<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
REGISTRATION NO. 333-48103
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5995 59-3247652
(State of Incorporation) (Primary S.I.C. Code Number) (IRS Employer
Identification No.)
---------------
13902 NORTH DALE MABRY, SUITE 300
TAMPA, FLORIDA 33618
(813) 960-5508
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
THOMAS S. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GLOBAL IMAGING SYSTEMS, INC.
13902 NORTH DALE MABRY, SUITE 300
TAMPA, FLORIDA 33618
(813) 960-5508
(Name, address, including zip code and telephone number, including area code
of agent for service)
---------------
COPIES TO:
ALAN L. DYE, ESQ. WILLIAM J. GRANT, JR. ESQ.
HOGAN & HARTSON L.L.P. WILLKIE FARR & GALLAGHER
555 THIRTEENTH STREET, N.W. 153 EAST 53RD STREET, 45TH FLOOR
WASHINGTON, DC 20004-1109 NEW YORK, NEW YORK 10022
(202) 637-5600 (212) 821-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
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, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 8,050,000 $16.00 $128,800,000.00 $37,996.00
</TABLE>
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(1) Includes 1,050,000 shares that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 ANY +
+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 WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED APRIL , 1998
PROSPECTUS
- --------------------------------------------------------------------------------
7,000,000 Shares
GLOBAL IMAGING SYSTEMS, INC.
[LOGO, INCLUDING TEXT: "THINK GLOBALLY, ACT LOCALLY"]
Common Stock
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Of the 7,000,000 shares (the "Shares") of common stock, $.01 par value per
share (the "Common Stock"), offered hereby, 6,700,000 shares are being sold by
Global Imaging Systems, Inc. ("Global" or the "Company") and 300,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently anticipated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company intends to apply to have the Common Stock included
for quotation in The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "GISX."
SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price Underwriting Proceeds to
to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
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Total (3).................. $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $2.0
million.
(3) Certain Selling Stockholders have granted the several Underwriters 30-day
over-allotment options to purchase up to 1,050,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price
to Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and the total
Proceeds to Selling Stockholders will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares of Common Stock to the
Underwriters is expected to be made through the facilities of the Depository
Trust Company, New York, New York on or about May , 1998.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
RAYMOND JAMES & ASSOCIATES, INC.
April , 1998
<PAGE>
GLOBAL IMAGING SYSTEMS, INC. [LOGO]
"THINK GLOBALLY, ACT LOCALLY"
[MAP OF UNITED STATES INDICATING COMPANY LOCATIONS]
CORPORATE HEADQUARTERS
CORE COMPANIES
SATELLITE COMPANIES
. Since its founding in June 1994, Global has acquired nine core companies
primarily in the Northeast, Southeast and Pacific Northwest and an
additional 15 satellite companies which have been integrated into the core
companies.
. Global intends to enter new geographic markets by acquiring additional core
companies and expanding its core markets through the acquisition of smaller
companies.
. Global's strategy is to offer the following office imaging solutions:
AUTOMATED OFFICE EQUIPMENT NETWORK INTEGRATION SERVICES
ELECTRONIC PRESENTATION SYSTEMS DOCUMENT IMAGING MANAGEMENT
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Except as otherwise indicated herein, the
information in this Prospectus (i) assumes that the Underwriters' over-
allotment options will not be exercised, (ii) assumes the redemption by the
Company of all of the outstanding shares of Class A Common Stock of the Company
upon the closing of the Offering in exchange for aggregate payments of
approximately $35,570,000 and the issuance of 1,158,329 shares of Common Stock;
(iii) assumes the reclassification of the Company's Class B Common Stock as
Common Stock, the increase in the authorized shares of Common Stock to
50,000,000 shares, the effecting of a 132-for-1 stock split of the Company's
outstanding Class B Common Stock, and the authorization of 10,000,000 shares of
Preferred Stock pursuant to an amendment to the Company's Amended and Restated
Certificate of Incorporation anticipated to be filed in April 1998, and (iv)
assumes the automatic conversion into Common Stock of all outstanding shares of
Class C Common Stock upon the closing of the Offering. Except where the context
indicates otherwise, all references herein to "Global" or the "Company" refer
to the Company and its direct and indirect subsidiaries.
THE COMPANY
Global Imaging Systems is a leading consolidator in the highly fragmented
office imaging solutions industry. The Company is a rapidly growing provider of
a broad line of office imaging solutions, which includes the sale and service
of automated office equipment (copiers, facsimile machines, printers and
duplicators), electronic presentation systems, and document imaging management
systems ("DIM" systems), as well as network integration and management
services. Since its founding in June 1994, the Company has acquired nine core
companies primarily in the Northeast, Southeast, and Pacific Northwest, and an
additional 15 smaller companies ("satellite" companies) which have been
integrated into the core companies. The Company's operating philosophy is to
"think globally, act locally." Under the Company's decentralized management
system, Global's core companies typically continue to operate under their pre-
acquisition names and with their pre-acquisition management even after being
acquired by Global, thus permitting existing client relationships to be
preserved. The Company believes that its emphasis on superior customer service
and the contractual nature of its service business provide a significant source
of recurring revenue.
Global seeks to become the provider of choice for all of its customers'
office imaging needs by offering a full range of products and services and
superior customer service. While Global's clientele includes large, Fortune 500
companies, its growth has been, and is expected to continue to be, largely
driven by serving middle market businesses. The Company sells and services a
variety of office imaging solutions, including copiers, facsimile machines,
printers, duplicators, LCD projectors, smartboards, overhead projectors, video
teleconferencing equipment, optical scanning equipment, micrographics
equipment, and the design and installation of equipment related to computer
networks. In addition, the Company offers a variety of ongoing services,
including supply and service contracts, network management contracts, technical
support and training.
The Company's strategic objective is to continue to grow profitably in both
existing markets and new markets through internal growth and by acquiring
additional office imaging solutions companies. Global intends to enter new
geographic markets by acquiring additional core companies and expanding its
core markets through the acquisition of satellite companies, which are
typically in close proximity to core companies. Global's strategy for
stimulating internal growth is to expand its product and service offerings,
take advantage of cross-selling opportunities, and market aggressively to
existing and new customers.
The Company is currently organized into nine core companies with operations
in 46 locations in 15 states, plus the District of Columbia. Global targets for
acquisition as core companies businesses that are leading
3
<PAGE>
competitors in the markets they serve. The Company's goal is to acquire core
and satellite companies throughout the United States and Canada.
The market for sales and service of office imaging solutions is highly
fragmented. Of an estimated 3,700 dealer and distributor outlets in the United
States primarily engaged in the sale of automated office equipment and related
service, parts, and supplies, approximately 3,100 dealer outlets are
unaffiliated, according to Industry Analysts, Inc. According to Dataquest, the
black and white copier and related service and supplies market generated sales
of approximately $20.5 billion in the U.S. in 1996, and is expected to grow to
an estimated $26.4 billion in sales in 2001, while the color copier and related
service and supplies market generated sales of approximately $1.3 billion in
the U.S. in 1996, and is expected to grow to an estimated $4.4 billion in sales
in 2001. The network integration and installation services market generated
sales in the U.S. of approximately $8.6 billion in 1996 and is expected to grow
to approximately $18.6 billion in sales by 2001, according to International
Data Corporation. The markets for electronic presentation systems and DIM
systems generated sales estimated at approximately $719 million and $3.5
billion, respectively, in the U.S. in 1996, and are expected to grow to an
estimated $1.5 billion and $13.2 billion in sales in 2001, according to Pacific
Media Associates and AIIM International, respectively.
STRATEGY
The Company's goal is to become the provider of choice for all of its
customers' office imaging needs by offering a full range of products and
services and superior customer service. The Company's strategy to achieve this
goal contains the following elements:
Serve as a Single Source Provider of Office Imaging Solutions. The Company
believes that offering a full spectrum of products and services will give it a
competitive advantage and enable the Company to capitalize on its customer
relationships by cross-selling its products and services. As the technology
that drives copiers, facsimiles, printers, electronic presentation equipment
and DIM equipment continues to converge, there is a greater role for computers
and networks in the functioning of these products. Accordingly, customers are
demanding more integrated office imaging solutions. The Company intends to
expand its offerings to provide products and services in the automated office
equipment market, the electronic presentation systems market, the DIM systems
market and the network integration markets in each of its geographic markets.
Make Strategic Acquisitions. Global actively seeks to acquire core companies
in targeted geographic markets and to expand these core acquisitions through
internal growth and the acquisition of satellite companies. As part of its
acquisition strategy, Global looks for companies that are led by an experienced
management team that will continue to manage the company after it is acquired,
that have a strong regional market share, and that can grow internally and
through the acquisition of satellite companies.
A key component of the Company's growth strategy is to acquire satellite
companies in or near its core companies' markets. Core company management
frequently assists Global in identifying appropriate satellite companies to
acquire. In evaluating potential satellite acquisitions the Company considers,
among other factors, its proximity to a core company, whether the product lines
sold by the satellite are complementary with those of the core company, and the
service base that the potential satellite company has under service contract.
Stimulate Internal Growth. The Company seeks to stimulate internal growth in
its core companies by increasing the productivity of their sales forces through
the use of performance benchmarks developed by the Company, expanding product
and service offerings, increasing the size of its core companies' sales forces
and aggressively cross-selling its products and services.
Optimize Profitability and Operating Efficiency. Global's senior management
has developed an industry management model that encompasses a comprehensive set
of performance benchmarks. These performance benchmarks, which are used as the
primary form of internal reporting from the core companies to Global, allow
4
<PAGE>
the Company and local management to monitor and improve the operations of each
core company. Through the use of these benchmark criteria, Global seeks to
train the managers of its core and satellite companies to optimize their
business mix and improve performance.
Global works to reduce costs by consolidating the back-office functions of
its satellite acquisitions into the core operations, enabling its core
companies to decrease technician driving time and increase the productivity of
sales personnel and administrators. Global also reduces costs through the
standardization of financial reporting, cash and inventory management, payroll,
billing, collections, insurance and employee benefit programs, and by
negotiating advantageous relationships with equipment manufacturers, other
suppliers and lessors.
Operate with a Decentralized Management Structure. Global vests
responsibility for day-to-day operating decisions at the core company level.
The Company believes that this decentralized approach permits local management
to maintain focus and motivation and provides optimal customer support. Local
management is supported by a senior management team that focuses on the
Company's growth strategy as well as corporate planning and financial reporting
and analysis.
The Company's executive offices are located at 13902 North Dale Mabry, Suite
300, Tampa, Florida 33618, and its telephone number is (813) 960-5508. The
Company was incorporated in Delaware in June 1994.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company................ 6,700,000 shares
Common Stock Offered by the Selling Stockholders... 300,000 shares
Common Stock to be Outstanding after the Offering.. 18,283,639 shares (1)
Use of Proceeds by the Company..................... To repay existing
indebtedness and to pay
the cash portion of the
redemption price of all of
the outstanding shares of
the Company's Class A
Common Stock. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. GISX
</TABLE>
- --------
(1) Includes 86,276 shares of Common Stock expected to be sold prior to the
closing of the Offering pursuant to pre-existing contractual obligations.
Does not include (i) up to 1,050,000 shares of Common Stock that may be
sold by the Selling Stockholders pursuant to the Underwriters' over-
allotment options and (ii) an aggregate of 1,800,000 shares reserved for
grants or purchases under the Company's Stock Option and Restricted Stock
Plan, including shares of Common Stock issuable upon the exercise of
options that will become outstanding upon the closing of the Offering at an
exercise price equal to the initial public offering price. See
"Management--Stock Option and Restricted Stock Plan."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact to investors from various events
that could adversely affect the Company's business. See "Risk Factors."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND PRO FORMA INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) --------------------------- ------------------------------
TO MARCH 31, PRO FORMA (UNAUDITED) PRO FORMA
1995 1996 1997 1997 (1) 1996 1997 1997 (2)
-------------- ------- ------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $10,276 $36,966 $64,093 $196,843 $44,114 $110,030 $159,391
Total costs and
operating expenses..... 10,530 34,842 58,774 183,333 40,397 99,958 146,364
------- ------- ------- -------- ------- -------- --------
Income (loss) from
operations............. (254) 2,124 5,319 13,510 3,717 10,072 13,027
Net income (loss)....... $ (629) $ (192) $ 1,123 $ 1,908 $ 734 $ 2,789 $ 2,943
======= ======= ======= ======== ======= ======== ========
Net income (loss)
available to holders of
Common Stock (3)....... $ (819) $(1,215) $ (279) $ (537) $ (295) $ 1,440 $ 1,099
======= ======= ======= ======== ======= ======== ========
Earnings (loss) per
common share (basic and
diluted) (3)........... $ (0.13) $ (0.13) $ (0.03) $ (0.05) $ (0.03) $ 0.13 $ 0.09
======= ======= ======= ======== ======= ======== ========
Weighted average number
of shares (basic and
diluted) (4)........... 6,489 9,176 9,887 11,584 9,768 10,767 11,584
======= ======= ======= ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO PRO FORMA
ACTUAL FORMA (5) AS ADJUSTED (6)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 22,205 $ 24,539 $ 24,293
Total assets............................... 155,913 164,199 163,955
Long-term debt, including current
maturities................................ 92,609 98,209 42,083
Total stockholders' equity................. 35,215 36,834 92,816
</TABLE>
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(1) Gives effect to the Company's acquisitions of four companies during fiscal
1997 and the Company's acquisition of 11 companies during fiscal 1998 as if
they had been completed on April 1, 1996. See "Selected Pro Forma Financial
Data."
(2) Gives effect to the Company's acquisitions of 10 companies during the nine
months ended December 31, 1997 plus the acquisition of an additional
company completed in February 1998 as if they had occurred on April 1,
1997. See "Selected Pro Forma Financial Data."
(3) Reflects adjustments for amounts payable to holders of Class A Common Stock
upon the occurrence of certain events, including an initial public
offering.
(4) Assumes (i) the issuance of certain shares of Common Stock issuable
pursuant to contractual arrangements, (ii) the conversion of the
outstanding shares of Class C Common Stock into Common Stock and (iii) the
conversion of all outstanding shares of Class A Common Stock into 1,158,329
shares of Common Stock. See also, "Selected Pro Forma Financial Data."
(5) Gives effect to the acquisition of one company completed in February 1998
as if such acquisition had been completed on December 31, 1997. See
"Selected Pro Forma Financial Data."
(6) Gives effect to the Offering and the application of the estimated net
proceeds therefrom. See "Selected Pro Forma Financial Data" and "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Shares involves a high degree of risk. Prospective
investors should carefully consider the following risk factors, in addition to
the other information contained elsewhere in this Prospectus, in evaluating an
investment in the Common Stock offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans or operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS; HIGHLY LEVERAGED CAPITAL
STRUCTURE. The Company's acquisitions have primarily been and are expected to
be financed through a combination of equity capital, bank indebtedness and
cash generated from operations. In connection with future acquisitions, the
Company intends to incur indebtedness, which may be substantial in relation to
its equity capital, as well as to use its Common Stock for a portion of the
consideration. The extent to which the Company will be able or willing to use
its Common Stock for this purpose will depend on its market value from time to
time and the willingness of potential acquisition candidates to accept Common
Stock as part of the consideration for the sale of their companies. To the
extent the Company does not use Common Stock to make future acquisitions, the
Company will be required to use more of its cash resources, if available, or
to obtain debt or equity financing to continue its acquisition program. There
can be no assurance that the Company will be able to obtain such financing or
that, if available, it will be available on terms the Company deems
acceptable. As a result, the Company might be unable to maintain its
acquisition strategy, which may have a material adverse effect on the business
or future prospects of the Company. Moreover, as a result of financing
acquisitions with debt, the ratio of the Company's total liabilities to net
worth may be substantial. In addition to funding future acquisitions, the
Company requires a substantial amount of funds for debt service and to meet
its working capital and capital expenditure needs, and it is possible that
funds generated by operations and borrowings under available credit
arrangements may be insufficient to fund the Company's cash requirements. In
such event, the Company might need to obtain additional debt or equity
financing. In view of the Company's potentially leveraged position, the
restrictive covenants customarily contained in credit facilities for similar
companies, and the likelihood that substantially all of the assets of the
Company would be pledged to the Company's senior lenders under such a credit
facility, the Company may not be able to obtain such additional financing or
equity on favorable terms, if at all. Because of its potentially leveraged
condition, the Company may be particularly vulnerable to adverse changes in
the financial markets or downturns in its business or in general economic
conditions. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
EXPANSION THROUGH ACQUISITIONS. A principal element of the Company's
strategy is to expand into additional geographic markets and increase its
product and service offerings through acquisitions. The Company's ability to
expand is dependent upon identifying, acquiring and integrating companies that
meet its acquisition criteria. Because of industry consolidation, the Company
faces strong competition in acquiring companies and frequently competes for
acquisitions with companies that have greater resources. In many instances,
the Company must obtain the consent of manufacturers or other third parties in
connection with its acquisitions. The Company's current credit facility, for
example, requires the Company to obtain approval from its lender prior to the
consummation of any acquisition. There can be no assurance that suitable
acquisition candidates will continue to be available to the Company, that the
Company will successfully identify such candidates, that the Company will be
able to obtain any required consents or that the Company will be able to
acquire such companies at favorable prices. In addition, although the Company
conducts due diligence and
7
<PAGE>
generally requires representations, warranties and indemnifications from the
former owners of acquired companies, there can be no assurance that such
owners will have accurately represented the financial and operating conditions
of their companies or will be able to meet any indemnification obligations
that arise. Any unforeseen liabilities or inaccuracies with respect to its
acquired companies could have a material adverse effect on the Company. In
addition, the Company's acquisition strategy places significant demands on the
Company's resources, especially on the time and attention of its senior
management, and will require the Company to identify, hire and integrate
additional managers. There can be no assurance that the Company's management
and financial reporting systems, procedures and controls will be adequate to
support the Company as it continues to expand, or that the Company will
successfully identify, hire and integrate additional managers. See "Business--
Business Strategy." Finally, as a result of its acquisitions, which are
accounted for using the purchase method of accounting, the Company has
incurred and expects to continue to incur significant amortization charges
resulting from the excess of the purchase price paid over the fair value of
the net assets of the companies acquired. These current and future
amortization charges have and will continue to have a material adverse effect
on the Company's results of operations over the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
RISKS OF INTEGRATION. The successful integration of companies acquired by
the Company depends on a number of factors, including the Company's ability to
transition acquired companies to the Company's management information systems,
the ability of the Company's core acquisitions to integrate satellite
acquisitions effectively, and the Company's ability to improve profitability
at the companies it acquires. There can be no assurance that the Company will
be able to integrate acquired companies without substantial costs, delays or
other operational or financial problems, that the Company will be able to
achieve expected economies of scale or that such companies, once integrated,
will ultimately generate sufficient revenues to justify the Company's
investment.
