 22, 1994 on: June 21, 1994
By LESSOR: By LESSEE:
Northgate Assembly of God of North Sacramento, Total Information Management Corporation
dba Arena Christian Center _______________________________________________________________
By: /s/ Rev. Jesse Rorie By: /s/ James Bunker
Name Printed: Pastor Jesse Rorie Name Printed: James Bunker
Title: ______________________________________________________ Title: ________________________________________________________
Address: 4047 North Freeway Boulevard Address: 1545 Park Avenue
Sacramento, CA 95834 Emeryville, CA
Telephone: ( ) ____________________________________________ Telephone: (510) 652-4735
Facsimile: ( ) ____________________________________________ Facsimile: ( ) _____________________________________________
BROKER: The Vollman Company, Inc. BROKER: Hallmark Properties
executed at: ________________________________________________ Executed at: __________________________________________________
on: _________________________________________________________ on: ___________________________________________________________
Name Printed: Bill George Name printed: Roger Hall
Title: ______________________________________________________ Title: ________________________________________________________
Address: 1900 Point West Way, Suite 156 Address: 118 Camino Pablo
Sacramento, CA 95815 Orinda, CA
Telephone: (916) 929-2000 Telephone: (510) 254-4200
Facsimile: (916) 929-7857 Facsimile: ( ) _____________________________________________
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
345 So. Figueroa St., M-1, Los angeles, CA 90071. (213) 687-8777.
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(c) American Industrial Real Estate Association 1993 -----------
[illegible]
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<PAGE>
[LOGO] The
VOLLMAN
COMPANY
ADDENDUM TO THE LEASE
This is an addendum to the Offer to lease dated June 10, 1994, in which Total
Information Management Corporation is referred to as Lessee and Northgate
Assembly of God of North Sacramento, dba Arena Christian Center is referred to
as Lessor.
49) OPTIONS: Lessee shall have two (2) three (3) year options to extend the
lease under the same terms and conditions except that the base rent will be
increased by the CPI for the lease over the base year.
50) TENANT IMPROVEMENTS: Lessee shall be granted unrestricted access to the
space upon execution of the lease for the purpose of constructing Lessee's
improvements. Lessee will carry adequate insurance during the construction
period.
51) COMMON AREA MAINTENANCE, TAXES AND INSURANCE: Lessor and Lessee understand
that the cost of CAM, taxes and insurance are currently approximately $.035 per
square foot per month. Lessee will pay $210.00 monthly based on the 6,000 square
feet times $.035 and the Lessor will support and reconcile the account annually.
52) RENTAL CONCESSION: Lessee intends to make tenant improvements in excess of
$25,000.00 most of these improvements have a general application and will add
value to the building. In recognition of these improvements, Lessor shall grant
four (4) months free rent. Rent to commence on January 1, 1995.
53) ASSESSMENTS: Lessee shall not be responsible for any special assessments
imposed on the property.
54) FIRST RIGHT OF REFUSAL: Lessee shall have the right of first refusal on any
space may become available for lease in the Lessors building. Should Lessor
desire to sell the building, Lessee shall have a right of first refusal.
LESSOR: Northgate Assembly of God of LESSEE: Total Information Management
North Sacramento, Corporation
dba Arena Christian Center
By: /s/ Jesse Rorie By: /s/ James Bunker
-------------------------------- --------------------------------
Dated: 6-22-94 Dated: June 21, 1994
----------------------------- -----------------------------
Page 1 of 1
<PAGE>
[MAP]
[GRAPHIC OMITTED]
Assessor's Map Bk. 237, Pg. 41
County of Sacramento, Calif.
<PAGE>
[FLOOR PLAN]
[GRAPHIC OMITTED]
<PAGE>
Total Information Management Corporation
- --------------------------------------------------------------------------------
October 18, 1996
Peter B. Coss
195 San Carlos
Sausalito, CA 94965
Re. 1290 59th Street
Emeryville, CA 94608
Dear Peter:
Please be advised that we wish to exercise the renewal option contained in the
lease dated September 24, 1991, for an additional five years commencing
January 1, 1997. We understand that the next rent adjustment will be effective
January 1, 1998.
Please let me know if you have any questions regarding this notice.
Best regards,
/s/ James E. Bunker
James E. Bunker
Chairman\CEO
1545 Park Avenue 1535 Arbuckle Court 4049 No. Freeway Blvd.
Emeryville, Santa Clara, Sacramento,
California 94608 California 95054 California 95834
(510)652-4576 (408)496-6773 (800)974-4707
Fax(510)652-4735 Fax(408)496-0749 (916)646-5671
<PAGE>
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This lease, dated, for reference purposes only, September 24, 1991,
is made by and between Charles F. Coss, Viola B. Coss, Tracey C. Quine, John
Coss, Peter B. Coss, Elizabeth Coss, as Trustee for Caitlin N. Shay (herein
called "Lessor") and Total Information Management Corp., a California
Corporation (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all the conditions set forth herein, that
certain real property situated in the County of Alameda State of California
commonly known as 1290 - 59th Street, Emeryville and described as All that real
property, including that certain concrete industrial building of approximately
24,000 square feet in size, Assessors's Parcel Numbers 49-1476-005, 49-1475-006
and 49-1475-007.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. Term.
3.1 Term. The term of this Lease shall be for Five years - an option for
five additional years commencing on January 1, 1992 and ending on December 31,
1996 plus an option for January 1, 1997 - Dec. 31, 2001 unless sooner terminated
pursuant to any provision hereof.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $ see addendum #1, in advance, on the 1st day of each month of the
term hereof. Lessee shall pay Lessor upon the execution hereof $ _____________
as rent for __________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$7,832 as security for Lessee's faithful performance of Lessee's obligation
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obliged by reason of Lessee's default, or to compensate Lessor for
any loss or damages which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefore deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and Lessee's
failure to do so shall be a material breach of this Lease. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be refunded, without payment of interest or other
increment for its use to Lessee (or at Lessor's option, to the last assignee, if
any, of Lessee's interest hereunder) at the expiration of the term hereof, and
after Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for The purpose of
record storage and maintenance or any other use which is reasonably comparable
and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use
for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it
is determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of this
warranty within six months from the date that the Lease term commences, the
correction of same shall be the obligation of the Lessee at Lessee's sole
cost. The warranty contained in this paragraph 6.2(a) shall be of no force
or effect if, prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as procvided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, coventants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor
permit the use of the Premises in any manner that will lend to create any
waste or nuisance or, if there shall be more than one tenant in the
building containing the Premises, shall lend to disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operation condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at
Lessor's sole cost, rectify such violation. Lessee's failure to give such
written notice to Lessor within thirty (30) days after the Lease
commencement date shall cause the conclusive presumption that Lessor has
complied with all of Lessor's obligation hereunder. The warranty contained
in this paragraph 6.3(a) shall be of no force or effect if prior to the
date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date
or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state
laws, ordinances and regulations governing and regulating the use of the
Premises, and any covenants or restrictions of record and accepts this
Lease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Lessee acknowledges that neither Lessor or
Lessor's agent has made representation or warranty as to the present or
future suitability of the Premises for the conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessee's Obligations. Leasee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non-structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the premises
and sidewalks and parkways adjacent to the Premises.