LIMITED COMBINED OPERATING HISTORY. Although a number of the companies
acquired by the Company have been in operation for some time, the Company
itself has a limited history of operations and profitability. Consequently,
the historical and pro forma information herein may not be indicative of the
Company's financial condition and future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business."
ENTRY INTO NEW MARKETS THROUGH ACQUISITIONS. A key element of the Company's
expansion strategy is to acquire companies in each of its core markets that
are engaged in the sale and service of electronic presentation systems and DIM
systems, and in network integration and facilities management services. This
strategy requires the Company to acquire companies in product and service
segments in which the Company has limited or no operating experience. The
Company's ability to enter these markets successfully depends on its ability
to identify, acquire and integrate appropriate companies and to adapt to the
varying conditions in each of these markets. For example, the Company's
success in the facilities management market depends on the Company being able
to operate profitably a primarily labor-intensive business. Any acquisitions
of companies in these markets that are not good acquisition candidates, or
that the Company is not ready or able to integrate and operate profitably,
could have a material adverse effect on the Company. There can be no assurance
that the Company will succeed in identifying, acquiring, integrating and
operating successful companies in these new markets. See "Business--Business
Strategy."
DEPENDENCE ON SUPPLIERS. The Company derives a majority of its revenues from
the sale of equipment and from service and supply contracts for such
equipment. Accordingly, the Company's success depends on its access to
reliable sources of equipment, parts and supplies at competitive prices. The
Company's automated office equipment dealers sell copiers primarily from Canon
Inc. ("Canon"), Konica Business Technologies, Inc. ("Konica"), Mita Copystar
America ("Mita"), Ricoh Corporation ("Ricoh"), Savin Corporation ("Savin") and
Sharp Electronics Corporation ("Sharp") and facsimile machines primarily from
Muratec America, Inc. ("Muratec"), Panasonic Communications and Systems
Company Division of Matsushita Electric Corp. of America ("Panasonic") and
Savin. The Company's network integrators sell systems primarily from Compaq
Computer Corporation ("Compaq"), Hewlett-Packard Company ("Hewlett Packard"),
International Business
8
<PAGE>
Machines Corporation ("IBM"), Microsoft Corporation ("Microsoft"), Novell,
Inc. ("Novell") and Tektronix, Inc. ("Tektronix"). The Company's DIM systems
dealer sells equipment primarily from Westbrook Technologies, Inc. ("Westbrook
Technologies") and the Company's electronic presentation systems dealer sells
systems primarily from Epson America, Inc. ("Epson"), In Focus Systems, Inc.
("InFocus"), Intel Corporation ("Intel"), Lightware, Inc. ("Lightware"), nVIEW
Corporation ("nVIEW"), Proxima Corporation ("Proxima") and Sharp. The
Company's agreements with its suppliers generally permit the Company to sell
particular products on a nonexclusive basis in particular geographic areas,
have a one-year renewable term and may be terminated or not renewed by the
supplier on 30 days notice in the event that the Company does not meet minimum
purchase quotas or certain other requirements or immediately upon notice under
certain circumstances. There can be no assurance that the Company's suppliers
will continue to be willing to sell their products to the Company, or that
they will do so at competitive prices. For example, the Company believes that
Sharp, InFocus and Proxima plan to use only 12 to 15 distributors nationwide
by the year 2000. There can be no assurance that the Company will be chosen by
these or other suppliers to distribute their products. The Company's inability
to obtain equipment, parts or supplies from any of its suppliers could have a
material adverse effect on the Company's business. There can also be no
assurance that consumer preferences will not shift to products manufactured by
competitors of the Company's suppliers. Finally, there can be no assurance
that other factors, including reduced access to credit resulting from economic
conditions in Asia, will not impair the ability of the Company's suppliers to
provide products in a timely manner or at competitive prices. See "Business--
Suppliers."
NEED TO ATTRACT AND RETAIN SKILLED EMPLOYEES. Global's success is largely
dependent on its ability to attract, motivate and retain skilled employees.
Many of the markets in which the Company operates are experiencing low levels
of unemployment. As a result, the Company faces competition in hiring and
retaining skilled employees, particularly sales personnel, systems integration
professionals and service technicians. The Company's ability to fulfill its
service contracts and enter into new ones depends on the availability of
qualified service technicians. The Company's ability to generate both sales
and service revenues depends on the efforts of its sales personnel. The
inability of the Company to attract and retain skilled employees could have a
material adverse effect on the Company. There can be no assurance that the
Company will be successful in attracting new employees or retaining its
current or future employees.
DEPENDENCE ON KEY PERSONNEL. The success of Global is substantially
dependent on the efforts of its senior management and the managers of each of
the Company's acquired companies. The loss or interruption of the services of
these or other key members of management could have a material adverse effect
upon Global's results of operations and financial condition. In addition,
there can be no assurance that the managers of current or future acquired
companies will continue to be as motivated to work for Global as they were
prior to selling their companies.
COMPETITION. The Company operates in highly competitive markets. The Company
faces competition in the automated office equipment market, the electronic
presentation systems market and the DIM systems market from large dealers like
Danka and IKON, independent dealers, and manufacturers' sales and service
divisions, including Canon, Eastman Kodak Company ("Kodak"), Konica, Minolta
Co., Ltd. ("Minolta"), Pitney Bowes, Inc. ("Pitney Bowes"), Wang Laboratories,
Inc. ("Wang") and Xerox Corporation ("Xerox") as well as office superstores
and consumer electronics chains. In the network integration services market,
the Company competes with large companies such as Ameridata Technologies, Inc.
("AmeriData") and GE Capital Consulting ("GE Capital"), both of which are
business units of General Electric Company, Inacom Corp. ("Inacom") and
Vanstar Corporation ("Vanstar"), as well as a large number of smaller
competitors with regional or local operations and the in-house capabilities of
its customers. Competition from large, nationwide competitors is likely to
increase (i) as the Company seeks to attract additional customers and expand
its markets geographically and with respect to product and service offerings
and (ii) as each of the automated office equipment, electronic presentation
systems, DIM systems and network integration services markets experiences
increased consolidation. In addition, as digital and other new technology
develops, the Company may find itself competing with new distribution
channels, including computer distributors and value added resellers, for
products containing new technology.
9
<PAGE>
Some competitors have greater financial and personnel resources than the
Company. There can be no assurance that in the future the Company will be able
to compete favorably with all or any of its current or future competitors. The
Company also competes for acquisition candidates in the office imaging
solutions industry. See "Business--Competition."
TECHNOLOGICAL DEVELOPMENTS. The office imaging solutions industry is
undergoing an evolution in product, moving toward digital technology in a
multi-functional office environment. The Company's success will partly depend
on its ability to respond to this rapidly changing environment. There can be
no assurance that the Company will be able to anticipate which products or
technologies will gain market acceptance or that, even if the Company does
correctly anticipate market demand, the Company's suppliers will be willing or
able to supply such products to the Company at competitive prices. Further,
there can be no assurance the Company will be able to obtain any
manufacturer's authorization necessary to market any newly developed
equipment. Additionally, new products containing new technology may be sold
through other channels of distribution. While it is possible that
technological advancements, including the lowered per unit cost that often
accompanies technological improvements, may enhance unit sales, this trend may
reduce the Company's sales revenues, and reliability improvements may result
in reduced service revenues. The Company will also incur increased expenses
for the training of its sales and service personnel to familiarize them with
such new technologies. See "Business--The Industry--Consolidation--
Technological Change."
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company
may experience significant quarter to quarter fluctuations in its results of
operations. Quarterly results of operations may fluctuate as a result of a
variety of factors including, but not limited to, the timing of the
acquisition and integration of acquired companies, the demand for the
Company's products and services, the timing and introduction of new products
and services by the Company, its suppliers, or the Company's or its suppliers'
competitors, the market acceptance of new products and services, competitive
conditions in the office imaging solutions industry and general economic
conditions. As a result, the Company believes that period to period
comparisons of its results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve in any subsequent
quarter or full year. Such quarterly fluctuations may result in volatility in
the market price of the Common Stock, and it is possible that in future
quarters the Company's results of operations could be below the expectations
of the public market. Such an event could have a material adverse effect on
the market price of the Common Stock of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results of Operations."
CREDIT FACILITY PREPAYMENT FEE. The Company intends to replace its existing
credit facility by paying it off with a combination of proceeds from the
Offering and with the proceeds from a replacement credit facility it expects
to obtain after the closing of the Offering. Under the Company's agreement
with its current lender, following the Offering and the partial repayment of
the term loan outstanding under the Credit Facility as described in "Use of
Proceeds," the Company has the right to prepay the entire amount due under its
existing credit facility within sixty days of the closing of the Offering
provided that it pays a prepayment fee of $250,000. There can be no assurance
that the Company will be able to obtain a replacement credit facility within
sixty days of the closing of the Offering, or at all. If the Company fails to
prepay the entire amount due within sixty days of the closing of the Offering,
the Company will be subject to a prepayment fee of 4.0% (declining to 3.0%,
2.0% and 1.0% on August 14, 1998, 1999 and 2000, respectively) of the amounts
then outstanding under the term loan component of its credit facility in
connection with any prepayment or partial prepayment of the loan. At December
31, 1997, approximately $92.3 million was due under the term loan. If the
Company does replace its existing credit facility, unamortized financing fees
incurred in conjunction with obtaining the facility will be written off upon
payment of the facility. The balance of such unamortized fees at December 31,
1997 was $3.0 million. The prepayment penalty and the unamortized financing
fee write-off are expected to occur during the quarter ending June 30, 1998.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DEPENDENCE ON KEY MARKETS. A significant portion of the Company's revenues
and profitability are attributable to sales and service in the Northeast
market and the Southeast market, which accounted for 31% and
10
<PAGE>
50% of the Company's revenues, respectively, on a pro forma basis for the nine
months ended December 31, 1997. Accordingly, the Company's results of
operations may be significantly affected by fluctuations in the general
economic and business cycles in these markets. The Company's reliance on these
markets makes it susceptible to risks that it would not otherwise be exposed
to if it operated in a more geographically diverse market. The Company
believes that it will be susceptible to geographic concentration risks for the
foreseeable future.
YEAR 2000 SOFTWARE ISSUE. The Company uses a number of computer software
programs and operating systems in its operations, including applications used
in sales and marketing, billing, inventory management and other administrative
functions. To the extent that the software applications used in such functions
and communications are unable to recognize the year 2000, the Company may
incur expenses in connection with the need to remediate such software and also
the risk and potential expense of any disruptions that may be caused by the
software's impaired functioning as the year 2000 approaches. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word-processing and
spreadsheet software, are in the process of preparing or have already
completed Year 2000 remediations for their products. There can be no
assurance, however, that such remediation efforts have been or will be
successful. In addition, the Company communicates electronically with a number
of its customers and suppliers with respect to a variety of functions,
including ordering, billing and payroll. Any failure of the software of the
Company's suppliers or customers to address the Year 2000 issue could impair
the Company's ability to perform such functions. The Company is analyzing the
potential impact of the Year 2000 issue on the Company's software and on the
Company's interactions with its suppliers and customers. There can be no
assurance that the remediation costs and potential disruptions to the
Company's operations would not have a material adverse effect on the Company's
business, financial condition or results of operations.
RISK OF NON-PROPRIETARY CHARACTER OF GLOBAL'S INDUSTRY MANAGEMENT MODEL. The
industry management model developed by Global has been described in various
public forums, including industry seminars and publications, and has been made
available to a number of companies, including former consulting clients of
Global's President. Although the Company believes the application of the
industry management model requires a high degree of experience and skill,
there can be no assurance that other office imaging solutions companies will
not be able to replicate the Company's industry management model or implement
it more effectively than the Company or at a lower cost.
CONTROL BY OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS. Upon completion
of this Offering, the Company's executive officers and directors and their
affiliates will beneficially own 51.0% of the Company's Common Stock, and
Golder, Thoma, Cressey, Rauner Inc. ("GTCR"), through its affiliation with
Golder, Thoma, Cressey, Rauner Fund IV Limited Partnership ("GTCR IV"), will
beneficially own 37.6% of the Company's Common Stock. Accordingly, the
Company's executive officers and directors and their affiliates, particularly
GTCR, will be able to influence the election of directors and corporate
actions requiring stockholder approval. Such concentration of ownership could
limit the price that certain investors might be willing to pay in the future
for shares of Common Stock, and could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. See "Principal and Selling
Stockholders" and "Certain Transactions."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS. The Selling Stockholders
and other current stockholders will significantly benefit from this Offering.
Certain of the existing stockholders will be entitled to receive proceeds in
an aggregate amount of approximately $35,570,000 from the Offering as a result
of the redemption of shares of Class A Common Stock they hold and will realize
significant gains. GTCR and Jackson National Life Insurance Company ("JNL"),
both of whom hold in excess of five percent of the Company's stock, as well as
Thomas Johnson, the Company's President and Chief Executive Officer and a
director of the Company and L. Neal Berney, also a director of the Company,
will receive approximately $23,191,000, $3,833,000, $572,000 and $225,000,
respectively, in partial payment for the redemption of the shares of Class A
Common Stock held by them. In addition, the Selling Stockholders will receive
an estimated $4,185,000 ($18,832,500 if the Underwriters' over-allotment
options are exercised in full) in net proceeds from the Offering,
11
<PAGE>
based on an assumed initial public offering price of $15.00 per share. See
"Use of Proceeds," "Certain Transactions" and "Principal and Selling
Stockholders." It is anticipated that the Offering will create a public market
for the Company's Common Stock, thus allowing existing stockholders to sell
stock in the public market from time to time pursuant to Rule 144, other
exemptions from registration or pursuant to subsequently filed registrations
statements, subject to lock-up agreements entered into in connection with the
Offering. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's
Certificate of Incorporation and Bylaws, as well as Delaware corporate law,
contain certain provisions that could have the effect of delaying, deferring
or preventing a change in control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of such provisions allow the Company to
issue without stockholder approval preferred stock having rights senior to
those of the Common Stock. Other provisions impose various procedural and
other requirements that could make it difficult for stockholders to effect
certain corporate actions. See "Description of Capital Stock--Delaware Law and
Certain Charter, Bylaw and Other Provisions" and "Description of Capital
Stock--Preferred Stock."
DILUTION. Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution in the pro forma net tangible book value of
their Common Stock from the initial public offering price of $15.29 per share
(based on an assumed initial public offering price of $15.00 per share). No
assurance can be given that the Company's stockholders will not in the future
suffer significant dilution. Global intends to make a substantial number of
future acquisitions. If these potential acquisitions are consummated, some or
all of the purchase price may be paid with Common Stock or other equity
securities of the Company. In the event that additional equity is issued in
connection with acquisitions, the Company's stockholders may suffer dilution.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of Common Stock in the public market following this Offering could
adversely affect the prevailing market price of the Common Stock and the
Company's ability to raise capital in the future. Upon completion of this
Offering, the Company will have a total of 18,283,639 shares of Common Stock
outstanding, of which the 7,000,000 shares offered hereby (8,050,000 shares if
the Underwriters' over-allotment options are exercised in full) will be freely
tradeable without restriction under the Securities Act, by persons other than
"affiliates" of the Company, as defined under the Securities Act. The
remaining 11,283,639 shares of Common Stock outstanding (10,233,639 shares of
Common Stock if the Underwriters' over-allotment options are exercised in
full) are "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act (the "Restricted Shares"). Of the
Restricted Shares, approximately 10,648,226 shares will become eligible for
sale 90 days after completion of the Offering, subject in some cases to
certain volume restrictions and other conditions imposed under Rules 144 and
701. The remaining approximately 635,413 shares will be eligible for sale upon
the expiration of their respective holding periods as set forth in Rule 144.
The Company, its executive officers and directors, the Selling Stockholders
and certain other stockholders have agreed that, subject to certain
exceptions, they will not, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any other
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock or other similar securities of the Company for a period of 180
days from the date of this Prospectus. After such 180-day period, this
restriction will expire and shares permitted to be sold under Rule 144 would
be eligible for sale, provided that the Company shall have been subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, for
at least 90 days and the relevant holding period under Rule 144 shall have
expired. Prudential Securities Incorporated may, in its sole discretion, at
any time and without prior notice, release all or any portion of the shares of
Common Stock subject to such agreements.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 1,800,000 shares of Common
Stock issuable under its 1998 Stock Option and Restricted
12
<PAGE>
Stock Plan (the "Stock Plan"). Of the 1,800,000 shares issuable under the
Stock Plan, no shares were subject to outstanding options as of February 28,
1998, and no shares will be issuable pursuant to any options granted under the
Stock Plan prior to 180 days following the date of this Prospectus. See
"Management--Stock Option and Restricted Stock Plan" and "Shares Eligible for
Future Sale."
The holders of approximately 11,283,639 shares of Common Stock (10,233,639
shares of Common Stock if the Underwriters' over-allotment options are
exercised in full) are entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price of the Company's Common
Stock. See "Description of Capital Stock--Registration Rights" and "Shares
Eligible for Future Sale." In addition, if the Company is required, pursuant
to piggy-back registration rights, to include shares held by such persons in a
registration statement which the Company files to raise additional capital,
the inclusion of such shares could have an adverse effect on the Company's
ability to raise needed capital. The registration rights require the Company
to refrain from filing most types of registration statements within 90 days
after registering its stockholders shares. This restriction could also have an
adverse effect on the Company's ability to raise needed capital.
NO DIVIDENDS. The Company has not declared or paid cash dividends on its
Common Stock and does not expect to do so in the foreseeable future. Moreover,
the Company is restricted under the terms of its credit facility from
declaring or paying dividends to its stockholders. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY. Prior to this
Offering there has been no public market for the Common Stock, and there can
be no assurance an active public market for the Common Stock will develop or,
if developed, be sustained. The initial public offering price will be
determined through negotiations among the Company, the Selling Stockholders
and the Representatives of the Underwriters based on several factors that may
not be indicative of future market prices. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The trading price of the Common Stock and the price at which the
Company may sell securities in the future may be subject to wide fluctuations
in response to fluctuations in competitors' stock prices, general trends in
the office imaging industry, changes in earnings estimates by analysts,
fluctuations in quarterly results of operations, general market conditions,
the Company's liquidity or ability to raise additional funds, and other
factors or events. In addition, the stock market has experienced extreme
fluctuations in price and volume. This volatility has significantly affected
the market prices of securities for reasons frequently unrelated to or
disproportionate to the operating performance of the specific companies. These
market fluctuations as well as general fluctuations in the stock markets may
adversely affect the market price of the Common Stock.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$91,465,000 assuming an initial public offering price of $15.00 per share (the
mid-point of the range set forth on the cover of this Prospectus) and after
deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company.
The Company intends to use approximately $55,895,000 of the estimated net
proceeds for the repayment of amounts due to Jackson National Life Insurance
Company pursuant to the Company's credit facility (the "Credit Facility") and
$35,570,000 of the estimated net proceeds for the cash portion of the
redemption price of all of the outstanding shares of the Company's Class A
Common Stock. The amounts borrowed under the Credit Facility, which bear
interest at 3.25% over LIBOR and are payable in installments over the life of
the Credit Facility (which becomes due and payable on August 14, 2004), were
used to fund the purchase price of businesses acquired by the Company.
The Company does not currently have any agreements, arrangements or
understandings with respect to any future acquisitions other than as described
in this Prospectus, and no portion of the net proceeds has been allocated for
any specific acquisition. Pending their use as described in this Prospectus,
the net proceeds of the Offering will be invested in short-term, interest-
bearing, investment-grade securities or guaranteed obligations of the United
States government. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate declaring or paying cash dividends in the
foreseeable future. It is the present policy of the Company's Board of
Directors to retain earnings, if any, to finance the development of the
Company's business. Moreover, the Company is restricted under the terms of its
credit facility from declaring or paying dividends to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997: (i) on an actual basis as adjusted for a 132-for-1 stock
split of the Company's Common Stock, the reclassification of the Company's
Class B Common Stock as "Common Stock", increases in the authorized number of
shares of Common Stock and the authorized number of shares of Class C Common
Stock and the authorization of 10,000,000 shares of Preferred Stock expected
to occur in April 1998; (ii) on a pro forma basis to give effect to the
Company's acquisition of one company after December 31, 1997 and the sale and
issuance of 129,599 shares of Common Stock and 7,020 shares of Class A Common
Stock in January 1998 in connection with such acquisition for a per share
purchase price of $0.13 and $90.00, respectively; and (iii) on a pro forma as
adjusted basis to give effect to the sale by the Company of the 6,700,000
shares offered hereby at an assumed initial public offering price of $15.00
per share (the mid-point of the range set forth on the cover of this
Prospectus) and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the issuance of an aggregate of 86,276
shares of Common Stock at a purchase price of $0.07 per share pursuant to pre-
existing contractual obligations, the redemption of all of the outstanding
shares of Class A Common Stock upon the completion of the Offering in exchange
for aggregate payments of approximately $35,570,000 and the issuance of
1,158,329 shares of Common Stock and the conversion of all of the outstanding
shares of Class C Common Stock upon the completion of the Offering into an
equal number of shares of Common Stock. This table is qualified in its
entirety by, and should be read in conjunction with, the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities... $ 92,609 $ 98,209 $ 42,083
Stockholders' equity:
Common Stock, $.01 par value: 50,000,000
shares authorized; 9,314,839 shares issued
and outstanding, actual; 9,444,438 shares
issued and outstanding, pro forma;
18,283,639 shares issued and outstanding,
pro forma as adjusted (1)................... 93 94 183
Preferred Stock, $.01 par value: 10,000,000
shares authorized; no shares issued and
outstanding, actual, pro forma, and as
adjusted.................................... -- -- --
Class A Common Stock, $.01 par value:
10,000,000 shares authorized; 332,925.071
shares issued and outstanding, actual;
339,945.071 shares issued and outstanding,
pro forma; no shares issued and outstanding,
pro forma as adjusted....................... 3 3 --
Class C Common Stock, $.01 par value: 900,000
shares authorized; 894,596 shares issued and
outstanding, actual; 894,596 shares issued
and outstanding, pro forma; no shares issued
and outstanding, pro forma as adjusted...... 9 9 --
Additional paid-in capital................... 32,291 33,910 94,843
Retained earnings (deficit).................. 3,091 3,091 (1,937)
Stockholder receivables...................... (273) (273) (273)
-------- -------- --------
Total stockholders' equity................. 35,214 36,834 92,816
-------- -------- --------
Total capitalization..................... $127,823 $135,043 $134,899
======== ======== ========
</TABLE>
- --------
(1) Excludes shares of Common Stock issuable upon the exercise of options
that will become outstanding upon the closing of the Offering at an
exercise price equal to the initial public offering price.
15
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of their
Common Stock from the initial public offering price. The Company's pro forma
net tangible book value at December 31, 1997 attributable to Common Stock was
$(96,761,000), or $(8.35) per share. Pro forma net tangible book value per
share represents the Company's pro forma tangible net worth attributable to
Common Stock (net tangible assets less total liabilities and equity
attributable to the Class A Common Stock) divided by the number of shares of
Common Stock outstanding, as adjusted for (i) the sale and issuance of 129,599
shares of Common Stock and 7,020 shares of Class A Common Stock in January
1998 in connection with an acquisition made by the Company for a per share
purchase price of $0.13 and $90.00, respectively, (ii) the issuance of an
aggregate of 86,276 shares of Common Stock at a purchase price of $0.07 per
share pursuant to pre-existing contractual obligations and (iii) the
redemption upon completion of the Offering of all of the outstanding shares of
Class A Common Stock of the Company for aggregate payments of approximately
$35,570,000 and the issuance of 1,158,329 shares of Common Stock. Without
taking into account any other changes in the net tangible book value after
December 31, 1997, other than to give effect to the sale of 6,700,000 shares
of Common Stock by the Company in the Offering at an assumed initial public
offering price of $15.00 per share and the application of the net Offering
proceeds as described in "Use of Proceeds," the pro forma net tangible book
value of the Company as of December 31, 1997 would have been $(5,297,000), or
$(0.29) per share. See "Management--Executive Employment Agreements" and Note
12 of Notes to Consolidated Financial Statements. This represents an immediate
increase in pro forma net tangible book value of $8.06 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$15.29 per share to purchasers of Common Stock in the Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $15.00
Pro forma net tangible book value as of December 31,
1997.................................................... $(8.35)
Increase attributable to new investors................... 8.06
------
Pro forma net tangible book value after the Offering....... (0.29)
------
Dilution to new investors.................................. $15.29
======
</TABLE>
The following table summarizes, as of December 31, 1997, on a pro forma
basis and after giving effect to the Offering, the differences between the
existing stockholders and the new investors with respect to the number of
shares of Common Stock purchased, the total consideration paid and the average
price per share paid (based upon an assumed initial public offering price of
$15.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1) ................... 11,583,639 63.4% $ 866,592 0.9% $ 0.07
New investors (1)....... 6,700,000 36.6 100,500,000 99.1 15.00
---------- ----- ------------ -----
Total................. 18,283,639 100.0% $101,366,592 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Does not reflect the sale of 300,000 shares of Common Stock by the Selling
Stockholders in the Offering and does not include shares of Common
Stock issuable upon the exercise of options that will become outstanding
upon the closing of the Offering at an exercise price equal to the initial
public offering price.
16
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following selected pro forma financial data are derived from the
Unaudited Pro Forma Consolidated Financial Data of the Company appearing
elsewhere in this Prospectus. The Pro Forma Statement of Operations Data for
the fiscal year ended March 31, 1997 gives effect to the Company's acquisition
of four companies during such year and 11 companies acquired during the 1998
fiscal year as if they had occurred on April 1, 1996. The Pro Forma Statement
of Operations Data for the nine months ended December 31, 1997 gives effect to
the Company's acquisition of 10 companies during such nine-month period plus
the acquisition of an additional company, completed in February 1998, as if
they had occurred on April 1, 1997. The Pro Forma Balance Sheet Data as of
December 31, 1997 gives effect to the Company's acquisition of one company
during the fourth quarter of fiscal year 1998.
The pro forma financial data should be read in conjunction with the
Unaudited Pro Forma Consolidated Financial Information of the Company and the
related notes thereto included elsewhere in this Prospectus. Management
believes the assumptions used in the Unaudited Pro Forma Consolidated
Financial Information provide a reasonable basis on which to present the pro
forma financial data. The pro forma financial data are provided for
informational purposes only and should not be construed to be indicative of
the Company's financial position or results of operations had the transactions
and events described in the notes thereto been consummated on the dates
assumed and are not intended to project the Company's financial condition or
results of operations on any future date or for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment and supply sales................. $144,133 $116,852
Service and rental revenues................ 52,710 42,539
-------- --------
Total revenues.............................. 196,843 159,391
Costs and operating expenses:
Cost of equipment and supply sales......... 106,149 82,714
Service and rental costs................... 26,904 20,975
Selling, general and administrative
expenses.................................. 45,967 39,521
Intangible asset amortization.............. 4,313 3,154
-------- --------
Total costs and operating expenses.......... 183,333 146,364
-------- --------
Income from operations (1).................. 13,510 13,027
Interest expense............................ 9,798 7,075
-------- --------
Income before income taxes.................. 3,712 5,952
Income taxes................................ 1,804 3,009
-------- --------
Net income.................................. 1,908 2,943
Yield adjustment on Class A Common Stock
(2)........................................ (2,445) (1,844)
-------- --------
Net income (loss) available to holders of
Common Stock............................... $ (537) $ 1,099
======== ========
Earnings (loss) per share (basic and
diluted)................................... $ (0.05) $ 0.09
======== ========
Weighted average number of shares used in
the calculation (3)...................... 11,584 11,584
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital............................................... $ 24,539
Total assets.................................................. 164,199
Long-term debt, including current maturities.................. 98,209
Total stockholders' equity.................................... 36,834
</TABLE>
- --------
(1) The pro forma results do not reflect improved purchasing terms, reduced
administrative expenses, and increased access to capital that the Company
believes are directly attributable to its acquisition of the businesses
acquired by it. Adjusted for such increased operating efficiencies, pro
forma income from operations would have been $14.6 million for the year
ended March 31, 1997 and $13.5 million for the nine months ended December
31, 1997.
(2) Reflects adjustments for amounts payable to holders of Class A Common
Stock upon the occurrence of certain events, including an initial public
offering.
(3) Assumes (i) the issuance of certain shares of Common Stock issuable
pursuant to contractual arrangements, (ii) the conversion of outstanding
shares of Class C Common Stock into Common Stock and (iii) the conversion
of all outstanding shares of Class A Common Stock into 1,158,329 shares of
Common Stock.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company's
statement of operations for the ten months ended March 31, 1995, the fiscal
years ended March 31, 1996 and 1997, and the nine months ended December 31,
1997 and the balance sheet data as of March 31, 1996 and 1997 and as of
December 31, 1997 are derived from the Consolidated Financial Statements of
the Company which have been audited by Ernst & Young LLP, independent
certified public accountants. The selected financial data presented below for
the nine months ended December 31, 1996 are unaudited and were prepared by
management of the Company on the same basis as the audited Consolidated
Financial Statements included elsewhere herein and, in the opinion of
management of the Company, include all adjustments necessary to present fairly
the information set forth therein. The results for the nine months ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the full year ending March 31, 1998 or future periods. The following data
should be read in conjunction with the Consolidated Financial Statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) ------------------ --------------------
TO MARCH 31, (UNAUDITED)
1995 1996 1997 1996 1997
-------------- -------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Equipment and supply
sales................. $ 6,541 $ 20,561 $ 41,200 $27,503 $ 80,515
Service and rental
revenues.............. 3,735 16,405 22,893 16,611 29,515
------- -------- -------- ------- --------
Total revenues.......... 10,276 36,966 64,093 44,114 110,030
Costs and operating
expenses:
Cost of equipment and
supply sales.......... 4,193 13,456 27,087 17,983 57,488
Service and rental
costs................. 1,885 8,303 11,467 8,274 14,493
Selling, general and
administrative
expenses.............. 4,123 11,687 18,280 12,742 25,818
Intangible asset
amortization.......... 329 1,396 1,939 1,398 2,159
------- -------- -------- ------- --------
Total costs and
operating expenses..... 10,530 34,842 58,773 40,397 99,958
------- -------- -------- ------- --------
Income (loss) from
operations............. (254) 2,124 5,320 3,717 10,072
Interest expense........ 375 2,041 3,190 2,325 4,534
------- -------- -------- ------- --------
Income (loss) before
income taxes........... (629) 83 2,130 1,392 5,538
Income taxes............ 0 275 1,007 658 2,749
------- -------- -------- ------- --------
Net income (loss)....... (629) (192) 1,123 734 2,789
Yield adjustment on
Class A Common Stock
(1).................... (190) (1,023) (1,402) (1,029) (1,349)
------- -------- -------- ------- --------
Net income (loss)
available to holders of
Common Stock........... $ (819) $ (1,215) $ (279) $ (295) $ 1,440
======= ======== ======== ======= ========
Earnings (loss) per
share (basic and
diluted)............... $ (0.13) $ (0.13) $ (0.03) $ (0.03) $ 0.13
======= ======== ======== ======= ========
Weighted average number
of shares used in the
calculation (2)....... 6,489 9,176 9,887 9,768 10,767
======= ======== ======== ======= ========
<CAPTION>
MARCH 31,
--------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 2,901 $ 5,038 $ 9,655 $ 22,205
Total assets............ 32,229 43,675 68,990 155,913
Long-term debt,
including current
maturities............. 22,836 21,831 36,873 92,609
Total stockholders'
equity................. 4,344 15,232 19,796 35,215
</TABLE>
- --------
(1) Reflects adjustments for amounts payable to holders of Class A Common
Stock upon the occurrence of certain events, including an initial public
offering.
(2) Assumes (i) the issuance of certain shares of Common Stock issuable
pursuant to contractual arrangements, (ii) the conversion of the
outstanding shares of Class C Common Stock into Common Stock and (iii) the
conversion of all outstanding shares of Class A Common Stock into
1,158,329 shares of Common Stock. See Note 7 of Notes to Consolidated
Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Pro
Forma Financial Data" and "Selected Financial Data," the Unaudited Pro Forma
Consolidated Financial Data and the related Notes thereto, the Consolidated
Financial Statements and the related Notes thereto, the audited financial
statements for certain businesses acquired by the Company and the related
Notes thereto, and the other financial information appearing elsewhere in this
Prospectus. Except for the historical information contained herein, the
discussions in this Prospectus contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors" as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
Global was founded in June 1994 with the goal of becoming a leading
consolidator in the highly fragmented office imaging solutions industry. The
Company is a rapidly growing provider of an array of office imaging solutions,
which encompasses the sale and service of automated office equipment (copiers,
facsimile machines, printers and duplicators), electronic presentation
equipment and DIM systems as well as network integration and management
services. Since its founding, the Company has acquired nine core companies
primarily in the Northeast, Southeast, and Pacific Northwest, and 15
additional satellite companies that have been integrated into the core
companies. The first acquisition was completed in August 1994. Management
believes that the businesses that have been acquired by the Company (the
"Acquired Businesses") and other businesses that the Company plans to acquire
will benefit from increased operating efficiencies, the support of experienced
and professional senior management, expansion of the types of office imaging
products and services offered, increased access to capital, and increased
emphasis on financial management. Therefore, the pro forma results discussed
below do not necessarily represent the results of the Company had each of the
Acquired Businesses been operated by the Company during the periods presented.
The pro forma results discussed include adjustments made to reflect: (i)
certain identifiable personnel cost savings relating to the elimination of
positions at the Acquired Businesses; (ii) rent expense to reflect the
Company's current lease terms; (iii) general and administrative expenses to
reflect the current compensation levels of former owners of the Acquired
Businesses; (iv) amortization expense to reflect financing fees, goodwill and
non-compete agreements recorded as a result of purchase accounting; (v)
interest expense resulting from increased borrowings to fund the cash portion
of the purchase price for the businesses acquired; and (vi) income tax expense
that would have resulted if the Acquired Businesses had been combined and
subject to an assumed federal statutory rate and the applicable state
statutory rate for each of the Acquired Businesses throughout the periods
presented. Management believes that these adjustments more accurately reflect
the operating results and financial position of the Acquired Businesses had
they been owned by the Company throughout the periods discussed.
The Company derives its revenues from two sources: (i) sales of equipment
and supplies and (ii) sales of complementary services and equipment rentals.
The growth of equipment revenues and the complementary supplies, parts and
service revenues is dependent on several factors, including the demand for
equipment, the Company's reputation for providing timely and reliable service,
and general economic conditions. Revenues generated from the sale of equipment
and complementary supplies, parts and services revenues are impacted by price,
general economic conditions, service reputation, and competitors' actions in
the marketplace. Revenues from the sale of complementary supplies, parts and
services are also affected by equipment sales and rental volumes.
Cost of goods sold consists primarily of the cost of new equipment, cost of
supplies and parts, labor costs to provide services, rental equipment
depreciation and other direct operating costs. The Company depreciates its
rental equipment primarily over a three-year period on a straight-line basis
with no residual value.
19
<PAGE>
Gross profit as a percentage of revenues varies from period to period
depending upon numerous variables, including the mix of revenues from
equipment, supplies, service and rentals; the mix of revenues among the
markets served by the Company; and the mix of revenues of the businesses
acquired.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the actual and pro forma consolidated statements of operations of
the Company expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) ------------------------ ----------------------------
TO MARCH 31, PRO FORMA (UNAUDITED) PRO FORMA
1995 1996 1997 1997 1996 1997 1997
-------------- ----- ----- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equipment and supplies
sales.................. 63.7% 55.6% 64.3% 73.2% 62.3% 73.2% 73.3%
Service and rental
revenues............... 36.3 44.4 35.7 26.8 37.7 26.8 26.7
----- ----- ----- ----- ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold...... 59.2 58.9 60.2 67.6 59.5 65.4 65.1
----- ----- ----- ----- ----- ----- -----
Gross profit............ 40.8 41.1 39.8 32.4 40.5 34.6 34.9
Selling, general, and
administrative
expenses............... 40.1 31.6 28.5 23.3 28.9 23.5 24.8
Intangible asset
amortization........... 3.2 3.8 3.0 2.2 3.2 2.0 2.0
----- ----- ----- ----- ----- ----- -----
Income from operations.. (2.5) 5.7 8.3 6.9 8.4 9.1 8.1
Interest expense........ 3.6 5.5 5.0 5.0 5.2 4.1 4.4
----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (6.1) 0.2 3.3 1.9 3.2 5.0 3.7
Income taxes............ 0.0 0.7 1.5 0.9 1.5 2.5 1.9
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (6.1)% (0.5)% 1.8% 1.0% 1.7% 2.5% 1.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December 31,
1996
Revenues
Total revenues increased 149% from $44.1 million for the nine months ended
December 31, 1996 to $110.0 million for the nine months ended December 31,
1997. The majority of the revenue growth was attributable to the acquisition
of businesses during 1996 and 1997. Pro forma revenues for the nine months
ended December 31, 1997 were $159.4 million.