7.2 Surrender. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Leassee shall repair any damage to the Premises occupied
Initials: _______
(C)American Industrial Real Estate Association 1980 NET _______
<PAGE>
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 Lessor's rights. If Lessee fails to perform Lessee's obligations under
this Paragraph 7 or any other paragraph of this Lease, Lessee may at its option
(but shall not be required to) enter upon the Premises after ten (10) days prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf and put
the same in good order condition and repair, and the cost thereof together with
interest thereon at the maximum rate than allowable by law shall become due and
payable as additional rental to Lessor together with Lessee's next rental
installment.
7.4 Lessor's Obligations. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty) Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof, Lessee expressly waives the benefit
of any statute now or hereinafter in effect which would otherwise afford Lessee
the right to make repairs at Lessor's expense or to terminate this Lease because
of Lessor's failure to keep the premises in good order, condition and repair.
7.5 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$2,500 in cumulative costs during the term of this Lease in any event
whether or not in excess of $2,500 in cumulative cost. Lessee shall make no
change or alteration to the exterior of the Premises nor the exterior or
the building(s) on the Premises without Lessor's prior written consent. As
used in this Paragraph 7.5 the term "Utility Installation" shall mean
carpeting, window coverings, airlines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing and fencing. Lessor may require that Lessee remove any or all of
said alterations, improvements, additions or Utility Installations at the
expiration of the term, and restore the Premises to their prior condition.
Lessor may require Lessee to provide Lessor, at Lessee's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion
of the work. Should Lessee make any alterations, improvements, additions
Utility Installations without the prior approval of Lessor, Lessor may
require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which
requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditional upon Lessee acquiring a permit to do
so from appropriate governmental agencies, the furnishing of a copy thereof
to Lessor prior to the commencement of the work and the compliance by
Lessee of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use
in the premises, which claims are or may be secured by any mechanics or
materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in the Premises, and Lessor shall have the right
to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien
claims or demand, then Lessee shall, at its sole expense defend itself and
Lessor against the same and shall pay and satisfy any such adverse
judgement that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises, upon the condition that if Lessor shall
require Lessee shall furnish to Lessor surety bond satisfactory to Lessor
in an amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises free from
the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if
Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
7.5(d), Lessee's machinery and equipment, other than that which is affixed
to the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2.
8. Insurance Indemnity.
8.1 Insuring Party. As used in this Paragraph 8, the term "insuring party"
shall mean the party who has the obligation to obtain the Property Insurance
required hereunder. The insuring party shall be designated in Paragraph 46
hereof. In the event Lessor is the insuring party, Lessor shall also maintain
the liability insurance described in paragraph 8.2 hereof. In addition to, and
not in lieu of, the insurance required to be maintained by Lessee under said
paragraph 8.2, but Lessor shall not be required to name Lessee as an additional
insured on such policy. Whether the insuring party is the Lessor or the Lessee,
Lessee shall as additional rent for the Premises, pay the cost of all insurance
required hereunder, except for the portion of the cost attributable to Lessor's
liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor
is the insuring party Lessor shall, within ten (10) days following demand by
Lessor, reimburse Lessor for the cost of the insurance so obtained.
8.2 Liability Insurance. Lessee shall, at Lessee's expense obtain and keep
in force during the term of this Lease a policy of Combined Single Limit, Bodily
Injury and Property Damage insurance insuring Lessor and Lessee against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be combined
single limit policy in amount not less than $1,000,000 per occurrence. The
policy shall insure performance by Lessee of the Indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 Property Insurance.
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or polcies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, which replacement value is now $750,000,
but in no event less than the total amount required by lenders having liens
on the Premises, against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, flood (in the event
same is required by lender having a lien on the Premises), and special
extended perils ("all risks" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to
Lessor or to the holders of mortgages or deeds of trust on the Premises.
The insuring party shall, in addition, obtain and keep in force during the
term of this Lease a policy of rental value insurance covering a period of
one year, with loss payable to Lessor, which insurance shall also cover all
real estate taxes and insurance costs for said period. A stipulated value
or agreed amount endorsement deleting the coinsurance provision of the
policy shall be procured with said insurance as well as an automatic
increase in insurance endorsement causing the increase in annual property
insurance coverage by 2% per quarter. If the insuring party shall fail to
procure and maintain said insurance the other party may, but shall not be
required to, procure and maintain the same but at the expense of Lessee. If
such insurance coverage has a deductible clause, the deductible amount
shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount.
(b) If the premises are part of a larger building or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increases is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7 hereof.
But if Lessee is the insuring party, the Lessee shall insure its fixtures
equipment and tenant improvements.
8.4 Insuring Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of a least B plus or such other rating
as may be required by a lender having a lien on the Premises, as set forth in
the most current issue of "Best's Insurance Guide". The insuring party shall
deliver to the other party copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with loss payable
clauses as required by this paragraph 8. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty (30)
days prior written notice to Lessor. If Lessee is the insuring party Lessee
shall, at least thirty (30) days prior the expiration of such policies, furnish
Lessor with renewals or "binders" thereof, or Lessor may order such insurance
and charge the cost thereof to Lessee, which amount shall be payable by Lessee
upon demand. Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in Paragraph 8.3. If Lessee does
or permits to be done anything which shall increase the cost of insurance
policies referred in Paragraph 8.3, then Lessee shall forthwith upon Lessor's
demand reimburse Lessor for any additional premiums attributable to an act or
omission or operation of Lessee causing such increase in the cost of insurance.
If Lessor is the insuring party, and the insurance policies maintained hereunder
cover other improvements in addition to the Premises, Lessor shall deliver to
Lessee a written statement setting forth the amount of any such insurance cost
increase and showing in reasonable detail the manner in which it has been
computed.
8.5 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises whether due
to the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.6 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligations on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee or any of Lessee's agents contractors or employees and
from and against all costs, attorney's fees, expenses and liabilities incurred
in the defence of any such claim or any action or proceeding brought thereon and
in case any action or proceeding be brought against Lessor by reason of any such
claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense
by counsel satisfactory to Lessor. Lessee as a material part of the
consideration to Lessor, hereby assumes all risk of damage to properly or injury
to persons, in, upon or about the Premises arising from any cause and Lessee
hereby waives all claims in respect thereof against Lessor.
8.7 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are
part or from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Lessee,
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant, if any, of the building in which the Premises are located.
NET - 2 - Initials: [illegible]
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9. Damage or Destruction
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less then 50% of
the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is less than
50% of the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% of
more of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of
which the Premises are a part to the extent that the cost of repair is 50%
or more of the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described
paragraph 8.
9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraph
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classficiation of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as
soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cencel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expenses, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possoible. If Lessee does not give such notice within such
10-days period this Lease shall be cancelled and terminated as of the date of
the occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, Lessor may at Lessor's
option cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if
it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premises Partial
Damage during the last six months of the term of this Lease. If the Lessee
duly exercises such option during said 20 day period, Lessor shall, at
Lessor's expense, repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said 20 day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said 20 day
period by giving written notice to Lessee of Lessor's election to do so
within 10 days after the expiration of said 20 day period, notwithstanding
any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair
or restoration within 90 days after such obligation shall accure, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor
written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor, Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
therefore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relates to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessee shall pay the real property tax, as defined
in paragraph 51, applicable to the Premises during the term of this Lease. All
such payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid. If any such taxes paid by Lessee shall cover any
period of time prior to or after the expiration of the term hereof. Lessee's
share of such taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect, and
Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to
pay any such taxes, Lessor shall have the right to pay the same. In which case,
Lessee shall repay such amount to Lessor with Lessee's next rent installment
together with interest at the maximum rate then allowable by law.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment
and all other personal property to be assessed and billed separately from
the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, shall pay a reasonable proportion to be determined by Lessor of all
charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lease Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment for subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee in performance of any of the terms hereof,
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees
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of Lessee, without notifying Lessee, or any successor of Leassee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposed to do
then Lessee shall pay Lessor's resonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 The occurrance of any one or more of the following events shall
constitute a material default and breach of the Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due where such
failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with
a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure
to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors (ii) Lessee becomes a "debtor" as defined in
11 U.S.C. ss.101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of
Leassee's interest in this Lease, where possession is not restored to
Lessee within 30 days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in the Lease, where such seizure is not discharged
within 30 days. Provided, however, in the event that any provision of this
paragraph 13.1(d) is contrary to any applicable law, such provision shall
be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach.
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the
cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorney's fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that
Lessee proves could be reasonably avoided; that portion of the leasing
commission paid by Lessor pursuant to Paragraph 15 applicable to the
unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises in such event Lessor shall be entitled to enforce all or Lessor's
rights and remedies under this Lease, including the right to recover the
rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date
due at the maximum rate than allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required to Lessor within a reasonable time but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed or trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commence performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due
the, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's delay with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property taxes and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due. Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
Any moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default, the
obligation of Lessee to perform under this Lease then any balance remaining from
funds paid to Lessor under the provisions of this paragraph may, at the option
of Lessor, be applied to the payment of any monetary default of Lessee in lieu
of being applied to the payment of real property taxes and insurance premiums.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of exercise of said power (all
of which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date of condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the building on
the Premises, or more than 25% of the land area of the Premises which is not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised writing only within ten (10) days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date of the condemning authority
taxes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
part of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
are of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or part of the Premises under the power of
eminent doman or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or the taking of the fee,
or as severance damages; provided however, that Lessee shall be entitled to any
award for loss of or damage to Lessee's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by Lessor
in connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent the Lessee has been reimbursed
therefor by the condemning authority, Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Hallmark Properties, Inc., 118 Camino Pablo, Orinda, CA 94563 (Warwick Group)
Licensed real estate broker(s), a fee as set forth in separate agreement between
Lessor and said broker(s), or in the event there is no separate agreement
between Lessor and said brokers(s), the sum of $14,097.60 for brokerage services
rendered said broker(s) to Lessor in this transaction.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days prior written
notice from Lessor execute, acknowledge and deliver to Lessor a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modifications and certifying
that this Lease as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumberancer of the Premises.
(b) At Lessor's option. Lessee's failure to deliver such statement within
such time shall be material breach of this lease or shall
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conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this lease provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified mail and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may be notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provisions
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short-form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all options and rights
of first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provision hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right without prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to any act of the other party such consent shall not
unreasonably withheld.
37. Guarantor. In the event there is a guarantor of this Lease, said guarantor
shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
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39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to a Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the default alleged in said notice of
default is cured, or (ii) during the period of time commencing on the day after
a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) continuing until the obligation is paid,
or (iii) at any time after an event of default described in paragraphs 13.1(a),
13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such
default to Lessee), or (iv) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(b), where a late charge has
become payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, nothwithstanding Lessee's due and timely
exercise of the Option. If, after such exercise and during the term of this
Lessee, (i) Lessee fails to pay to Lessee a monetary obligation of Lessee for a
period of 30 days after such obligation becomes due (without any necessity of
Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invites from acts of third parties.