Equipment and supplies sales increased 193% from $27.5 million, or 62.3% of
total revenues, for the nine months ended December 31, 1996 to $80.5 million,
or 73.2% of total revenues, for the nine months ended December 31, 1997.
Equipment and supplies sales were $116.9 million, or 73.3% of total revenues,
for the pro forma nine months ended December 31, 1997. The increase was due to
the acquisition of businesses in mid-1996 and 1997 that derive most of their
revenue from the sale of network integration and management services,
electronic presentation equipment, and DIM systems. The equipment sales
component of these businesses accounts for a higher percentage of total
revenues as compared to a traditional copier-focused office equipment company.
Service and rental revenues increased 78% from $16.6 million, or 37.7% of
total revenues, for the nine months ended December 31, 1996 to $29.5 million,
or 26.8% of total revenues, for the nine months ended December 31, 1997. Pro
forma service and rental revenues were $42.5 million, or 26.7% of total pro
forma revenues, for the nine months ended December 31, 1997, consistent with
the change in the Company's revenue mix.
Gross Profit
Total gross profit increased 113% from $17.9 million, or 40.5% of total
revenues, for the nine months ended December 31, 1996 to $38.0 million, or
34.6% of total revenues, for the nine months ended December 31, 1997.
20
<PAGE>
The change in total gross profit margins from year to year is the result of
the change in the Company's revenue mix described above. Gross profit margins
on the sale of network services equipment, and electronic presentation and DIM
equipment are historically lower than the gross profit margins for copier
equipment. Excluding equipment sales, gross profit margins were stable for the
nine months ended December 31, 1996 versus the nine months ended December 31,
1997 at 53.2% and 53.0%, respectively in 1996 and 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 103% from $12.7
million, or 28.9% of revenues, for the nine months ended December 31, 1996 to
$25.8 million, or 23.5% of revenues, for the nine months ended December 31,
1997. The increase in expenses was attributable to the acquisition of
businesses during 1996 and 1997. The decline in expenses as a percentage of
revenues was primarily the result of the acquisition of profitable businesses,
the change in the composition of the Company's businesses described above,
reduced corporate overhead expenses as a percentage of total selling, general
and administrative expenses in the nine month period ended December 31, 1997,
and revenues increasing more rapidly than expenses.
Intangible Asset Amortization
For the nine months ended December 31, 1996 and the nine months ended
December 31, 1997, asset amortization was $1.4 million and $2.2 million,
respectively. Asset amortization includes the amortization of goodwill and
non-compete agreements from acquisitions.
Income From Operations
Income from operations increased 171% from $3.7 million, or 8.4% of total
revenues, for the nine months ended December 31, 1996 to $10.1 million, or
9.1% of total revenues, for the nine months ended December 31, 1997. Pro forma
operating income was $13.0 million, or 8.1% of pro forma revenues, for the
nine months ended December 31, 1997.
Interest Expense
Interest expense increased 95%, from $2.3 million for the nine months ended
December 31, 1996 to $4.5 million for the nine months ended December 31, 1997.
The increase was primarily due to increased borrowings under the Credit
Facility. The proceeds from the additional borrowings were used to fund the
cash portion of the cost of businesses acquired in 1996 and 1997. Interest
expense includes the amortization of financing fees incurred in connection
with the senior debt facility.
Income Taxes
The provision for income taxes was $658,000 for the nine months ended
December 31, 1996 and $2.7 million for the nine months ended December 31,
1997. The increase in income taxes was primarily due to increased pre-tax
income resulting from the inclusion of the Acquired Businesses. The effective
income tax rate increased from 47.3% for the nine months ended December 31,
1996 to 49.6% for the nine months ended December 31, 1997.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Revenues
Total revenues increased 73% from $37.0 million for the fiscal year ended
March 31, 1996 to $64.1 million for the fiscal year ended March 31, 1997. The
majority of the revenue growth was attributable to the acquisition of
businesses during 1996 and 1997, with the remainder coming from internal
growth. Pro forma revenues were $196.8 million, for the fiscal year ended
March 31, 1997.
21
<PAGE>
Equipment and supplies sales increased 100% from $20.6 million, or 55.6% of
total revenues, for the fiscal year ended March 31, 1996 to $41.2 million, or
64.3% of total revenues, for the fiscal year ended March 31, 1997. Equipment
and supplies sales were $144.1 million, or 73.2% of total revenues, for the
pro forma year ended March 31, 1997. The equipment component of sales of the
businesses acquired in 1996 and 1997 was a larger portion of total revenues
than for the Company's existing businesses.
Service and rental revenues increased 40%, from $16.4 million, or 44.4% of
total revenues for the fiscal year ended March 31, 1996 to $22.9 million, or
35.7% of total revenues, for the fiscal year ended March 31, 1997. Pro forma
service and rental revenues were $52.7 million, or 26.8% of total pro forma
revenues, for the fiscal year ended March 31, 1997, consistent with the change
in the revenue mix described above.
Gross Profit
Total gross profit increased 68% from $15.2 million, or 41.1% of total
revenues, for the fiscal year ended March 31, 1996 to $25.5 million, or 39.8%
of total revenues, for the fiscal year ended March 31, 1997. The change in
total gross profit margins from year to year was due to the change in the
revenue mix as described in the Revenues section above. Combined service and
rental gross profit margins were 49.4% for the fiscal year ended March 31,
1996 and 49.9% for the fiscal year ended March 31, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 56% from $11.7
million, or 31.6% of revenues, for the fiscal year ended March 31, 1996 to
$18.3 million, or 28.5% of revenues, for the fiscal year ended March 31, 1997.
The increase in expenses was primarily due to the acquisition of businesses in
1996 and 1997. The decline in expenses as a percentage of revenues was the
result of the acquisition of profitable businesses, the change in the
composition of the Company's businesses, and revenues increasing more rapidly
than expenses.
Intangible Asset Amortization
For the fiscal years ended March 31, 1996 and 1997, asset amortization was
$1.4 million and $1.9 million, respectively. Asset amortization includes the
amortization of goodwill and non-compete agreements from acquisitions.
Income From Operations
Income from operations increased 150% from $2.1 million, or 5.7% of total
revenues, for the fiscal year ended March 31, 1996 to $5.3 million, or 8.3% of
total revenues, for the fiscal year ended March 31, 1997. Pro forma operating
income was $13.5 million, or 6.9% of revenues, for the fiscal year ended March
31, 1997.
Interest Expense
Interest expense increased 56%, from $2.0 million for the fiscal year ended
March 31, 1996 to $3.2 million for the fiscal year ended March 31, 1997. The
increase was primarily due to the increase in the Company's borrowings. The
proceeds from the additional borrowings were used to fund the cost of the
businesses acquired in 1996 and 1997. Interest expense includes the
amortization of financing fees incurred in connection with the senior debt
facility.
Income Taxes
The provision for income taxes was $275,000 for the fiscal year ended March
31, 1996 and $1.0 million for the fiscal year ended March 31, 1997. The
increase in income taxes was primarily due to increased pre-tax income
resulting from the inclusion of businesses acquired during 1996 and 1997. The
effective income tax rate decreased from 332.8% for the fiscal year ended
March 31, 1996 to 47.3% for the fiscal year ended March 31, 1997. The
effective income tax rate for 1996 was higher than the federal statutory rate
of 34.0% plus state and local taxes, primarily due to non-deductible goodwill
amortization relating to the businesses acquired during the fiscal years ended
March 31, 1995 and March 31, 1996. See Note 8 of Notes to Consolidated
Financial Statements.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected consolidated financial information for
each of the Company's last five fiscal quarters. The information has been
derived from unaudited consolidated financial statements that in the opinion
of management reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such quarterly information.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supply
sales................. $12,588 $13,697 $15,182 $30,543 $34,790
Service and rental rev-
enues................. 5,957 6,282 6,730 10,860 11,925
------- ------- ------- ------- -------
Total revenues.......... 18,545 19,979 21,912 41,403 46,715
Costs and operating ex-
penses:
Cost of equipment and
supply sales.......... 8,436 9,105 10,273 22,363 24,851
Service and rental
costs................. 2,996 3,193 3,304 5,216 5,973
Selling, general and
administration
expenses.............. 5,013 5,544 5,502 9,460 10,856
Intangible asset amor-
tization.............. 526 536 563 753 843
------- ------- ------- ------- -------
Total costs and operat-
ing expenses........... 16,971 18,378 19,642 37,792 42,523
------- ------- ------- ------- -------
Income from operations.. 1,574 1,601 2,270 3,611 4,192
Interest expense........ 780 863 938 1,616 1,980
------- ------- ------- ------- -------
Income before income
taxes.................. 794 738 1,332 1,995 2,212
Income taxes............ 376 349 661 990 1,099
------- ------- ------- ------- -------
Net income.............. 418 389 671 1,005 1,113
Yield adjustment on
Class A Common Stock
(1).................... (376) (373) (382) (434) (533)
------- ------- ------- ------- -------
Net income available to
holders of Common
Stock.................. $ 42 $ 16 $ 289 $ 571 $ 580
======= ======= ======= ======= =======
Earnings per share (ba-
sic and diluted)....... $ 0.00 $ 0.00 $ 0.03 $ 0.05 $ 0.05
======= ======= ======= ======= =======
Weighted average number
of shares used in
calculation (2)........ 10,179 10,250 10,473 10,707 11,118
======= ======= ======= ======= =======
- --------
(1) Reflects adjustments for amounts payable to holders of Class A Common
Stock upon the occurrence of certain events, including an initial public
offering .
(2) Assumes (i) the issuance of certain shares of Common Stock issuable
pursuant to contractual arrangements, (ii) the conversion of the
outstanding shares of Class C Common Stock into Common Stock and (iii) the
conversion of all outstanding shares of Class A Common Stock into
1,158,329 shares of Common Stock. See Note 7 of Notes to Consolidated
Financial Statements.
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supply
sales................. 67.9% 68.6% 69.3% 73.8% 74.5%
Service and rental rev-
enues................. 32.1 31.4 30.7 26.2 25.5
------- ------- ------- ------- -------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0
Costs and operating ex-
penses:
Cost of equipment and
supply sales.......... 45.5 45.6 46.9 54.0 53.2
Service and rental
costs................. 16.2 16.0 15.1 12.6 12.8
Selling, general and
administration
expenses.............. 27.0 27.7 25.1 22.9 23.2
Intangible asset amor-
tization.............. 2.8 2.7 2.5 1.8 1.8
------- ------- ------- ------- -------
Total costs and
operating expenses..... 91.5 92.0 89.6 91.3 91.0
------- ------- ------- ------- -------
Income from operations.. 8.5 8.0 10.4 8.7 9.0
Interest expense........ 4.2 4.3 4.3 3.9 4.2
------- ------- ------- ------- -------
Income before income
taxes.................. 4.3 3.7 6.1 4.8 4.8
Income taxes............ 2.0 1.7 3.0 2.4 2.4
------- ------- ------- ------- -------
Net income ............. 2.3% 2.0% 3.1% 2.4% 2.4%
======= ======= ======= ======= =======
</TABLE>
The following table sets forth selected consolidated financial information
as a percentage of total revenues for each of the Company's last five fiscal
quarters.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through internal cash
flow, sales of stock and bank financing, including the Company's financing
facilities described below. These sources of funds have been used to fund the
Company's growth both internally and through acquisitions. The Company is
pursuing an acquisition strategy and therefore expects to acquire more
businesses.
The Company's Credit Facility consists of a $6.0 million revolving line of
credit and a term facility under which it may borrow up to $114.0 million for
acquisitions and for working capital purposes. At December 31, 1997, $92.3
million was outstanding under the Credit Facility, all of which was
outstanding under the term facility. The revolving line of credit and the term
loan bear interest at 3.00% and 3.25% over LIBOR, respectively. Principal
under the Credit Facility is repayable in installments over the life of the
Credit Facility. All remaining principal under the Credit Facility is due and
payable on August 14, 2004. The agreement governing the Credit Facility (the
"Credit Agreement") requires the Company to pledge substantially all of its
assets, including the capital stock of the Company's subsidiaries, to JNL. The
Credit Agreement requires strict compliance with numerous covenants that
restrict, among other things, dividend payments, sales of stock or assets or
the incurrence of additional debt.
The Company intends to replace the Credit Facility by paying it off with a
combination of the net proceeds of the Offering and with proceeds from a
replacement credit facility it expects to obtain after the closing of the
Offering. Under the Company's agreement with JNL, following the Offering and
the partial repayment of the term loans outstanding under the Credit Facility
as described in "Use of Proceeds," the Company has the right to prepay the
entire amount due under the Credit Facility within 60 days of the closing of
the Offering provided that it pays a prepayment fee of $250,000. If the
Company fails to prepay the entire amount due within 60 days of the closing of
the Offering, the Company will be subject to a prepayment fee of 4.0%
(declining to 3.0%, 2.0% and 1.0% on August 14, 1998, 1999 and 2000,
respectively) of the amounts due under the term loan component of the Credit
Facility. There can be no assurance that the Company will be able to obtain a
replacement credit facility within 60 days, or at all or that, if obtained,
such credit facility will be upon terms favorable to the Company. If the
Company does replace the Credit Facility, unamortized financing fees incurred
in conjunction with obtaining the Credit Facility will be written off upon
payment of amounts due thereunder. The balance of such unamortized financing
fees was $3.0 million at December 31, 1997.
For the fiscal year ended March 31, 1997 the net cash provided by operations
was $4.3 million and for the nine months ended December 31, 1997 the net cash
provided by operations was $2.1 million. For the year ended March 31, 1997 and
for the nine months ended December 31, 1997 the Company's net cash used in
investing activities was $19.0 million and $64.9 million, respectively,
primarily for the purchase of Acquired Businesses. For the year ended March
31, 1997 and the nine months ended December 31, 1997, the Company's net cash
provided by financing activities was $15.2 million and $65.7 million,
respectively. Net cash provided by financing activities consists of equity
capital provided by GTCR, JNL, and certain members of management of the
Company and Acquired Businesses, and net borrowings under the Credit Facility.
The Company believes that the Credit Facility, together with the cash on
hand after giving effect to the Offering and funds generated by the Company's
operations, will provide the Company with sufficient liquidity and capital
resources to pursue its business strategy at least through March 1999,
including the funding of working capital, acquisitions, capital expenditures
and other needs. Management believes that inflation has not had a material
effect on the Company.
YEAR 2000 SOFTWARE ISSUE
The Company uses a number of computer software programs and operating
systems in its operations, including applications used in sales and marketing,
billing, inventory management and other administrative functions. To the
extent that the software applications used in such functions and
communications are unable to recognize the year 2000, the Company may incur
expenses in connection with the need to remediate such software and also may
incur the risk and potential expense of disruptions that may be caused by the
software's
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<PAGE>
impaired functioning as the year 2000 approaches. The Company believes that
the manufacturers of the software applications it uses most frequently,
including its systems software and its word processing and spreadsheet
software, are in the process of preparing or have already completed Year 2000
remediations for their products. The Company believes that with the
remediations to existing software and conversions to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems.
In addition, the Company communicates electronically with a number of its
suppliers and customers with respect to a variety of functions, including
ordering, billing and payroll. Any failure of the software of the Company's
suppliers or customers to address the Year 2000 issue could impair the
Company's ability to perform such functions. The Company is analyzing the
potential impact of the Year 2000 issue on the Company's interactions with its
suppliers and customers.
25
<PAGE>
BUSINESS
Global Imaging Systems is a leading consolidator in the highly fragmented
office imaging solutions industry. The Company is a rapidly growing provider
of a broad line of office imaging solutions, which includes the sale and
service of automated office equipment (copiers, facsimile machines, printers
and duplicators), electronic presentation systems, and document imaging
management systems ("DIM" systems), as well as network integration and
management services. Since its founding in June 1994, the Company has acquired
nine core companies primarily in the Northeast, Southeast, and Pacific
Northwest, and an additional 15 smaller companies ("satellite" companies)
which have been integrated into the core companies. The Company's operating
philosophy is to "think globally, act locally." Under the Company's
decentralized management system, Global's core companies typically continue to
operate under their pre-acquisition names and with their pre-acquisition
management even after being acquired by Global, thus permitting existing
client relationships to be preserved. The Company believes that its emphasis
on superior customer service and the contractual nature of its service
business provide a significant source of recurring revenue.
Global seeks to become the provider of choice for all of its customers'
office imaging needs by offering a full range of products and services and
superior customer service. While Global's clientele includes large, Fortune
500 companies, its growth has been, and is expected to continue to be, largely
driven by serving middle market businesses. The Company sells and services a
variety of office imaging solutions, including copiers, facsimile machines,
printers, duplicators, LCD projectors, smartboards, overhead projectors, video
teleconferencing equipment, optical scanning equipment, micrographics
equipment, and the design and installation of equipment related to computer
networks. In addition, the Company offers a variety of ongoing services,
including supply and service contracts, network management contracts,
technical support and training.
The Company's strategic objective is to continue to grow profitably in both
existing markets and new markets through internal growth and by acquiring
additional office imaging solutions companies. Global intends to enter new
geographic markets by acquiring additional core companies and expanding its
core markets through the acquisition of satellite companies, which are
typically in close proximity to core companies. Global's strategy for
stimulating internal growth is to expand its product and service offerings,
take advantage of cross-selling opportunities, and market aggressively to
existing and new customers.