42. Easements. Lessor reserves to itself the right, form time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, as long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Insuring Party. The Insuring party under this lease shall be the N/A
47. Addendum. Attached hereto is an addendum or addenda containing paragraphs 48
through 56 which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT
OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at SAN FRANCISO CA /s/ [illegible]
on OCT 29, 1991 -----------------------------------
By /s/ Viola B. Coss
-----------------------------------
Address [illegible] By /s/ [illegible]
SAN FRANCISCO CA 94127 -----------------------------------
"LESSOR" (Corporate seal)
Executed at Emeryville, CA [illegible]
on October 23, 1991
Address 1545 Park Ave By /s/ [illegible]
Emeryville, CA -----------------------------------
By ______________________________________
"LESSEE" (Corporate seal)
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St,. Suite 275, Los Angeles, CA 90071 (213) 687-8777
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE DATED
SEPTEMBER 24, 1991
48. Reference Paragraph 3.1 TERM: So long as Lessee is not in default under
the terms of this lease as of the date of the exercise and as of the date of the
commencement of the option term and provides timely notice as stated below and
there exists no fact or circumstance which would constitute a default as of
either of said rate, provided however that Lessee has been duly notified by
Lessor of such default in all cases, Lessor hereby grants to Lessee an option to
renew this lease for one (1) additional five (5) year period, on the same terms,
conditions, covenants, agreements or amendments, if any, then in force pursuant
to the lease. Lessee shall exercise the option period, by providing written
notice, by certified mail, return receipt requested, no later than one hundred
eighty (180) days prior to the end of the existing term. In the event no notice
is received by Lessor then this lease shall terminate at the expiration of its
term.
49. Reference Paragraph 4 RENT: The rent for the period from January 1,
1992 through December 31, 1994 shall be $7,832 per month payable in advance on
the first day of each month. On January 1, 1995 (and on each third annual
anniversary thereafter throughout the term of this Lease and any extension
hereof), the rent called for above shall be adjusted upward, but never downward,
in proportion to increases in the Consumer Price Index for the San Francisco-
Oakland Bay Area (1982-1984=100) All Items, All Urban Consumers for the
preceding October over the same index for the month of October three years
earlier.
50. Lessor shall contribute up to 63,000 towards painting the building
provided that Lessor contributes an equal amount and the improvements are
performed prior to July 1, 1992.
51. TAXES AND ASSESSMENTS:
(a) Net Lease: During the term or terms of this lease, lessee shall pay all
real property taxes that may be imposed with respect to the Leased Premises
including any improvements now or hereafter placed thereon and shall pay all
other taxes imposed with respect to the Leased Premises, including but not
limited to all personal property taxes; all sales, leasehold, transaction,
privilege or other excise taxes; taxes measured by or relates to the rental
payments hereunder; license fees; assessments; and any
<PAGE>
and all other charges, imposts or levies of any nature, whether general or
special, which may at any time during the term or terms of this lease be in any
way imposed or become a lien or charge upon the Leased Premises, or for which
Lessor may in any way become liable by reason of this Lease.
(b) Contest: Lessee shall have the right, by giving to Lessor written
notice of its intention to do so, to resort to any available legal or
administrative proceeding to contest or obtain the review of any tax, charge or
assessment at any time before such tax, charge or assessment becomes delinquent.
At Lessee's request, Lessor shall join in any such proceeding. The expense of
any proceeding, including attorneys' costs (and all of Lessor's costs,
including attorneys' fees incurred at Lessee's request, if Lessor joins in such
proceeding at Lessee's request), shall be paid by Lessee irrespective of whether
Lessor joins therein. If Lessor joins in such proceeding other than at Lessee's
request, Lessor shall pay his own costs and attorneys' fees.
(c) Increase After change of Ownership: If Lessor sells or transfers the
premises at anytime during the term of this lease or any extension thereof, in
any transaction which constitutes a change of ownership, any taxes payable by
Lessee as required by paragraph 10.1 shall not be increased because of increased
assessments except to a limit of 2% per year. This Paragraph shall be deleted at
the beginning of the second year of the option.
52. Lessee shall not be responsible for any premiums for earthquake
insurance. If the lessee exercises his option to extend this lease the insurance
coverage specified under 8.3 of this lease shall be increased to $1,500,000.
53. Lessor acknowledges that lessee has or shall be installing extensive
equipment and shelving to be used in the conduct of lessee's business. Said
equipment and shelving shall remain property of lessee and may be removes by
lessee at the termination of this lease provided any damage to the premises is
repaired.
54. The responsibility for the clean up or mitigation of any toxic
materials or waste that existed on the property prior to the occupancy of the
lessee shall rest with the lessor to the extent that Lessee can establish that
the condition pre-existed its occupancy date of May 15, 1986. Lessee hereby
agrees to indemnify and hold Lessor harmless against any liability or
- 2 -
<PAGE>
claims for the cleanup of hazardous materials or toxics resulting from the
actions of Lessee or Lessee's agents or employees upon the property. Lessor
agrees to reimburse lessee for costs of determining cause of contaminate if it
is determined that it was a pre-existing condition.
55. Right of first refusal: In the event lessor elects to sell the premises
excluding sales to family members, at any time during the terms of this lease,
lessor shall notify lessee of such intention (this limitation shall not apply to
unsolicited offers). Thereafter, any bona fide offer received from a third party
shall be delivered to lessee. Lessee shall have five days thereafter in which to
personally deliver to lessor an election to offer to purchase the premises on
the same identical terms and conditions as contained in said offer. If lessee
delivers such election, the third party offer shall be deemed made by lessee,
and lessor shall thereafter have five days in which to accept lessor's offer. If
lessee does not deliver such election within 5 days, and lessor accepts said
offer from the third party, this right of first refusal shall terminate as to
any further sales of the lessor's interest. If lessee delivers such election and
lessor does not accept the offer deemed made by lessee, lessor shall not accept
the offer of the third party, and the right of first refusal shall continue in
effect as to further offers.
- 3 -
<PAGE>
CSXT Form 3014-Sheet 1
Rev. June 1990
RE-
GLM/blj
LAND LEASE
THIS LEASE, Made as of first day of January, 1993, between CSX
TRANSPORTATION, INC., a Virginia corporation, whose mailing address is 500 Water
Street, Jacksonville, Florida 32202, hereinafter referred to as Lessor, and
AMERICAN MICRO-MED CORPORATION, whose address is 1040 Wabash Avenue, Chesterton,
Indiana 46304, hereinafter (whether one or more) referred to as Lessee:
WITNESSETH: That, for and in consideration of the rents hereinafter agreed
to be paid by Lessee, and of the covenants and agreements herein to be kept and
performed by Lessee, Lessor hereby demises and leases unto Lessee solely for the
purpose herein expressed, certain vacant and/or unimproved land, owned by
Lessor, referred to hereinafter as "the Premises", located at Chesterton, Porter
County, Indiana, as shown on Lessor's Drawing numbered A-930911 (dated 9/11/93),
attached hereto and hereby made a part hereof, and described as follows:
Being a rectangular shaped parcel of land situated east of Waverly Road,
south of Lessor's railroad tracks. Said parcel has approximate dimensions
of 25 feet by 110 feet, containing approximately 2,750 square feet of land
as highlighted in yellow on attached Drawing.
1. USE:
1.1 Lessee shall use and occupy the Premises solely for the purpose of
employee parking and for no other purpose(s).
1.2 The Premises shall not be used for a scrap or junk yard, the burning of
refuse, deposit of debris, garbage, sewage, or waste of any kind, or for any
other unsanitary or unhealthful purposes of any kind or nature, or any other use
contrary to any laws or regulations.
1.3 No portion of the Premises may be used for the transportation,
treatment, storage or disposal of hazardous materials, hazardous substances or
hazardous waste, as classified under RCRA (Title 42 U.S. Code, Sections 6901, et
al.), CERCLA (Title 42 U.S. Code, Sections 9601-9657, et al.) or SARA (Title 42
U.S. Code, Sections 9601(35), et al.), or for any other use or purpose requiring
a federal or state environmental permit.
2. RENTS:
2.1 Lessee shall yield and pay to Lessor:
[ ] (A) as Base Rental the sum of THREE HUNDRED SIXTY FIVE U.S.
Dollars ($365.00) per year, payable in advance annually from the effective
date hereof, plus any applicable sales or rental tax thereon. Said Base
Rental shall be payable via Corporate Trade Payment, whereby Lessor
initiates, and Lessee accepts, an electronic debit, directly to Lessee's
bank account, as specified in the attached Exhibit "B" (Electronic Funds
Transfer Authorization Agreement); or
[X] (B) as Base Rental the sum of THREE HUNDRED SIXTY FIVE U.S.
<PAGE>
CSXT Form 3014-Sheet 2
Rev. June 1990
Dollars ($365.00) per year , payable in advance annually from the effective
date hereof, plus any applicable sales or rental tax thereon.
2.2 The payment by Lessee of any sum(s) in advance shall not create an
irrevocable Lease for the period for which the same is/are paid. Lessor reserves
the right to periodically adjust the base rent herein any time after the
expiration of twelve (12) months, by giving notice of such adjustment to Lessee
at least sixty (60) days prior to the effective date of such adjustment.
Occupation of the Premises by Lessee after such effective date shall be at such
adjusted base rent. Base rent may be similarly adjusted annually or periodically
thereafter.
2.3 Failure of Lessee to receive any bill for periodic rent, or receipt of
a bill in an incorrect or unadjusted rent, shall neither override the Lease
terms nor excuse or release Lessee from liability or responsibility for the
correct contract rent. Limitation on collection for any erroneous billings or
payments shall be three (3) years from the termination of this Lease.
2.4 In the event any street, sidewalk paving, or other municipal or public
improvements are made on or adjacent to the Premises during this Lease ("special
benefits"), Lessee shall pay further additional rent equivalent to twelve and
one-half percent (12.5%) per annum of the cost of such special benefits.
2.5 In the event this Lease is terminated by notice of either party (other
than for breach or cause), Lessor shall refund to Lessee the proration of any
prepaid base rental plus any taxes paid in advance; PROVIDED, however, such
refund shall not be made when the cumulative total involved is less than One
Hundred Dollars ($100.00).
3. TAXES ON LESSEE'S PROPERTY:
3.1 Lessee shall pay the full amount of any and all taxes - State, County,
Municipal and Special - levied or assessed on account of any improvements or
personal property placed on the Premises by Lessee or predecessor Lessees, and
any penalties in connection therewith due to acts or omissions of Lessee. All
necessary payment, listing and other duties in connection with the taxation of
said improvements and personal property shall be performed by Lessee.
3.2 If taxes on said personal property or improvements are levied against
and paid by Lessor, Lessee shall reimburse Lessor for the full amount thereof as
additional rental within thirty (30) days after presentation of bill(s) from
Lessor therefor.
4. TERM:
4.1 This Lease shall become effective the date first written above, and
shall continue in effect unless and until terminated by thirty (30) days'
written notice by registered or certified mail from either party hereto to the
other.
4.2 Either party may terminate this Lease by giving such notice, without
cause and regardless of performance or nonperformance of any covenants or
agreements contained herein and regardless of rental having been paid in advance
for any period, and without any loss or damage to either party as a result of
such termination or cancellation.
<PAGE>
CSXT Form 3014-Sheet 3
Rev. June 1990
5. APPROVAL OF PLANS; MAINTENANCE, REPAIRS:
5.1 Lessee shall not make, or permit to be made, any building, structure,
improvements or alterations on or to the Premises without the prior written
approval ant consent of Lessor. Lessee shall provide Lessor with detailed plans
and specifications for any such structure(s), etc., for such approval and
consent.
5.2 Lessee shall not create or permit any nuisance in, on or about the
Premises. Lessee shall maintain the Premises in a neat and clean condition
(including proper mowing when applicable). Buildings and other structures of
Lessee erected on the Premises shall also be maintained by Lessee to the
satisfaction of Lessor.
5.3 All work by Lessee or Lessee's contractor(s) pursuant to this Lease
shall be performed in good and workmanlike manner and in compliance with all
applicable code provisions.
5.4 All consents or approvals of Lessor to construction, alteration or
clearance plans, or standards of satisfaction of Lessor, required hereunder,
shall be secured from Lessor's Chief Engineer-Design & Construction at the
address above, or said Chief Engineer's designated representative, unless
otherwise provided herein or by separate notice.
5.5 All other notices or written proofs, advice, etc. required hereunder to
be given to Lessor shall be addressed to Lessor at the address above, c/o
Administrative Services Department (Contract Administration), unless otherwise
provided herein or by separate notice.
5.6 Neither the approval by Lessor of any improvements or installations
made by Lessee or Lessee's contractors, nor the failure of Lessor to object to
any work done, any material used, or the method of construction or installation,
shall be construed as an admission of responsibility by Lessor or as a waiver of
any of Lessee's obligations under this Lease.
6. TRACK CLEARANCE:
6.1 Lessee shall not erect or place or allow to be erected or placed any
buildings, structures, fixtures or obstructions of any kind (including parked
vehicles), either temporary or permanent, on or over the Premises, within
eighteen feet (18') horizontally of the centerline of nearest track over which
Lessor operates, or less than twenty-two feet (22') above the top of rail of any
track for the full width of said horizontal clearance, unless a lesser clearance
is provided for on said attached plan or the written consent of Lessor shall
hereafter be obtained. Nothing herein shall be construed to permit any clearance
less than the minimum required by any applicable law or regulation.