The Company is currently organized into nine core companies with operations
in 46 locations in 15 states, plus the District of Columbia. Global targets
for acquisition as core companies businesses that are leading competitors in
the markets they serve. The Company's goal is to acquire core and satellite
companies throughout the United States and Canada.
26
<PAGE>
Certain information regarding the nine current core companies, including pro
forma revenues for the nine months ended December 31, 1997, is summarized
below:
<TABLE>
<CAPTION>
Effective Date
Acquired/
Revenues No. of Date of
Core Company Regional Focus (in thousands) Satellites Incorporation
<S> <C> <C> <C> <C>
Felco Office Systems, Texas $ 6,841 1 July 1994/
Inc. Mar. 1985
Conway Office Products, Upper New England, $32,552 4 Jan. 1995/
Inc. Upstate New York, Apr. 1976
Eastern Massachusetts
Berney, Inc. Alabama, Mississippi, $10,093 3 Feb. 1995/
Florida Panhandle June 1964
Amcom Office Systems Western $ 9,798 2 Feb. 1996/
Pennsylvania Jan. 1978
Copy Service & Supply, North Carolina, $ 4,285 0 July 1996/
Inc. South Carolina Jan. 1984
Southern Business Georgia, Florida, $18,183 1 Nov. 1996/
Communications, Inc. Tennessee, Mar. 1981
Washington D.C.,
Maryland, Virginia
Electronic Systems, Inc. Virginia, $47,552 1 July 1997/
Washington D.C. Aug. 1980
Quality Business Pacific Northwest $13,709 2 Sept. 1997/
Systems, Inc. Feb. 1986
Connecticut Business Western Massachusetts, $16,378 1 Jan. 1998/
Systems, Inc. Connecticut, Lower June 1988
New York, Rhode Island
</TABLE>
THE INDUSTRY
The market for sales and service of office imaging solutions is highly
fragmented. Of an estimated 3,700 dealer and distributor outlets in the United
States primarily engaged in the sale of automated office equipment and related
service, parts, and supplies, approximately 3,100 dealer outlets are
unaffiliated, according to Industry Analysts, Inc. According to Dataquest, the
black and white copier and related service and supplies market generated sales
of approximately $20.5 billion in the U.S. in 1996, and is expected to grow to
an estimated $26.4 billion in sales in 2001, while the color copier and
related service and supplies market generated sales of approximately $1.3
billion in the U.S. in 1996, and is expected to grow to an estimated $4.4
billion in sales in 2001. The network integration and installation services
market generated sales in the U.S. of approximately $8.6 billion in 1996 and
is expected to grow to approximately $18.6 billion by 2001, according to
International Data Corporation. The markets for electronic presentation
systems and DIM systems generated sales estimated at approximately $719
million and $3.5 billion, respectively, in the U.S. in 1996, and are expected
to grow to an estimated $1.5 billion and $13.2 billion in sales in 2001,
according to Pacific Media Associates and AIIM International, respectively.
27
<PAGE>
CONSOLIDATION
Consolidation of independent distributors and service providers is occurring
throughout the office imaging solutions industry. This consolidation has been
driven by a number of factors, including the following:
Technological Change. The technology of office imaging solutions is changing
rapidly. Digital technology, which allows an image to be scanned
electronically and transmitted through networks of personal computers, has in
recent years been incorporated into copiers, electronic presentation equipment
and DIM technology. As a result, the role for computers and networks in office
imaging solutions has been dramatically expanded and the functions of copiers,
facsimile machines, and printers have been converging. The introduction of
digital technology has led to computer networks becoming an integral part of
office imaging solutions, as digital technology allows images to be captured,
transmitted, reproduced and stored over wide geographic areas. This has led to
increasing demand by larger companies for more centralized network integration
services over a broader geographic area. The rapid pace of technological
change, including the change from analog to digital technologies, and the
resulting expansion of product offerings and increase in product support costs
have outpaced the technical, managerial and financial resources of many
smaller distributors and service providers, causing them to seek larger
partners. Further, the blurring of the distinction among office imaging
technologies and the increased role for computers has made it important for
dealers without network integration expertise to partner with companies that
have such expertise.
Dealer Consolidation by Suppliers. The cost of new product development and
fierce competition among equipment manufacturers have resulted in their
seeking efficiencies by consolidating their dealer networks. Increasingly,
manufacturers are seeking to concentrate their business with a smaller number
of dealers that possess leading service capabilities and wide geographic
coverage.
Distribution Channel Changes. In the market for automated office equipment,
consolidation is also resulting from changes in distribution channels. Office
superstores and consumer electronics chains have entered the market for lower-
end office products, offering these products at prices that are forcing
smaller dealers out of the market. Smaller dealers also face difficulty
competing in the market for mid-range copiers, because they are not well
equipped to provide the sophisticated support services required by businesses
that purchase these products. Typically, office superstores and consumer
electronics chains also do not offer the support services required by
purchasers of mid-range copiers.
OFFICE IMAGING PRODUCTS AND SERVICES
The automated office equipment market is generally regarded by participants
as consisting of six black and white copier segments (both digital and analog)
categorized by price and number of pages per minute, a color copier segment, a
duplicator segment, a facsimile equipment segment, a printer segment and a
multi-function equipment segment.
The electronic presentation systems market consists of the sale and service
of LCD projectors and panels, smartboards, overhead projectors and video
conferencing equipment. As in the automated office equipment market, products
in this market increasingly utilize digital technology, and customers for
these products are designating a single buyer to address their needs in both
markets. This market is characterized by strong competition among
manufacturers, with new products being introduced frequently. As a result,
some manufacturers are offering their most popular new products only to those
dealers who agree to limit their product offerings to that one manufacturer.
The five largest suppliers of LCD projectors, Epson, InFocus, Proxima, Sanyo
and Sharp, accounted for over 60% of the market in 1997, according to Pacific
Media Associates.
Like automated office equipment and electronic presentation systems, DIM
systems also involve digital technology and are ultimately used by the same
end-users as other types of office imaging equipment. This market consists of
optical disk storage equipment, write once read many ("WORM") disks and CD-ROM
optical storage products, as well as micrographic equipment (microfilm and
microfiche). These products are used
28
<PAGE>
to capture and store large volumes of visual data. Key customers for these
products include banks, educational institutions, government institutions,
libraries and insurance companies.
With the rise of digital copier technology, the customer's need for office
imaging equipment is becoming increasingly linked to its need for network
integration services. Network integrators provide outsourced management and
support to organizations' computer network infrastructures. As organizations
seek to take advantage of productivity-enhancing computer network technology,
they face a complex and costly set of issues relating to the design,
selection, implementation and management of their computer networks. Among
other challenges, organizations must select from an expanding number of
product options with shortening life cycles; integrate diverse and often
incompatible hardware and software environments; and deal with a shortage of
qualified information technology service personnel. As a result, many smaller
businesses seek to outsource installation, upgrade and support, and large
organizations seek to outsource network improvement functions and the
evaluation of new products.
BUSINESS STRATEGY
Management believes the Company is well positioned to benefit from industry
trends and continued consolidation in the office imaging solutions industry.
The Company's goal is to become the provider of choice for all of its
customers' office imaging needs by offering a full range of products and
services and superior customer service. The Company's strategy to achieve this
goal contains the following elements:
Serve as a Single Source Provider of Office Imaging Solutions. The Company
believes that offering a full spectrum of products and services will give it a
competitive advantage and enable the Company to capitalize on its customer
relationships by cross-selling its products and services. As the technology
that drives copiers, facsimiles, printers, electronic presentation equipment
and DIM equipment continues to converge, there is a greater role for computers
and networks in the functioning of these products. Accordingly, customers are
demanding more integrated office imaging solutions. The Company intends to
expand its offerings to provide products and services in the automated office
equipment market, the electronic presentation systems market, the DIM systems
market and the network integration markets in each of its geographic markets.
Additionally, management believes that the Company has the opportunity to
leverage its infrastructure, customer base, and expertise by offering
outsourced facilities management services to its customers.
Make Strategic Acquisitions. Global actively seeks to acquire core companies
in targeted geographic markets and to expand these core acquisitions through
internal growth and the acquisition of satellite companies. As part of its
acquisition strategy, Global looks for companies that are led by an
experienced management team that will continue to manage the company after it
is acquired, that have a strong regional market share, and that can grow
internally and through the acquisition of satellite companies. Global's senior
management team has substantial experience in making acquisitions and
successfully integrating them. Since its founding in June 1994, the Company
has acquired nine core companies primarily in the Northeast, Southeast, and
Pacific Northwest, and an additional 15 satellite companies which have been
integrated into the core companies. The Company's goal is to acquire core and
satellite companies throughout the United States and Canada.
A key component of the Company's growth strategy is to acquire satellite
companies in or near its core companies' markets. Core company management
frequently assists Global in identifying appropriate satellite companies to
acquire. In evaluating potential satellite acquisitions the Company considers,
among other factors, its proximity to a core company, whether the product
lines sold by the satellite are complementary with those of the core company,
its management and employee base and the service base that the potential
satellite company has under service contract.
Stimulate Internal Growth. The Company seeks to stimulate internal growth in
its core companies by increasing the productivity of their sales forces
through the use of performance benchmarks developed by the Company, expanding
product and service offerings, increasing the size of its core companies'
sales forces and aggressively cross-selling its products and services.
29
<PAGE>
Optimize Profitability and Operating Efficiency. Global's senior management
has developed an industry management model that encompasses a comprehensive set
of performance benchmarks. These performance benchmarks, which are used as the
primary form of internal reporting from the core companies to Global, allow the
Company and local management to monitor and improve the operations of each core
company. Through the use of these benchmark criteria, Global seeks to train the
managers of its core and satellite companies to optimize their business mix and
improve performance.
Global works to reduce costs by consolidating the back-office functions of
its satellite acquisitions into the core operations and by increasing the
productivity of sales and service personnel and administrators. Global also
reduces costs through the standardization of financial reporting, cash and
inventory management, payroll, billing, collections, insurance and employee
benefit programs, and by negotiating advantageous relationships with equipment
manufacturers, other suppliers and lessors.
Operate with a Decentralized Management Structure. Global believes that the
experienced local management teams of its core companies possess a valuable
understanding of their respective markets and existing customer relationships.
Accordingly, Global follows a decentralized management approach, vesting
responsibility for day-to-day operating decisions at the core company level.
Under Global's decentralized structure, core companies and, in some cases,
satellite companies retain their local name and management after acquisition.
The Company believes that this decentralized approach permits local management
to maintain focus and motivation and provides optimal customer support. Local
management is supported by a senior management team that focuses on the
Company's growth strategy as well as corporate planning and financial reporting
and analysis.
PRODUCT AND SERVICE OFFERINGS
Global currently sells office imaging products and services in four markets:
the automated office equipment market, the electronic presentation systems
market, the DIM systems market and the network integration services market.
In each of these markets, the Company provides a number of office imaging
solutions, including the following:
<TABLE>
<CAPTION>
AUTOMATED NETWORK INTEGRATION ELECTRONIC PRESENTATION
OFFICE EQUIPMENT SERVICES SYSTEMS DIM SYSTEMS
<S> <C> <C> <C>
. Black and white copiers . Network design and . LCD projectors and . Microfiche and
(digital and analog) installation, and related panels microfilm equipment
. Color copiers (digital) software and hardware . Smartboards . CD-ROM optical
. Duplicators . Technical support . Video conferencing storage products
(digital and analog) contracts equipment . Write once read many
. Facsimile machines . Network . Overhead projectors ("WORM") disks
. Printers (including color) maintenance . Color printers and related
. Multi-function equipment contracts . Audio visual equipment
. Related supply and service . Training equipment . Related supplies
contracts. . Internet services . Related supplies . Related service
. Related service contracts
contracts . Related training
. Point-of-sale training
</TABLE>
30
<PAGE>
For the nine months ended December 31, 1997, pro forma revenues from the
automated office equipment market, the network integration services market,
the electronic presentation systems market and the DIM systems market
represented approximately 61%, 28%, 9% and 2%, respectively, of the Company's
pro forma revenues.
A substantial amount of the Company's revenues are derived from its service
activities, and the Company seeks to take advantage of the "after market"
opportunities presented by its sales of office imaging equipment. The
Company's copier service and supply contracts, for example, provide the
Company with a predictable source of revenue that is based on the number of
copies made by its customers. In the network integration market, the Company's
focus is on entering into contracts involving the provision of ongoing
maintenance and technical support, which generate a recurring revenue stream.
The Company believes that a commitment to effective and responsive service
is key to its success in obtaining repeat business from customers and in
developing market recognition that is essential for growth. Over 85% of the
Company's copier sales, on a pro forma basis and measured by revenue
generated, are accompanied by service and supply contracts, which typically
provide that the Company be paid for service on a per-copy basis and continue
for either a one year term or, in some cases, are month to month contracts. As
part of its commitment to providing quality service, the Company strives to
provide its automated office equipment customers with two to four hour
response time to service calls during business hours, and offers a 24 hour
technical assistance "hotline" to its network integration customers. In
addition, the Company's service technicians are generally manufacturer- or
vendor-certified to service the equipment sold by the Company.
CUSTOMERS, SALES AND MARKETING
The Company believes that its customers decide to purchase products and
services from Global based on a variety of factors, the most important of
which are the strength of their relationship with the Company, the quality of
service provided, and price. The Company believes that its retention rate on
service contracts is greater than 90%.
Global's growth has been largely driven by serving middle market businesses.
In addition, Global also serves a number of large, Fortune 500 companies, as
well as educational institutions, government entities and other non-profit
groups. The Company estimates that it currently has over 45,000 customers that
have purchased equipment or services in the past six months. During the nine
months ended December 31, 1997 on a pro forma basis, none of the Company's
customers accounted for more than 2% of the Company's total revenues and the
Company's top five customers collectively accounted for less than 6% of the
Company's total revenues.
Global believes that the experienced local management teams of its core
companies possess valuable understanding of their respective markets and
existing customer relationships upon which they may capitalize. At the local
level, the core companies make marketing decisions, including decisions
regarding their product offering mix, promotional programs, advertising, and
selecting trade shows to attend. Global's nine core companies and their
respective satellites employ approximately 410 persons in sales and marketing.
All of the Company's sales personnel are compensated at least partly on a
commission basis, with the structure of compensation and commissions
established by the Company's local management within the confines of the
Company's industry management model. The Company generates sales from within
its existing customer base by tracking the expiration of leases, seeking
opportunities to engage in cross-selling, and giving incentives to service
personnel to create sales leads. Each of the core companies also operates a
telemarketing program to generate sales leads in addition to door-to-door
marketing.
TRAINING
The Company's sales and service employees are provided extensive, ongoing
training. Each core company has its own technical trainer and training is
scheduled on a regular basis. Core company technical trainers are typically
certified by the Company's suppliers, which authorizes the Company's service
technicians to act as
31
<PAGE>
factory certified technicians. The Company also provides formalized product
and general sales training to its sales and marketing personnel.
SUPPLIERS
The Company's automated office equipment dealers represent a number of
suppliers, including Konica, Canon, Hewlett Packard, Mita, Muratec, Panasonic,
Ricoh, Riso, Inc., Savin and Sharp. The electronic presentation equipment sold
by the Company includes overhead projectors by Apollo International of
Delaware, Inc. and Minnesota Mining & Manufacturing Company ("3M") and LCD
projectors by Sharp, nView, Proxima, In Focus, Epson and Lightware, as well as
Smartboards by Smart Technologies, Inc. In the DIM systems market, the Company
sells microfilm and microfiche recording and viewing equipment by Canon, and
optical data storage equipment by Canon, Compaq, and Westbrook Technologies.
The Company's network integrators sell personal and laptop computers
manufactured by IBM, Dell Computer Corporation, Compaq, AST Research, Inc.,
NEC America, Inc. and Toshiba America, Inc., and networking software by
Microsoft, Novell, Banyan Systems Incorporated and Raptor Systems, Inc. One of
these suppliers, Konica, accounted for 18% of the Company's purchases of
equipment in the nine month period ended December 31, 1997, on a pro forma
basis (and 21% of such purchases historically). No other supplier represented
in excess of 10% of such purchases.
The Company's agreements with its suppliers generally permit the Company to
sell particular products on a nonexclusive basis in particular geographic
areas, have a one-year renewable term and may be terminated or not renewed by
the supplier (i) on 30 days notice in the event that the Company does not meet
minimum purchase quotas, or certain other requirements or (ii) immediately
upon notice under certain circumstances.
LEASING AND RENTALS
A majority of the copiers sold by the Company are financed by third-party
leasing companies. Under its "Preferred Vendor Leasing Program," the Company
has contracted with three nationwide equipment lease vendors, granting these
vendors preferential rights to provide the Company's customers leasing
services in exchange for their agreement to offer the Company better leasing
rates and terms than are generally available through individual copier
dealers, control over the lease residuals, and a standardized leasing
application for use with all of these preferred vendors. Control over the
lease residuals gives the Company the option to purchase the leased equipment,
under already negotiated terms, at the end of the lease term. This flexibility
allows the Company to sell the equipment to its customer at the end of the
lease term, or to include arrangements for such a sale in connection with the
original purchase of the equipment. Currently, only the Company's automated
office equipment dealers have widely offered third party leasing arrangements
to their customers, but the Company plans to increase the use of third party
leases in the electronic presentation and DIM systems markets where, the
Company believes, high equipment costs make leasing a promising financing
alternative for many customers.
In some cases, the Company's automated office equipment dealers also rent
equipment. Rental arrangements provide the Company with a steady, monthly
revenue stream and, like the Company's leasing arrangements, give the Company
control over disposition of the equipment at the end of the rental term.
COMPETITION
The Company faces competition in the automated office equipment market, the
electronic presentation systems market and the DIM systems market from large
dealers like IKON and Danka, independent dealers, and manufacturers' sales and
service divisions, including Canon, Kodak, Konica, Minolta, Pitney Bowes, Wang
and Xerox, as well as office superstores and consumer electronics chains. As
digital and other new technology develops, the Company may find itself
competing with new distributions channels, including computer distributors and
value added resellers, for products containing new technology. Principal areas
of competition in these markets include price and product capabilities;
quality and speed of post-sales service support; availability of equipment,
parts and supplies; speed of delivery; financing terms and availability of
financing, leasing, or rental programs.
32
<PAGE>
In the network integration services market, the Company competes with large
companies such as GE Capital, AmeriData, Inacom and Vanstar, as well as a
large number of smaller competitors with regional or local operations and the
in-house capabilities of its customers. Principal areas of competition in this
market include reputation, quality and speed of support, and price.
The Company also faces competition in acquiring core and satellite companies
from consolidators such as IKON, Danka, and a number of other independent
dealers that have been active in consolidating in its markets in recent years.
See "Business--The Industry."
EMPLOYEES
The Company has approximately 1,140 employees, most of whom are employed
through the Company's core companies. Of these, approximately 410 are engaged
in sales and marketing, 500 in service, and 220 in operations and
administration. Thirteen employees are employed at Global's corporate
headquarters in Tampa, Florida. None of the Company's employees is covered by
collective bargaining agreements. Management believes that the Company has
good relations with its employees.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company is subject to regulation under various federal, state and local
laws relating to employee safety and health and environmental protection. The
Company is not aware of any material non-compliance with any such law.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceeding or
investigation that is expected by management to have a material adverse effect
on the Company.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carl D. Thoma............ 49 Chairman of the Board of Directors
Thomas S. Johnson........ 52 Director, President and Chief Executive Officer
Bruce D. Gorchow......... 39 Director
William C. Kessinger..... 31 Director
L. Neal Berney........... 45 Director
Raymond Schilling........ 43 Vice President, Chief Financial Officer, Secretary
and Treasurer
Michael Mueller.......... 46 Vice President, Chief Operating Officer
Alfred N. Vieira......... 50 Vice President of Service
</TABLE>
CARL D. THOMA has served as a director of the Company since its founding in
June 1994. Mr. Thoma founded and has been a Principal and General Partner with
GTCR in Chicago, Illinois, since 1980 and has been the Managing Partner of
GTCR since 1993. Mr. Thoma is also a director of ITI Marketing Services,
National Equipment Services, Inc., Paging Network, Inc., Outsource Partners,
Inc. and Capitol Office Solutions, Inc.
THOMAS S. JOHNSON has served as a director and as President and Chief
Executive Officer of the Company since its founding in June 1994. From 1991 to
1994, Mr. Johnson was an office imaging industry consultant. From 1989 to
1990, Mr. Johnson served as Chief Operating Officer for Danka. From 1975 to
1989, Mr. Johnson worked at IKON (formerly known as Alco Standard Corporation)
in various staff and operating roles. When he left there in 1989, he was Vice
President--Operations of the Office Products group and was responsible for
acquisitions and turning around under-performing operations. Mr. Johnson has
been involved in numerous acquisitions of office equipment dealers during his
career. Mr. Johnson graduated with a B.S. degree from the University of
Florida in 1972, and received his MBA from Harvard Business School in 1976.
Mr. Johnson is also a director of Capitol Office Solutions, Inc.
BRUCE D. GORCHOW has served as a director of the Company since October 1996.
Since 1991, Mr. Gorchow has served as Executive Vice President and head of the
Private Finance Group of PPM America, Inc. Prior to joining PPM America, Inc.,
Mr. Gorchow was a Vice President at Equitable Capital Management, Inc. Mr.
Gorchow received his B.A. in Economics from Haverford College in 1980 and
received his MBA in Finance from the Wharton School of the University of
Pennsylvania in 1982. Mr. Gorchow is also a director of Leiner Health
Products, Inc., Tomah Products, Inc., Burke Industries, Inc., Elgar
Electronics, Inc. and Capitol Office Solutions, Inc.
WILLIAM C. KESSINGER has served as a director of the Company since December
1995. Mr. Kessinger joined GTCR in May 1995 and became a Principal in
September 1997. Prior thereto, Mr. Kessinger was a Principal with The
Parthenon Group from July 1994 to May 1995. From August 1992 to June 1994, Mr.
Kessinger attended Harvard Business School, where he received his MBA. Prior
to that time, Mr. Kessinger served as an Associate with Prudential Asset
Management Asia from August 1988 to June 1992. Mr. Kessinger is also a
director of AnswerThink Consulting Group, Inc., Capitol Office Solutions,
Inc., Excaliber, Inc., National Equipment Services, Inc. and Users, Inc.
L. NEAL BERNEY has served as a director of the Company since October 1996.
Since 1980, Mr. Berney has served as President of Berney, Inc., which was
acquired by the Company in February 1995. Mr. Berney has been active in the
office products industry for over 27 years.
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RAYMOND SCHILLING has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since its inception in June 1994. From
1988 to 1994, Mr. Schilling was Vice President--Finance of the
California/Nevada region of McCaw Communications and responsible for all of
its finance and administrative functions. From 1980 to 1988, Mr. Schilling
worked with Mr. Johnson at IKON in various accounting and financial reporting
functions, including as controller of Alco Office Products, where his
responsibilities included acquisitions and evaluation, integration,
development and installation of financial systems. From 1986 to 1988, Mr.
Schilling also was Vice President of Finance and Administration of San Sierra
Business Systems (an Alco Office Products dealer). From 1976 to 1980, Mr.
Schilling was employed by Price Waterhouse as a CPA. Mr. Schilling graduated
with a B.A. in Economics and Accounting from Muhlenberg College in 1976.
MICHAEL MUELLER has served as a Vice President and Chief Operating Officer
of the Company since January 1 1995. From 1986 to December 1994, Mr. Mueller
was employed as Vice President by Global Services Inc., a copier and office
product sales and service company in Houston, Texas, and served as its Chief
Financial Officer from 1988 to 1994. Mr. Mueller obtained his B.B.A. from the
University of Houston in 1974.
ALFRED N. VIEIRA has served as a Vice President of Service of the Company
since March 1997. From May 1996 to March 1997, Mr. Vieira served as Vice
President and General Manager of Felco Office Systems, Inc.'s four branch
locations in South Texas. From 1979 to May 1996, Mr. Vieira was employed by
Global Services Inc., and served as its Vice President of Operations from May
1988 to May 1996. Mr. Vieira studied electrical engineering at City University
of New York.
BOARD COMPOSITION
The Board currently is composed of five directors. After the Offering, the
Board expects to increase the size of the Board to seven directors and to
appoint two additional directors who are not employees of the Company or any
of its affiliates. In accordance with the terms of the Company's Amended and
Restated Certificate of Incorporation to be filed and effective upon the
closing of the Offering, the terms of office of the Board of Directors will be
divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 1999, Class II, whose term will expire
at the annual meeting of stockholders to be held in 2000, and Class III, whose
term will expire at the annual meeting of stockholders in 2001. The current
Class I director is Neal Berney; the Class II directors are Bruce Gorchow and
William Kessinger; and the Class III directors are Thomas Johnson and Carl
Thoma. At each annual meeting of stockholders, the successors to the directors
whose terms will then expire will be elected to serve from the time of
election and qualification until election and qualification of their
successors at the third annual meeting following election. In addition, the
Company's Amended and Restated Certificate of Incorporation provides that the
authorized number of directors may be changed only by resolution of the Board
of Directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors.
Directors of the Company may be removed without cause only upon the
affirmative vote of the holders of 75% of the outstanding Common Stock, or for
cause only upon the affirmative vote of the holders of two-thirds of the
outstanding Common Stock.
Pursuant to the terms of a Stockholders Agreement among GTCR, the Company,
and the Company's stockholders, the Company's stockholders agreed to vote
their shares in favor of the election to the Board of the Company's Chief
Executive Officer, three designees of GTCR and one designee of JNL. These
provisions of the Stockholders Agreement will terminate upon the consummation
of the Offering. See "Certain Transactions." In addition, the Company has a
policy of nominating for election to the Board, for rotating terms, one of the
presidents of its core companies. Mr. Berney, who is the president of Berney,
Inc., is currently serving as a director pursuant to this policy.
All officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.
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COMMITTEES OF THE BOARD
The Board of Directors has established a Compensation Committee, which is
responsible for determining compensation for the Company's executive officers
and administering the Stock Plan. Carl Thoma, William Kessinger and Bruce
Gorchow, all of whom are non-employee directors, are the members of the
Compensation Committee. The Company has also established an Audit Committee,
which is responsible for making recommendations concerning the engagement of
independent public accountants, reviewing the plans and results of such
engagement with the independent public accountants, reviewing the independence
of the independent public accountants, considering the range of audit and non-
audit fees and reviewing the adequacy of the Company's internal accounting
controls. Carl Thoma, William Kessinger and Bruce Gorchow are the members of
the Audit Committee.
COMPENSATION OF DIRECTORS
Directors do not receive any cash compensation from the Company for their
service as members of the Board of Directors, although they are reimbursed for
certain expenses in connection with attendance at Board and committee
meetings. Under the terms of the Stock Plan, non-employee directors of the
Company will receive, upon their initial election to the Board and on the date
of each annual meeting of stockholders held after the first anniversary of
their election to the Board, an option to purchase shares of Common Stock
for a purchase price equal to the market value of the underlying stock on the
date of grant. Each option will have a term of ten years and will vest in
three equal annual installments beginning on the first anniversary of the date
of grant. See "Management--Stock Option and Restricted Stock Plan."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid to or earned by the Company's Chief Executive Officer and all other
executive officers of the Company whose salary and bonus for services rendered
in all capacities to the Company during the year ended March 31, 1997 exceeded
$100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1)
- --------------------------- ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Thomas S. Johnson
President and Chief
Executive Officer....... 1997 $210,120 $51,000 $1,831
Raymond Schilling
Vice President, Chief
Financial Officer,
Secretary and
Treasurer............... 1997 113,550 30,250 336
Michael Mueller
Vice President, Chief
Operating Officer....... 1997 113,300 48,250 1,332
</TABLE>
- --------
(1) Consists of matching contributions to the Company's Savings Plan.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company and GTCR IV have entered into executive employment agreements
with each of Mr. Johnson, Mr. Schilling, Mr. Mueller and Mr. Vieira (the
"Executive Agreements"). Under their respective Executive Agreements, Mr.
Johnson, Mr. Schilling, Mr. Mueller and Mr. Vieira (the "Executives") receive
annual base salaries currently set at $225,000, $118,962, $118,962, and
$105,000, respectively, subject to periodic increases at the discretion of the
Board and are eligible for an annual bonus of up to 40% or 50% of their annual
base salary upon the attainment of certain defined objectives. Pursuant to
their Executive Agreements, Mr. Johnson, Mr. Schilling and Mr. Mueller were
guaranteed certain one-time bonuses in connection with the Company's first
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year of operation. Each of the Executives is entitled to all other benefits
approved by the Board and made available to the Company's senior management.
Mr. Johnson is also entitled to receive reimbursement of up to $12,000
annually for certain perquisites. Mr. Johnson's employment under his Executive
Agreement renews automatically for one-year periods unless otherwise
terminated by either party upon 30 days notice. Mr. Schilling, Mr. Mueller,
and Mr. Vieira's employment under their respective Executive Agreements shall
continue at the pleasure of the Board or until the Executive's resignation,
removal, death or disability. In the event of a termination by the Company
without cause, or a termination by Mr. Johnson for good reason, including as a
result of a change in control of the Company, Mr. Johnson is entitled to
receive severance pay equal to his current base salary for a period of one
year and all fringe benefits to which he otherwise would be entitled for
approximately one year. Mr. Schilling, Mr. Mueller, and Mr. Vieira are each
entitled to a pro rata share of their annual bonus in the event of a
termination by the Company without cause or a voluntary termination by such
Executive. The Executive Agreements contain confidentiality covenants and a
covenant not to compete with the Company for a period of one year following
termination of employment.
Under their respective Executive Agreements, Mr. Johnson, Mr. Schilling, Mr.
Mueller and Mr. Vieira received the right to purchase, and purchased, 647,059,
215,685, 172,548 and 172,548 shares, respectively, of Common Stock at a price
of $0.07 per share, subject to vesting over a five year period. The Executive
Agreements provide the Company with the right to repurchase unvested shares of
the Class B Common Stock of an Executive under certain circumstances relating
to the termination of his employment.
Under his Executive Agreement, Mr. Johnson received the right to purchase,
at a price of $0.07 per share, certain shares of Common Stock that were
reserved for issuance to senior management in June 1994 and that remain
unissued as of the time of the Company's initial public offering. Mr. Johnson
has notified the Company that he will exercise such right and purchase 9,026
shares of the Company's Common Stock prior to the closing of the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in February 1998, all
determinations with respect to executive officer compensation were made by the
Board of Directors, including Mr. Johnson, the Company's Chief Executive
Officer, and Mr. Berney, who is an officer of the Company's subsidiary,
Berney, Inc. Each of the Company's directors has purchased securities of the
Company individually or through an affiliated entity. See "Certain
Transactions" and "Principal and Selling Stockholders."
SAVINGS PLAN
The Company maintains a savings plan (the "Savings Plan") that is intended
to be a qualified retirement plan under the Internal Revenue Code. Generally,
all employees of the Company who are at least 21 years of age are eligible to
participate in the Savings Plan upon the completion of 12 consecutive months
of employment with the Company. Participants may make salary deferral
contributions to the Savings Plan, subject to limitations imposed by the
Internal Revenue Code. Participants' contributions may be invested in any of
several investment alternatives including, after the Offering, a fund that
will invest solely in shares of the Company's Common Stock. The Savings Plan
allows the Company to make discretionary matching contributions to each
participant's account. Employer contributions are subject to a graduated
vesting schedule based upon length of service with the Company.
STOCK OPTION AND RESTRICTED STOCK PLAN
The Company has adopted the 1998 Stock Option and Restricted Stock Plan (the
"Stock Plan"), which authorizes the issuance of up to 1,800,000 shares of the
Company's Common Stock pursuant to stock options or restricted stock granted
to directors, officers and employees of and consultants and advisors to the
Company. No more than 600,000 shares may be issued under the Stock Plan as
restricted stock, and the maximum number of options that may be granted under
the Stock Plan to any eligible employee or consultant during any calendar year
is 400,000.
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<PAGE>
The Stock Plan is administered by the Compensation Committee of the Board of
Directors. Subject to limitations set forth in the Stock Plan, the Committee
determines to whom options are granted, the option term, the exercise price
(which may not be less than the fair market value of the underlying shares on
the date of grant), vesting schedules and the rate at which options may be
exercised. The maximum term of options granted under the Stock Plan is ten
years and the exercise price may be payable in cash or, if permitted by the
applicable option agreement, in Common Stock or a combination of cash and
Common Stock.
As of the date of this Prospectus, options to purchase shares of the
Company's Common Stock had been approved for issuance to certain employees of
the Company upon the closing of the Offering, at an exercise price per share
equal to the initial public offering price set forth on the cover of this
Prospectus. All of these options are subject to vesting requirements based on
continued employment (typically 25% per year of employment) or satisfaction of
certain performance milestones. No shares subject to these options have vested
or will vest prior to 180 days following the date of this Prospectus. No other
options were outstanding or are expected to be granted under the Stock Plan
prior to the closing of the Offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation to be filed and effective upon the
closing of the Offering (the "Charter") provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock or (iv) for any
transaction from which the director derives an improper personal benefit. As a
result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Additionally, the Charter and the Company's amended and restated bylaws to
be effective upon the closing of the Offering (the "Bylaws") provide for
indemnification of the Company's directors and officers to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its directors and certain officers and key employees which may, in certain
cases, be broader than the specific indemnification provisions of applicable
law. The indemnification agreements may require the Company, among other
things, to indemnify such directors, officers and key employees against
certain liabilities that may arise by reason of their status or service as
directors, officers and employees, to advance the expenses incurred by such
parties as a result of any threatened claims or proceedings brought against
them as to which they could be indemnified, and to cover such persons under
the Company's directors' and officers' liability insurance policies to the
maximum extent that insurance coverage is maintained.
There is no pending litigation or proceeding involving any director, officer
or employee of the Company as to which indemnification is being sought, nor is
the Company aware of any pending or threatened litigation that may result in
claims for indemnification by any such person.
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
In connection with and upon the consummation of the Offering, each
outstanding share of Class A Common Stock, including the shares of Class A
Common Stock held by each of the officers and directors of the Company, will
be redeemed in exchange for approximately 3.41 shares of Common Stock plus the
right to receive a cash payment equal to $90.00 plus 8% per annum from the
time of purchase through May 31, 1998, provided that the Offering closes prior
to June 30, 1998. The Company will use a portion of the net proceeds of the
Offering to redeem all of the shares of Class A Common Stock. In connection
with the redemption, GTCR IV, an affiliate of
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<PAGE>
GTCR and a holder of a majority of the Company's outstanding stock prior to
the Offering, will receive approximately $23,191,000 and 738,294 shares of
Common Stock upon consummation of the Offering. Carl Thoma and William
Kessinger, directors of the Company, are both principals of GTCR, and Mr.
Thoma is a general partner of GTCR. JNL, which is affiliated with Bruce
Gorchow, a director of the Company, will receive approximately $3,833,000 and
130,233 shares of Common Stock, in addition to any amounts they may receive as
Selling Stockholders. Thomas Johnson, Global's President, Chief Executive
Officer and a director of the Company, Neal Berney, a director of the Company,
and Raymond Schilling, Michael Mueller, and Alfred Vieira, executive officers
of the Company, will receive approximately $572,000, $225,000, $12,000,
$23,000 and $12,000, respectively, and 18,457, 6,620, 369, 695, and 369
shares, respectively, in connection with the redemption of shares of Class A
Common Stock held by them upon consummation of the Offering, in addition to
any amounts they may receive as Selling Stockholders. See "Use of Proceeds"
and "Principal and Selling Stockholders."
FOUNDING AGREEMENTS
The Company was founded in June 1994 by Thomas Johnson and GTCR IV. In
connection with the formation of the Company, Mr. Johnson, Raymond Schilling,
GTCR IV and the Company entered into various agreements relating to the
management and ownership of the Company. These agreements include an Equity
Purchase Agreement, a Registration Agreement, a Stockholders Agreement, and a
Consulting Agreement (collectively, and as amended to date, the "Founding
Agreements"). A number of the Founding Agreements were amended subsequent to
June 1994 to, among other things, add additional stockholders as parties
thereto and to reflect the transactions described below. Substantially all of
the provisions of the Founding Agreements, with the exception of the
Registration Agreement, will terminate upon completion of the Offering. In
connection with the Company's formation, the Company and GTCR also entered
into Executive Agreements with Mr. Johnson and Mr. Schilling and,
subsequently, with Michael Mueller and Alfred Vieira. See "Management--
Executive Employment Agreements."