6.2 All structures erected over any of such tracks shall be built and
maintained in a manner satisfactory to Lessor. All wires suspended over any
tracks shall be placed and maintained only at the elevations and in accordance
with the standards prescribed by the National Electric Safety Code (NESC).
6.3 Lessee shall not temporarily block any sight view area of any rail/road
crossing on the Premises, by parking or allowing parking of motor
<PAGE>
CSXT Form 3014-Sheet 4
Rev June 1990
vehicles or any other means, or erect any permanent structure(s) thereon nor
allow any landscaping/vegetation to block said sight view.
7. PERMITS, ORDINANCES, REGULATIONS, ETC.:
7.1 Lessee, at Lessee's sole cost and expense, shall secure all necessary
permits (including but not limited to zoning, building, construction, health,
safety or environmental matters), letters or certificates of approval. Lessee
expressly agrees and warrants that it shall conform and limit its activities to
the terms of such permit(s), approval(s) and authorization(s), and shall comply
with all applicable ordinances, rules, regulations, requirements and laws of any
governmental authority (State, Federal or Local) having jurisdiction over the
Premises or Lessee's use thereof.
7.2 Lessee assumes all liability for failure to so comply or to secure
necessary permits and shall further defend, indemnify and hold Lessor harmless
from any violation, any penalty, levy, fine, assessment or charge, however
denominated, and all costs of defense of or of compliance with any citation,
summons, order or violation notice(s) including any such citation, order, etc.
issued after termination of this Lease for any act, omission or event occurring
during the Lease term.
7.3 Lessee shall provide Lessor with copies of any permits or
authorizations Lessee obtains in compliance with any laws, ordinances, codes or
regulations applicable to the prevention or control of discharge of pollutants
or contaminants into environment (land, water or air) in connection with
Lessee's use of the Premises. Lessee shall also promptly provide Lessor with a
copy of any notice(s) served upon Lessee from/by any governmental authority
claiming violations of any such law, ordinance, code or regulation, or requiring
or calling attention to the need for any work, construction, alteration or
installation on or in connection with the Premises in order to comply with any
such law, ordinance, code or regulation.
8. DRAINAGE:
8.1 Lessee shall construct and maintain, in accordance with all applicable
statutes, ordinances, building codes, subdivision covenants and restrictions, an
adequate drainage system on the Premises or other lands of Lessee, diverting all
roof, stream, or other surface drainage water from the Premises to the nearest
public (or non-Lessor owned) drainage or storm sewer system, in order to prevent
the discharging of such waters upon adjacent lands, right-of-way and facilities
of Lessor.
8.2 If the Premises or any portion thereof is part of Lessor's railroad
corridor or right-of-way, Lessee, during the continuance of this Lease, shall
maintain any segment of Lessor's railroad drainage ditch located within the
limits of Premises. Alternatively, Lessee shall install and maintain the
drainage structures shown on attached print to encase said drainage facility.
All such installation and maintenance shall be at Lessee's sole cost and expense
and in a manner satisfactory to Lessor's Chief Engineer-Design & Construction.
Lessee may fill in and utilize the land over said installed drainage structures.
Upon termination of this Lease, if required by Lessor, Lessee shall remove said
drainage structures and restore original open ditch in a manner satisfactory to
said Chief Engineer.
<PAGE>
CSXT Form 3014-Sheet 5
Rev. June 1990
9. SERVICES, UTILITIES:
9.1 Lessor will be under no obligation to furnish the Premises with water,
gas, sewage, electricity, heat, or other utility services and supplies that may
be necessary or desirable in connection with Lessee's use and occupancy of the
Premises. Lessee shall contract directly with any utility company for such
services and supplies, and Lessee shall pay for the same directly, and shall
defend, indemnify and hold Lessor harmless from such costs or expenses, and
shall reimburse Lessor as additional rent any costs of or charges for such
utilities paid by Lessor.
9.2 Except as provided in Article 11, Lessee shall not use, for utility
lines or otherwise, any property of Lessor other than the Premises without first
obtaining Lessor's prior written consent and complying with all requirements of
Lessor applicable thereto.
10. PIPE AND WIRE LINES:
10.1 Lessor reserves the right at all times to maintain existing and/or to
construct new, and to permit others to maintain and/or construct, overhead
and/or underground pipe and/or wirelines upon or across the Premises, and to
use, repair, renew and remove the same.
10.2 However, Lessee shall be responsible for verification of location of
all utilities and for coordination of any construction or excavation by Lessee
with the owner of such pipe or wireline(s).
10.3 Any pipeline and/or wirelines of Lessee crossing under/over tracks or
right-of-way of Lessor must be covered separately by Lessor's standard wireline
and/or pipeline agreement(s).
11. ADJACENT AREA USAGE:
11.1 Lessee shall have the right to use, in common with Lessor and others
authorized by Lessor, existing driveway(s) or walkway(s) or other property
designated by Lessor as means of ingress to and egress from the Premises. Lessor
shall have the right at any time to restrict the use of the adjoining premises
by Lessee to that of ingress and egress, and Lessee shall immediately cease any
other use of Lessor's adjoining premises inconsistent with ingress and egress.
11.2 Any road crossing of Lessor's track(s) or right-of-way necessary or
desired for access to/from the Premises must be covered by separate Private Road
Crossing Agreement.
11.3 Lessor may also designate in writing other areas for temporary use by
Lessee for access, parking, storage, loading or unloading of materials and
supplies.
12. CLAIM OF TITLE:
12.1 Lessee shall not at any time own or claim any right, title or interest
in or to the Premises, nor shall the exercise of this Lease for any length of
time give rise to any right, title or interest in or to the Premises, other than
the leasehold herein created.
<PAGE>
CSXT Form 3014-Sheet 6
Rev June 1990
13. LIENS:
13.1 Lessee is specifically denied the right, authority or power to create
a lien upon the Premises or any title, interest or portion thereof under any
state Mechanic's Lien Law or otherwise, and shall so specify in all contracts
let by Lessee for any construction, erection, installation, alteration,
maintenance or repair of any building or other improvement on the Premises.
13.2 Lessee shall pay all debts incurred to, and shall satisfy all liens of
contractors, subcontractors, mechanics, laborers and material suppliers arising
from any construction, alteration, maintenance and/or repair on and to the
Premises and any improvements thereon, whether by or at the direction of Lessee,
and shall indemnify, defend and hold Lessor harmless against all legal costs and
charges, including reasonable counsel fees, in any suit involving any lien, the
enforcement or removal thereof, or encumbrance caused by the same, with respect
to the Premises or any part thereof.