Pursuant to the provisions of the Equity Purchase Agreement among the
Company, GTCR IV, Mr. Johnson, and certain additional purchasers named therein
dated as of June 9, 1994, as amended on August 14, 1996 (the "Equity Purchase
Agreement"), the Company sold 6,312,766 shares of Common Stock to GTCR IV
and 157,819 shares of Common Stock to Mr. Johnson at a per share purchase
price of $0.08. In addition, GTCR IV and Mr. Johnson agreed to purchase, upon
the Company's meeting certain criteria, and subsequently purchased,
216,666.674 and 5,416.697 shares (the "New Shares") of the Company's Class A
Common Stock ("Class A Shares"), respectively, at a per share purchase price
of $90.00. Mr. Johnson paid for his purchases with the proceeds of a loan from
GTCR.
The Company and its stockholders have entered into a stockholders agreement,
dated as of June 9, 1994, as amended (the "Stockholders Agreement") which, as
amended, (i) provides for the designation of three directors of the Company by
GTCR IV, one director by JNL and for the remainder of the Board to consist of
the Company's chief executive officer; (ii) imposes certain restrictions on
the transfer of shares of the Company; (iii) requires the stockholders to take
certain actions, if approved by GTCR, in connection with an initial public
offering or a sale of the Company, (iv) requires the Company to offer to sell
shares to the stockholders under certain circumstances upon authorization of
an issuance or sale of additional shares, and (v) grants certain stockholders
certain participation rights in connection with a sale of shares by other
stockholders. The terms of the Stockholders Agreement will terminate prior to
the closing of the Offering.
The Company and its stockholders entered into a registration agreement,
dated as of June 9, 1994, as amended (the "Registration Agreement") pursuant
to which the stockholders have the right in certain circumstances, subject to
certain conditions, to require the Company to register their shares of the
Company's Common Stock for resale under the Securities Act. Under the
Registration Agreement, except in limited circumstances, the Company is
obligated to pay all expenses in connection with such registration. See
"Description of Capital Stock--Registration Rights."
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<PAGE>
Global and GTCR entered into a consulting agreement dated as of June 9, 1994
(the "Consulting Agreement"), pursuant to which GTCR provides financial and
management consulting services to the Company. Under the Consulting Agreement,
GTCR receives an annual management fee of $200,000 (plus reimbursement of
reasonable out-of-pocket expenses and interest on accrued but unpaid fees) and
a placement fee of 1% of the amount of debt or equity capital raised by
Global, excluding the net proceeds of the Offering, for GTCR's assistance in
obtaining such capital. In fiscal years 1995, 1996 and 1997, the Company paid
GTCR management fees of $130,000, $200,000 and $200,000, and placement fees of
$75,000, $390,000 and $0, respectively. Since April 1, 1997, the Company has
paid GTCR $150,000 in management fees and no placement fees pursuant to the
Consulting Agreement. The Consulting Agreement terminates pursuant to its
terms upon the closing of the Offering.
LINE OF CREDIT TRANSACTIONS
In August 1996, the Company and its subsidiaries entered into a secured
credit agreement (as amended in November 1997, the "Credit Agreement") with
JNL and its affiliate PPM America, Inc. ("PPM America"), pursuant to which the
Company has a $6.0 million revolving credit facility and a term credit
facility under which it may borrow up to $114.0 million (the "Credit
Facility"). The term and revolving loans bear interest at 3.25% and 3.00% over
LIBOR, respectively. Principal under the term loan component of the Credit
Facility is repayable in installments over the life of the Credit Facility,
with the final payment due and payable on August 14, 2004. The Company has
pledged substantially all of its assets, including the capital stock of
Global's subsidiaries, to JNL pursuant to the Credit Agreement. The Credit
Agreement requires strict compliance with certain covenants which restrict,
among other things, dividend payments, sales of stock or assets or the
incurrence of additional debt. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In connection with the Credit Facility, Global and JNL entered into an
Investor Purchase Agreement, dated as of August 14, 1996, pursuant to which
the Company sold to JNL 27,083.33 shares of Class A Common Stock at a per
share price of $90.00, and 633,933 shares of Class C Common Stock at a per
share price of $0.10. As a result of its purchase, JNL became a holder of more
than 5% of the Company's outstanding stock. In November 1997, in connection
with the amendment of the Credit Facility, the Company sold JNL an additional
11,136.268 shares of Class A Common Stock at a per share price of $90.00, and
an additional 260,663 shares of Class C Common Stock at a per share price of
$0.10. Shares of Class C Common Stock, which are non-voting, will convert into
shares of Common Stock upon the closing of the Offering at a rate of one share
of Common Stock for each share of Class C Common Stock. JNL, Global, GTCR IV
and certain other stockholders of the Company also entered into amendments to
the Company's Equity Purchase Agreement, Stockholders Agreement and
Registration Agreement which, as amended (i) added JNL as a party thereto;
(ii) granted the Company certain rights to redeem shares of Common Stock held
by Mr. Johnson and GTCR IV in the event that Mr. Johnson and GTCR IV failed to
purchase their New Shares pursuant to the Equity Purchase Agreement; (iii)
granted JNL certain rights to require the Company to register under the
Securities Act shares of Common Stock held by JNL; (iv) granted JNL the right
to designate one director of the Company and one observer with rights to
attend all meetings of the Company's Board of Directors; (v) required the
Company to amend its certificate of incorporation to provide for conversion of
Class A Common Stock into Common Stock at a discount to market rates under
certain circumstances; and (vi) granted JNL preemptive rights to purchase
additional shares of Class A Common Stock and Class C Common Stock under
certain circumstances. Of these rights, only JNL's rights to require the
registration of shares held by it under the Securities Act will continue after
the Offering. Bruce Gorchow, an executive vice president of PPM America and a
director of the Company, was elected to the Company's Board of Directors
pursuant to JNL's board designation rights under the Stockholders Agreement.
ACQUISITION OF CAPITOL OFFICE SOLUTIONS, INC. BY GTCR IV AND GLOBAL MANAGEMENT
In June 1997, GTCR IV, in combination with certain other Global stockholders
and members of Global's management, acquired two thirds of the outstanding
stock of Capitol Office Solutions, Inc. ("Capitol"), a company engaged in the
office imaging solutions industry located in the metropolitan Washington, D.C.
area. Following the acquisition, GTCR IV held discussions with the holder of
the minority interest in Capitol about
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the possibility of a business combination between Capitol and the Company. The
parties were unable to reach agreement, however, and there can be no assurance
that any such business combination will be consummated in the future. In the
absence of a business combination, the Company may find itself competing with
Capitol from time to time, as Capitol operates in the same geographic market
as certain of Global's core companies.
As part of the Capitol transaction, Mr. Johnson, Global's President and
Chief Executive Officer and a director of Global; Neal Berney, a director of
Global; Raymond Schilling, Michael Mueller, and Alfred Vieira, executive
officers of Global; and JNL each purchased shares of Capitol. Global made
loans to Mr. Johnson, Mr. Schilling, Mr. Mueller and Mr. Vieira in the amounts
of $200,000, $115,324, $93,169 and $91,507, respectively. The loans are
evidenced by promissory notes which bear interest at an annual rate of 8.0%
payable at maturity, and which mature on June 30, 2000. The promissory notes
are secured by the Capitol stock purchased with the loan proceeds. Except for
GTCR IV, none of these stockholders holds in excess of ten percent of the
voting stock of Capitol. In connection with the Capitol transaction, PPM
America extended Capitol a $30.0 million line of credit. The directors of
Capitol include Carl Thoma, William Kessinger, Bruce Gorchow and Thomas
Johnson.
Global and Capitol entered into a consulting agreement dated as of June 30,
1997 (the "Capitol Consulting Agreement"), pursuant to which Global provides
management consulting and advisory services to Capitol. Under the Capitol
Consulting Agreement, Global receives an annual management fee of $150,000
(plus reimbursement of reasonable out-of-pocket expenses and interest on
accrued but unpaid fees). From July 1, 1997 through January 31, 1998, $87,500
in management fees have accrued, but have not yet been paid, pursuant to the
Capitol Consulting Agreement. Global also received a one-time fee of $270,000
for Global's assistance in arranging the Capitol transaction and the JNL loan
to Capitol. The Consulting Agreement terminates upon the sale of Capitol or
its assets to a party unaffiliated with Global or, at Capitol's option, at
such time as GTCR IV holds less than 10% of the outstanding common equity of
Capitol.
ADDITIONAL LOANS TO MANAGEMENT
In connection with Mr. Schilling's relocation to Tampa, Global loaned Mr.
Schilling $35,000 pursuant to a promissory note, dated September 28, 1995
(which replaces a promissory note dated October 18, 1994 for $30,000), which
bears interest at 6.28% per annum. Interest and principal on Mr. Schilling's
note would become due upon Mr. Schilling's voluntary resignation from
employment with the Company prior to three years from the date of the note, or
will be forgiven on such date if he has not so resigned. Global also loaned to
Mr. Mueller $11,793 in connection with his relocation to Tampa. Mr. Mueller's
loan is evidenced by a promissory note dated April 17, 1995 which contains
terms similar to those of Mr. Schilling's note.
ACQUISITION OF BERNEY, INC.
On February 24, 1995, the Company acquired all of the outstanding capital
stock of Berney, Inc. (the "Berney Acquisition") pursuant to a Stock Purchase
Agreement (the "Berney Acquisition Agreement") in exchange for $4.6 million in
cash ($460,000 of which was allocated as consideration for certain agreements
by the former stockholders of Berney, Inc. not to compete with the Company).
L. Neal Berney, a director of the Company, held a majority of the capital
stock of Berney, Inc. prior to its acquisition by the Company.
In connection with the acquisition of Berney, Inc., Mr. Berney entered into
an Equity Purchase Agreement with the Company and certain other former
stockholders of Berney, Inc., pursuant to which Mr. Berney purchased 996.66
shares of the Company's Class A Common Stock at a per share price of $90.00,
and 29,038 shares of the Company's Common Stock at a per share price of $0.08.
Mr. Berney entered into an executive agreement with Berney, Inc. upon its
acquisition by Global on February 24, 1995 (the "Berney Executive Agreement").
Pursuant to the Berney Executive Agreement, Mr. Berney receives an annual base
salary initially set at $132,000, subject to periodic increases at the
discretion of the board of directors of Berney, Inc., which consists of Mr.
Johnson, Mr. Berney and Mr. Kessinger. Mr. Berney is eligible for an annual
bonus of up to 50% of his annual base salary upon the attainment of certain
defined objectives. The Berney Executive Agreement renews automatically for
one-year periods unless either party gives 30 days notice of termination.
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In connection with the Company's acquisition of Berney, Inc., the Company
entered into a lease (the "Berney Lease") with an entity partly owned by Mr.
Berney (the "Berney entity") pursuant to which the Company rents space from
such entity at rates the Company believes are commercially competitive. The
Berney Lease expires on February 29, 2000 and may be extended at the option of
the Company for an additional five year term. In fiscal years 1996 and 1997
and the period from April 1, 1997 to January 31, 1998, Berney, Inc. has paid
$134,000, $141,000 and $122,000, respectively, in rent pursuant to the Berney
Lease. In addition, the Company has reached a tentative agreement to lease
space in an additional building from the Berney entity.
OTHER TRANSACTIONS
In April 1996, the Company entered into a transaction pursuant to which
2,210 shares of Class A Common Stock and 64,390 shares of Common Stock were
purchased from a departing employee and transferred to certain investors. In
connection with his participation in the transaction, Neal Berney paid
approximately $99,000 and received 946.381 shares of Class A Common Stock and
27,574 shares of Common Stock.
Mr. Johnson's son, Todd Johnson, is employed by the Company. Todd Johnson
received approximately $56,000 in salary and bonus in fiscal 1997 and
approximately $40,000 in salary in the nine months ended December 31, 1997.
The Company has entered into indemnification agreements with its directors
and executive officers for the indemnification of and advancement of expenses
to such persons to the full extent permitted by law. See "Management--
Limitation of Liability and Indemnification Matters."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of February 28, 1998, and as
adjusted to reflect the sale of 7,000,000 shares of the Common Stock offered
hereby and to reflect the issuance of an aggregate of 86,276 shares of Common
Stock expected to be issued in March 1998, for (i) each person (or group of
affiliated persons) known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock; (ii) each of the Named Executive
Officers; (iii) each director of the Company; (iv) by each Selling Stockholder
and (v) all of the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARED BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
NAME AND ADDRESS OF ----------------------- SHARES TO BE SOLD -----------------------
BENEFICIAL OWNER (1) NUMBER PERCENT IN OFFERING (2) NUMBER PERCENT
- -------------------- ------------ ---------- ----------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Golder, Thoma, Cressey,
Rauner Fund IV Limited
Partnership (3)........ 7,128,310 61.5% 262,291 6,866,019 37.6%
Jackson National Life
Insurance Company (4).. 1,024,829 8.9 37,709 987,120 5.4
Thomas S. Johnson (5)... 832,361 7.2 -- 832,361 4.6
Raymond Schilling (6)... 219,210 1.9 -- 219,210 1.2
Michael Mueller (7)..... 179,188 1.6 -- 179,188 *
Carl D. Thoma (3)....... 7,128,310 61.5 262,291 6,866,019 37.6
Bruce D. Gorchow (4).... 1,024,829 8.9 37,709 987,120 5.4
William C.
Kessinger (3).......... 7,128,310 61.5 262,291 6,866,019 37.6
L. Neal Berney (8)...... 63,232 * -- 63,232 *
All directors and
executive officers as a
group (8 persons) (9).. 9,623,203 83.1% 300,000 9,323,203 51.0%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to shares shown as beneficially owned by such person.
Except as otherwise specified below, the address of each of the beneficial
owners identified is 13902 North Dale Mabry, Suite 300, Tampa, Florida
33618.
(2) In connection with the redemption of Class A Common Stock to be effected
by the Company upon completion of the Offering, GTCR IV, JNL, Mr. Johnson,
Mr. Schilling, Mr. Mueller and Mr. Berney will receive approximately
$23,191,000, $3,833,000, $572,000, $12,000, $23,000 and $225,000,
respectively, in partial payment for the redemption of the shares of Class
A Common Stock held by them. In addition to the cash payments, they will
receive 738,294, 130,233, 18,457, 369, 695 and 6,620 shares of Common
Stock, respectively as payment for the redemption of their shares of Class
A Common Stock.
(3) Consists of 6,312,766 shares held of record by GTCR IV; 738,294 shares of
Common Stock issuable to GTCR IV upon completion of the Offering in
connection with the redemption of 216,666.674 shares of Class A Common
Stock currently held by GTCR IV; and 77,250 shares of Common Stock that
are expected to be issued to GTCR IV prior to the date of this Prospectus
pursuant to contractual obligations outstanding as of February 28, 1998.
Mr. Thoma and Mr. Kessinger, each of whom is a director of the Company and
a principal of GTCR IV, share voting and investment power with respect to
such shares and each may be deemed to be the beneficial owner of such
shares. The address of each of GTCR IV, Carl D. Thoma and William
Kessinger is c/o Golder, Thoma, Cressey, Rauner, Inc., 233 South Wacker
Drive, 61st Floor, 6100 Sears Tower, Chicago, Illinois 60606.
(4) Consists of 894,596 shares held of record by JNL and 130,233 shares of
Common Stock issuable to JNL upon completion of the Offering in connection
with the redemption of 38,219.598 shares of Class A Common Stock currently
held by JNL. Mr. Gorchow, a director of the Company and an executive vice
president of PPM America, which is affiliated with JNL, has voting and
investment power with respect to such shares and may be deemed to be the
beneficial owner of such shares. The address of JNL and Mr. Gorchow is
5901 Executive Drive, Lansing, Michigan 48911.
43
<PAGE>
(5) Includes 18,457 shares of Common Stock issuable to Mr. Johnson upon
completion of the Offering in connection with the redemption of 5,416.697
shares of Class A Common Stock currently held by Mr. Johnson; 9,026 shares
of Common Stock that are expected to be issued to Mr. Johnson prior to the
date of this Prospectus pursuant to contractual obligations outstanding as
of February 28, 1998; and 46,200 shares of Common Stock held of record by
members of Mr. Johnson's immediate family over which Mr. Johnson has
shared dispositive and sole voting power.
(6) Includes 369 shares of Common Stock issuable to Mr. Schilling upon
completion of the Offering in connection with the redemption of 108.334
shares of Class A Common Stock currently held by Mr. Schilling.
(7) Includes 695 shares of Common Stock issuable to Mr. Mueller upon
completion of the Offering in connection with the redemption of 204.082
shares of Class A Common Stock currently held by Mr. Mueller.
(8) Includes 6,620 shares of Common Stock issuable to Mr. Berney upon
completion of the Offering in connection with the redemption of 1,943.041
shares of Class A Common Stock currently held by Mr. Berney. Mr. Berney's
address is c/o Berney, Inc., 209 Gunn Road, Montgomery, Alabama, 36117.
(9) Includes 895,037 shares of Common Stock issuable upon completion of the
Offering in connection with the redemption of 262,666.759 shares of Class
A Common Stock currently held by the Company's directors and executive
officers. See Notes (3) through (8) above.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. As of
February 28, 1998 the Company had outstanding 11,497,363 shares of Common
Stock and had approximately 92 holders of record of the Common Stock. Each
stockholder of record is entitled to one vote for each outstanding share of
Common Stock owned by such stockholder on every matter properly submitted to
the stockholders for their vote.
Subject to the dividend rights of holders of the Preferred Stock, holders of
Common Stock are entitled to any dividend declared by the Board of Directors
out of funds legally available for such purpose, and, after the payment of any
liquidation preferences to all holders of Preferred Stock, holders of Common
Stock are entitled to receive on a pro rata basis all remaining assets of the
Company available for distribution to the stockholders in the event of the
liquidation, dissolution, or winding up of the Company. Holders of Common
Stock do not have any preemptive right under the Charter to become subscribers
or purchasers of additional shares of any class of the Company's capital
stock.
PREFERRED STOCK
As of the closing of this Offering, no shares of preferred stock, $0.01 par
value per share ("Preferred Stock") will be outstanding. Thereafter, the Board
of Directors will be authorized, without further stockholder approval, to
issue up to 10,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, and to fix the number of shares constituting any
series and the designations of such series.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. The Company currently has no plans to issue any
shares of Preferred Stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the holders
of 11,283,639 shares of Common Stock will have certain rights with respect to
the registration of their shares under the Securities Act, pursuant to the
terms of the Registration Agreement among the Company and the holders of such
shares (the "Holders"). If the Company proposes to register any of its
securities under the Securities Act, either for its own account or the
accounts of others, the Holders are entitled to notice of such registration
and are entitled to include their shares of Common Stock in such registration;
provided that the underwriters of any offering have the right under certain
conditions to limit the number of such shares included in such registration.