14. TERMINATION, REMOVAL, COSTS:
14.1 Upon termination of this Lease, by expiration of term or any reason,
Lessee shall vacate said Premises and remove therefrom all buildings,
structures, other improvements and contents thereof, placed thereon by Lessee or
which were located thereon as of the first day of this Lease (other than
buildings, structures, tracks, other track materials, rail facilities and/or
improvements designated by Lessor as owned by Lessor), all at Lessee's sole
risk, cost and expense. Lessee shall clear all debris resulting from such
removal and shall clear and restore said Premises to a condition satisfactory to
Chief Engineer - Design & Construction of Lessor. Such removal shall include the
removal of all structures and facilities (whether on the surface or underground)
to ground level, and the filling of all excavations and holes, which shall be
tamped, compacted and graded uniformly.
14.2 Such vacation and removal shall be completed by Lessee within the time
specified in any notice of termination or at the latest within fifteen (15) days
after the termination or expiration of said Lease.
14.3 Upon failure of Lessee to effect such removal, all buildings,
structures or improvements and contents thereof may, at the option of Lessor, be
considered and treated as having been abandoned by Lessee, and upon the written
exercise of such option by Lessor, the ownership of same shall be considered
surrendered to Lessor.
14.4 Upon failure of Lessee to completely remove all such buildings,
structures, other improvements or contents thereof, ownership of which, under
the above option, did not pass to Lessor, and upon Lessee's failure to restore
said Premises to a condition satisfactory to said Chief Engineer, as provided
herein, Lessor may remove all buildings, structures or improvements, and
contents and debris, and restore said Premises to the condition aforesaid, at
the sole risk, cost and expense of Lessee, which cost and expense Lessee hereby
agrees to pay to Lessor on demand.
14.5 At the sole option of Lessor, at or after termination, Lessor may
obtain, at Lessee's cost, the services of an independent, qualified consultant
and state-approved laboratory to sample and test any visibly-contaminated area
<PAGE>
CSXT Form 3014-Sheet 7
Rev. June 1990
of the Premises to insure that the Premises are returned to Lessor reasonably
free from pollution-induced conditions. However, failure by Lessor to sample
and/or test shall not be construed as a waiver of any claim established by law,
or of any other provision or condition of this Lease.
15. RISK, LIABILITY, INDEMNITY:
15.1 Lessee hereby assumes, and releases and waives any right to ask for or
demand damages for or on account of, ant agrees to protect, save harmless,
defend and indemnify Lessor from and against all claims and liability for:
(A) All loss and damage to any property whatsoever, including property
of Lessee, property of Lessor and of all other persons whomsoever, placed
or stored upon the Premises and upon any temporary usage area provided
under Article 11, and the loss of or interference with any use or service
thereof;
(B) All loss and damage on account of injury to or death of any person
whomsoever, including but not limited to employees and patrons of the
parties hereto and all other persons whomsoever on the Premises and upon
said temporary usage area(s);
(C) All consequential loss or damage occurring off the Premises but
arising from acts or events on the Premises; and
(D) All costs and expense thereof (including reasonable attorneys'
fees and court costs);
caused by, arising out of or resulting in any manner from the condition,
existence, use or occupancy of the Premises and any adjoining lands used by
Lessee, regardless of cause and whether caused by, arising out of or
resulting from any fault, failure or negligence of Lessor or otherwise.
15.2 Notwithstanding any other provision herein, Lessee agrees to defend,
indemnify and hold Lessor harmless from all claims, costs and expenses
(including reasonable attorneys' fees) as a consequence of any incident
resulting in the pollution of air, water, land and/or ground water arising from
or in connection with this Lease or Lessee's use of the Premises or property
adjacent to the Premises, including any claim or liability arising under federal
or state law dealing with the pollution of air, water, land and/or ground water
or the remedy thereof or from Lessee's failure to secure and comply with permits
required under Article 7 hereof.
16. LESSOR:
16.1 The term "Lessor" shall include any other company or companies whose
property at the aforesaid location may be leased or operated by Lessor.
16.2 All obligations of Lessee under this Lease to release, defend,
indemnify and hold Lessor harmless shall also extend to officers, agents and
employees of Lessor, and to companies and other legal entities that control, are
controlled by, are subsidiaries of, or are affiliated with, Lessor, and the
respective officers, agents and employees of such companies or entities.
<PAGE>
CSXT Form 3014-Sheet 8
Rev June 1990
17. INSURANCE; LIABILITY, CONTRACT, ETC.:
17.1 Prior to commencement of occupation or use of the Premises for the
permitted use, Lessee shall procure, and shall also maintain during continuance
of this Lease, at its sole cost and expense, a policy of Public Liability
Insurance or Commercial Liability Insurance, naming Lessee as insured and Lessor
as additional insured, covering liability under this Lease. Coverage of not less
than THREE MILLION U.S. DOLLARS ($3,000,000.00) Combined Single Limit per
occurrence for bodily injury and property damage is recommended as a prudent
minimum to protect Lessee's assumed obligations hereunder. If said policy does
not automatically cover Lessee's contractual liability under this Lease, a
specific endorsement adding such coverage shall be purchased by Lessee. If said
policy is written on a "claims made" basis instead of an "occurrence" basis,
Lessee shall arrange for adequate time for reporting losses. Failure to do so
shall be at Lessee's sole risk.
17.2 If Lessee contracts for new construction or structural alterations to
the Premises, Lessee shall provide or shall cause its contractor to provide,
prior to commencement of any construction activity, and maintain during the
period of construction and all related activities, at no cost to Lessor, a
policy of Owner's Protective Liability Insurance designating Lessor as insured,
with a limit of not less than TWO MILLION U.S. DOLLARS ($2,000,000.00) Combined
Single Limit per occurrence for all bodily injury and property damage liability.
If the construction or alterations involve an exposure to train operations on
tracks of Lessor, the insurance shall be written on the ISO/RIMA Form (ISO Form
CG-00-35, or current) of Railroad Protective Insurance, with Pollution Exclusion
Amendment (ISO Endorsement No. CG-28-31), having a limit of not less than TWO
MILLION U.S. DOLLARS ($2,000,000.00) Combined Single Limit per occurrence for
bodily injury and property damage and at least a SIX MILLION U.S. DOLLARS
($6,000,000.00) aggregate limit during each annual policy period. The original
protective liability policy shall be submitted to and approved by Lessor's
Director-Casualty Insurance, at the address above, prior to commencement of the
construction or alterations.
17.3 Lessor may at any time request evidence of insurance purchased by
Lessee to meet requirements of this Article, and may demand that Lessee purchase
insurance deemed adequate by Lessor, but not to exceed the limits of this
Article. Failure of Lessee to comply within thirty (30) days of Lessor's demand
shall be a default subject to termination provisions of Article 14. Furnishing
of insurance by Lessee shall not limit Lessee's liability under this Lease but
shall be additional security therefor.
18. BREACH WAIVER:
18.1 No waiver by Lessor of any breach of any covenant, condition or
agreement herein contained shall operate as a permanent waiver of such covenant,
condition or agreement itself, or of any subsequent breach thereof. No
endorsement or statement on any check or letter accompanying a check for payment
of rent shall be deemed an accord and satisfaction, and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the balance of
such rent or to pursue any other remedy provided in this Lease. No payment by
Lessee or receipt by Lessor of a lesser amount than the installments of rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent.
<PAGE>
CSXT Form 3014-Sheet 9
Rev. June 1990
18.2 If Lessor shall institute collection or litigation proceedings, and a
compromise or settlement thereof shall be made, the same shall not constitute a
permanent or general waiver of any covenant herein contained nor of any of
Lessor's rights hereunder unless so expressed in writing by Lessor. No re-entry
by Lessor after a breach shall be considered an acceptance of a surrender of
this Lease, unless so expressed by Lessor in writing.
19. SUCCESSORS AND ASSIGNS; LIMITS ON TRANSFER, SUBLEASE OR ASSIGNMENT:
19.1 Except as hereinafter provided, the terms, covenants and provisions
hereof shall inure to the benefit of and be binding upon the successors and
assigns of Lessor and the successors and assigns (or heirs, legal
representatives or assigns) of Lessee.
19.2 However, Lessee shall not transfer, assign, encumber or sublet this
Lease or any part of the Premises or any rights and privileges herein granted
except to a subsidiary, parent or common controlled affiliate. This covenant
shall also apply whether such sale or transfer is made voluntarily by Lessee or
involuntarily in any proceeding at law or in equity to which Lessor may be a
party, whereby any of the rights, duties and obligations of Lessee may be sold,
transferred, conveyed, encumbered, abrogated or in any manner altered without
the prior notice to and consent of Lessor, which consent shall not be
unreasonably withheld.
19.3 Lessee shall not suffer or permit any other person or corporation to
use any part of the Premises except with the separate written consent of Lessor.
19.4 In the event of any unauthorized sale, transfer, assignment, sublease
or encumbrance of this Lease, or any of the rights and privileges hereunder, or
use of the Premises, Lessor, at its option, may terminate this Lease at any time
within six (6) months after such sale, assignments, etc., by giving Lessee or
any such assignee written notice of such termination, and Lessor may thereupon
immediately enter and retake possession of the Premises. Consent of Lessor shall
be presumed to such assignment, etc., if no such termination notice is given.
20. MISCELLANEOUS:
20.1 This Lease is executed by all parties under current interpretation of
any and all applicable Federal, State, County, Municipal, or other local
statute, ordinance, or law. Further, each and every separate division
(paragraph, clause, item, term, condition, covenant or agreement) herein
contained shall have independent and severable status from each other separate
division, or combination thereof, for the determination of legality, so that if
any separate division herein is determined to be unconstitutional, illegal,
violative of trade or commerce, in contravention of public policy, void,
voidable, invalid or unenforceable for any reason, that separate division shall
be treated as nullity, but such holding or determination shall have no effect
upon the validity or enforceability of each and every other separate division
contained, or any other combination thereof.
20.2 In the event this Agreement is part of a package of agreements for
Lessee, this Agreement and all other such documents shall be read as compatible
parts of said package and not in contradiction to each other, such that in the
<PAGE>
CSXT Form 3014-Sheet 10
Rev. June 1990
event of apparent conflict in any duties here/thereunder, Lessor/Railroad shall
designate which clause(s) shall survive or control any others.
21. OTHER PROVISIONS:
21.1 [X] None
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, in duplicate, as of the day and year first above written.
Witness(es) for Lessor: CSX TRANSPORTATION, INC., Lessor
By: CSX Real Property, Inc.
Under the Authority of Property
Management Agreement and
Limited Power of Attorney dated
as of March 1, 1990
/s/Laura G. James
- ----------------------------- By /s/ Gary L. Massar
-------------------------------
Gary L. Massar, Manager
- -----------------------------
Witness(es) for Lessee: AMERICAN MICRO-MED CORP., Lessee
By/s/illegible
- ----------------------------- -----------------------------
Title: President
/s/illegible
- -----------------------------
/s/ Jeanne Killosky
- -----------------------------
<PAGE>
[GRAPHIC]FLOOR PLAN
EXHIBIT 21
SUBSIDIARIES
CodaLex Acquisition Corp.
OMI Acquisition Corp.
Laser Acquisition Corp.
AMMCorp Acquisition Corp.
Datalink Acquisition Corp.
TIMCO Acquisition Corp.
Docutech Acquisition Corp.
IDS Acquisition Corp.
All subsidiaries named above are Pennsylvania corporations.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 S-1
Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
September 12, 1997
EXHIBIT 23.3
I, Rex Lamb, hereby consent to being named in the Form S-1 of ImageMAX,
Inc., as a director of ImageMAX, Inc., to be elected upon completion of the
Offering, and the disclosures relating thereto.
/s / Rex Lamb
--------------------------------------
Rex Lamb
EXHIBIT 23.4
I, John E. Semasko, hereby consent to being named in the Form S-1 of
ImageMAX, Inc., as a director of ImageMAX, Inc., to be elected upon completion
of the Offering, and the disclosures relating thereto.
/s / John E. Semasko
--------------------------------------
John E. Semasko
EXHIBIT 23.5
I, Stephen N. Kaplan, hereby consent to being named in the Form S-1 of
ImageMAX, Inc., as a director of ImageMAX, Inc., to be elected upon completion
of the Offering, and the disclosures relating thereto.
/s / Stephen N. Kaplan
--------------------------------------
Stephen N. Kaplan
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