Certain holders may also require the Company to file, at the Company's
expense, an unlimited number of registration statements under the Securities
Act with respect to their shares of Common Stock, provided that the aggregate
net cash proceeds to all sellers of Common Stock on any such registration
statement is at least $5 million and subject to certain frequency limitations.
Pursuant to the Registration Agreement, the Company has agreed not to make any
public offering of any shares of Common Stock or any securities convertible
into Common Stock for a period extending 90 days after the date of any
underwritten offering in which shares are registered pursuant to the
Registration Agreement without the prior written consent of the underwriters
of such offering, subject to certain exceptions.
The existence and exercise of the foregoing registration rights may hinder
efforts by the Company to arrange future financing for the Company and may
have an adverse effect on the market price of the Common Stock. See "Risk
Factors--Need For Substantial Additional Funds; Highly Leveraged Capital
Structure."
45
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
The Charter allows the Company to issue without stockholder approval
preferred stock having rights senior to those of the Common Stock. In
addition, the Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law. Section 203 prohibits publicly held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change in control of the Company or
reducing the price that certain investors might be willing to pay in the
future for shares of the Common Stock.
The Charter provides that each director will serve for a three-year term
with approximately one third of the directors to be elected annually.
Candidates for director may be nominated only by the Board of Directors or by
a stockholder who gives written notice to the Company no later than 60 days
prior nor earlier than 90 days prior to the first anniversary of the last
annual meeting of stockholders. The Company may have as many directors as may
be determined from time to time pursuant to a resolution of the Board. Between
stockholder meetings, the Board may appoint new directors to fill vacancies or
newly created directorships. The Charter will not provide for cumulative
voting at stockholder meetings for election of directors. As a result,
stockholders controlling more than 50% of the outstanding Common Stock can
elect the entire Board of Directors, while stockholders controlling 49% or
less of the Common Stock may not be able to elect any directors. A director
may be removed from office without cause only by the affirmative vote of 75%
of the combined voting power of the then outstanding shares entitled to vote
generally in the election of directors and for cause only by the affirmative
vote of 66 2/3% of such combined voting power. See "Management--Board
Composition."
The Charter and the Bylaws also require that, any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board, the chief executive officer of the Company, or by any
person or persons holding shares representing at least 20% of the outstanding
capital stock. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
has been appointed as the transfer agent and registrar for the
Company's Common Stock.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 18,283,639 shares of
Common Stock outstanding. Of these shares, the 7,000,000 shares (8,050,000
shares if the Underwriters' over-allotment options are exercised in full) of
Common Stock sold in the Offering will be freely transferable without
restriction under the Securities Act unless they are held by the Company's
"affiliates," as defined in Rule 144 under the Securities Act.
The remaining 11,283,639 shares of Common Stock outstanding (10,233,639
shares of Common Stock if the Underwriters' over-allotment options are
exerised in full) are "restricted securities" as that term is defined in Rule
144 (the "Restricted Shares"). Of the Restricted Shares, approximately
10,648,226 shares will become eligible for sale 90 days after completion of
the Offering, subject in some cases to certain volume restrictions and other
conditions imposed under Rules 144 and 701. The remaining approximately
635,413 shares will be eligible for sale upon the expiration of their
respective holding periods as set forth in Rule 144. In addition, the holders
of approximately 11,283,639 of the Restricted Shares are entitled to certain
registration rights with respect to such shares. See "Description of Capital
Stock--Registration Rights." While of the Restricted Shares are subject to
lock-up agreements and may not be sold for 180 days following the date of this
Prospectus, such agreements provide that Prudential Securities Incorporated
may, in its sole discretion at any time and without notice, release all or a
portion of the shares from these lock-up agreements.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 approximately 1,800,000 shares
of Common Stock issuable under the Stock Plan. Of the 1,800,000 shares
issuable under the Stock Plan, none will be outstanding on the date of
completion of the Offering and no options to purchase such shares will vest
prior to 180 days following the date of this Prospectus.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year (including holding periods of prior owners other than
affiliates) is entitled to sell, within any three-month period commencing 90
days after the closing of the Offering, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding Common Stock
(approximately 182,836 shares immediately after this Offering, assuming no
exercise of the Underwriters' over-allotment options) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to the
sale and other limitations. In general, shares issued in compliance with Rule
701 may be sold commencing 90 days after the closing of the Offering by non-
affiliates subject to the manner of sale requirements of Rule 144, but without
compliance with the other requirements of Rule 144. Affiliates may sell shares
they acquired under Rule 701 commencing 90 days after the closing of the
Offering in compliance with the provisions of Rule 144 commencing 90 days
after the closing of the Offering, subject to volume limitations and certain
other restrictions under Rule 144. A person who is not an affiliate, has not
been an affiliate within three months prior to sale and has beneficially owned
restricted securities for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
The Company, its executive officers and directors, the Selling Stockholders
and certain stockholders of the Company have agreed that they will not, for a
period of 180 days subsequent to the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or securities
substantially similar thereto, or any securities convertible into or
exercisable or exchangeable for, any shares of Common Stock or securities
substantially similar thereto of the Company (excluding shares of Common Stock
held or proposed to be held through the Company's Savings Plan) without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except that such agreements do not prevent the Company from
granting [additional] options [or restricted stock] under the Stock Plan.
Prudential Securities Incorporated may, in its sole discretion, at any time
and without notice, release all or any portion of the securities subject to
such lock-up agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Sales of a substantial amount of Common Stock in the public
market could adversely affect the market price of the Common Stock and impair
the Company's ability to sell equity securities in the future on favorable
terms.
47
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Smith Barney Inc., William Blair & Company, L.L.C.
and Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated.................................
Smith Barney Inc...................................................
William Blair & Company, L.L.C.....................................
Raymond James & Associates, Inc....................................
---------
Total.............................................................. 7,000,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby, if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters may reallow to selected dealers a
concession of $ per share; and that such dealers may reallow a concession
of $ per share to certain other dealers. After the initial public offering,
the offering price and the concessions may be changed by the Representatives.
The Selling Stockholders have granted the Underwriters over-allotment
options, exercisable for 30 days from the date of this Prospectus, to
purchase, in the aggregate, up to 1,050,000 additional shares of Common Stock
at the initial public offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such options to purchase are exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
7,000,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters and contribute to any losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company, its executive officers and directors, the Selling Stockholders
and certain stockholders of the Company have agreed that they will not, for a
period of 180 days subsequent to the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or securities
substantially similar thereto, or any securities convertible into or
exercisable or exchangeable for, any shares of Common Stock or securities
substantially similar thereto of the Company (excluding shares of Common Stock
held or proposed to be held through the Company's Savings Plan) without the
prior written consent of Prudential Securities Incorporated, on
48
<PAGE>
behalf of the Underwriters, except that such agreements do not prevent the
Company from granting additional options under the Stock Plan. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to such lock-up
agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in making such
determination will be the prevailing market conditions, the Company's
financial and operating history and condition, its prospects and the prospects
for its industry in general, the management of the Company and the market
prices of securities for companies in businesses similar to that of the
Company.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following the closing of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 1,050,000 shares of Common Stock, by exercising the
Underwriters' over-allotment options referred to above. In addition,
Prudential Securities Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, may be discontinued at any time.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal
matters will be passed upon for the Underwriters by Willkie Farr & Gallagher,
New York, New York. Tidewater Partners, LLC ("Tidewater"), a limited liability
company whose managing members are J. Hovey Kemp and Christopher J. Hagan,
partners of Hogan & Hartson L.L.P., and whose additional members consist of
two attorneys and one legal assistant at Hogan & Hartson L.L.P., owns 650
shares of the Company's Class A Common Stock and 15,834 shares of Common
Stock. Upon completion of the Offering and the redemption of shares of the
Company's Class A Common Stock, Tidewater will receive approximately $65,000
and will hold a total of 18,048 shares of Common Stock. J. Hovey Kemp and
Christopher J. Hagan each serve as Assistant Secretary to the Company. Mr.
Kemp is also a Director and an Assistant Secretary of Capitol.
EXPERTS
The consolidated financial statements of Global Imaging Systems, Inc. at
March 31, 1996, March 31, 1997, and December 31, 1997, and from inception
(June 3, 1994) to March 31, 1995 and for each of the two years in the period
ended March 31, 1997, and for the nine months ended December 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Copy Service & Supply, Inc. for the five-month
period ended May 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Barnard, Combs, Potts & Rhyne,
49
<PAGE>
PA, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Southern Business Communications Group for the
nine-month period ended September 30, 1996, appearing in this Prospectus and
Registration Statement have been audited by Smith & Howard, P.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Electronic Systems, Inc. for each of the two
years in the period ended December 31, 1996, and for the six-month period
ended June 30, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Eastern Copy Products, Inc. and Subsidiaries for
each of the three years in the period ended July 31, 1997, appearing in this
Prospectus and Registration Statement have been audited by Pasquale & Bowers,
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Duplicating Specialties, Inc. d/b/a Copytronix
for the ten-month period ended August 31, 1997, appearing in this Prospectus
and Registration Statement have been audited by Moss Adams LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Electronic Systems of Richmond, Inc. for the
year ended December 31, 1996 and for the eleven-month period ended November
30, 1997, appearing in this Prospectus and Registration Statement have been
audited by Edmondson, LedBetter & Ballard, L.L.P., independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of Connecticut Business Systems, Inc. for each of
the two years in the period ended September 30, 1997, and for the three-month
period ended December 31, 1997, appearing in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of the Business Systems Division of Bloom's Inc.,
for the year ended January 31, 1997, and for the eleven-month period ended
December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Joseph D. Kalicka & Company, LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act, of which this
Prospectus is a part, with respect to the Common Stock offered hereby. This
Prospectus omits certain information contained in the Registration Statement,
and reference is made to the Registration Statement for further information
with respect to the Company and the Common Stock offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents and when any such document is an exhibit to the
Registration Statement, each such statement is qualified in its entirety by
reference to the copy of such document filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional
Offices
50
<PAGE>
at 65 Park Place, Room 1288, New York, New York 10017, and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and
copies may be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Registration Statement, including all exhibits and schedules, and such reports
and other information may also be accessed electronically by means of the
Commission's site on the World Wide Web, at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent certified public accountants
and make available to its stockholders quarterly reports containing unaudited
financial data for the first three quarters of each fiscal year.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Basis of Presentation.................................................... F-3
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997... F-4
Unaudited Pro Forma Consolidated Statements of Operations--Year Ended
March 31, 1997.......................................................... F-6
Unaudited Pro Forma Consolidated Statements of Operations--Nine-Month
Period Ended December 31, 1997.......................................... F-8
FINANCIAL STATEMENTS OF GLOBAL IMAGING SYSTEMS, INC.
Report of Independent Auditors........................................... F-10
Consolidated Balance Sheets as of March 31, 1996 and 1997 and December
31, 1997................................................................ F-12
Consolidated Statements of Operations from Inception (June 3, 1994) to
March 31, 1995, for the Years Ended March 31, 1996 and 1997 and the Nine
Months Ended December 31, 1996 (Unaudited) and 1997..................... F-14
Consolidated Statements of Stockholders' Equity (Deficit) from Inception
(June 3, 1994) to March 31, 1995, for the Years Ended March 31, 1996 and
1997 and the Nine Months Ended December 31, 1997........................ F-15
Consolidated Statements of Cash Flows from Inception (June 3, 1994) to
March 31, 1995, for the Years Ended March 31, 1996 and 1997 and the Nine
Months Ended December 31, 1996 (Unaudited) and 1997..................... F-16
Notes to Consolidated Financial Statements............................... F-17
FINANCIAL STATEMENTS OF COPY SERVICE & SUPPLY, INC.
Independent Auditors' Report............................................. F-28
Combined Statement of Income and Owners' Capital for the Five-Month
Period Ended May 31, 1996............................................... F-29
Combined Statement of Cash Flows for the Five-Month Period Ended May 31,
1996.................................................................... F-30
Notes to Financial Statements............................................ F-31
FINANCIAL STATEMENTS OF SOUTHERN BUSINESS COMMUNICATIONS GROUP
Independent Auditors' Report............................................. F-36
Combined Statement of Income for the Nine-Month Period Ended September
30, 1996................................................................ F-37
Combined Statement of Cash Flows for the Nine-Month Period Ended
September 30, 1996...................................................... F-38
Notes to Combined Financial Statements................................... F-39
FINANCIAL STATEMENTS OF ELECTRONIC SYSTEMS, INC.
Report of Independent Auditors........................................... F-41
Statements of Income and Retained Earnings for the Years Ended December
31, 1995 and 1996 and the Six-Month Period Ended June 30, 1997.......... F-42
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six-Month Period Ended June 30, 1997............................ F-43
Notes to Financial Statements............................................ F-44
</TABLE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................. F-47
Consolidated Statements of Income and Retained Earnings for the Years
Ended July 31, 1995, 1996 and 1997...................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the Years Ended July 31, 1995,
1996 and 1997............................................................ F-49
Notes to the Consolidated Financial Statements............................ F-50
FINANCIAL STATEMENTS OF DUPLICATING SPECIALTIES, INC. (COPYTRONIX)
Independent Auditor's Report.............................................. F-54
Statement of Income and Retained Earnings for the Ten-Month Period Ended
August 31, 1997.......................................................... F-55
Statement of Cash Flows for the Ten-Month Period Ended August 31, 1997.... F-56
Notes to Financial Statements............................................. F-57
FINANCIAL STATEMENTS OF ELECTRONIC SYSTEMS OF RICHMOND, INC.
Independent Auditor's Report.............................................. F-60
Statements of Income and Retained Earnings for the Year Ended December 31,
1996 and the Eleven-Month Period Ended November 30, 1997................. F-61
Statements of Cash Flows for the Year Ended December 31, 1996 and the
Eleven-Month Period Ended November 30, 1997.............................. F-62
Notes to Financial Statements............................................. F-63
FINANCIAL STATEMENTS OF CONNECTICUT BUSINESS SYSTEMS, INC.
Report of Independent Public Accountants.................................. F-65
Statements of Income (Loss) and Retained Earnings (Deficit) for the Years
Ended September 30, 1996 and 1997 and Three-Month Period Ended December
31, 1997................................................................. F-66
Statements of Cash Flows for the Years Ended September 30, 1996 and 1997
and the Three-Month Period Ended December 31, 1997....................... F-67
Notes to Financial Statements............................................. F-68
FINANCIAL STATEMENTS OF BUSINESS SYSTEMS DIVISION (BLOOMS)
Report of Independent Certified Public Accountants........................ F-72
Statements of Divisional Net Assets for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997.......................... F-73
Statements of Divisional Operations for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997 ......................... F-74
Statements of Changes in Divisional Net Assets for the Year Ended January
31, 1997 and the 11-Month Period Ended December 31, 1997................. F-75
Statements of Divisional Cash Flows for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997.......................... F-76
Notes to Financial Statements............................................. F-77
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited proforma consolidated financial statements are based
on the historical financial statements of the Company, and the businesses
acquired during fiscal 1997 and 1998, which are more fully described below.
The following unaudited pro forma consolidated balance sheet of the Company as
of December 31, 1997, gives effect to the February, 1998 acquisition of the
Business Systems Division of Bloom's, Inc. and the January 1998 sale of Global
stock to the seller of Connecticut Business Systems, as if these transactions
had occurred on December 31, 1997. The unaudited pro forma consolidated
statements of operations for the nine months ended December 31, 1997 give
effect to acquisitions consummated during fiscal year 1998, as if those
acquisitions occurred on April 1, 1997. The unaudited pro forma consolidated
statements of operations for the fiscal year ended March 31, 1997 give effect
to acquisitions consummated during fiscal year 1997 and 1998, as if those
acquisitions occurred on April 1, 1996.
During the fiscal year ended March 31, 1997, the Company acquired the stock
or certain assets and liabilities of the following four entities: Copy Service
& Supply, Inc., Copy World of Pittsburgh, Inc., DAPCO Copy Products, Inc., and
Southern Business Communications, Inc., Southern Business Communications of
D.C., Inc. and ATS Atlanta One, LLC (collectively, the latter three entities
are referred to herein as "Southern Business Communications Group"). During
the nine months ended December 31, 1997, the Company acquired the following
ten additional entities: Cascade Office Systems, Inc., Connecticut Business
Systems, Inc., Duplicating Specialties, Inc. d/b/a Copytronix, Eastern Copy
Products, Inc. and Subsidiaries, Electronic Systems, Inc., Electronic Systems
of Richmond, Inc., Quality Business Systems, Inc., South Alabama Business
Machines, Inc., Copy Care, and United Office Systems, Inc. In addition, the
Company acquired the Business Systems Division of Bloom's, Inc. in
February 1998.
The pro forma adjustments are based upon currently available information, as
well as upon certain assumptions that management believes are reasonable. Each
of the acquisitions was accounted for under the purchase method of accounting.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved had the foregoing transactions been consummated as of
the indicated dates. The unaudited pro forma consolidated financial statements
should be read in conjunction with the notes thereto and the historical
consolidated financial statements of the Company, together with the related
notes thereto, included in this Prospectus and Registration Statement.
F-3
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BUSINESS
HISTORICAL SYSTEMS DIVISION PRO-FORMA PRO-FORMA
COMPANY OF BLOOM'S, INC.(A) ADJUSTMENTS CONSOLIDATED
---------- ------------------- ----------- ------------
A S S E T S
<S> <C> <C> <C> <C>
Current Assets:
Cash and Cash
Equivalents.......... $ 3,897,598 -- $ 648,000 (b) $ 4,545,598
Accounts Receivable... 26,532,661 $1,855,000 -- 28,387,661
Inventories........... 17,573,337 898,000 -- 18,471,337
Deferred Income
Taxes................ 1,770,000 -- -- 1,770,000
Prepaid Expenses and
Other Current
Assets............... 790,081 -- -- 790,081
------------ ---------- ----------- ------------
Total Current
Assets............. 50,563,677 2,753,000 648,000 53,964,677
Rental Equipment, net... 4,879,046 331,000 -- 5,210,046
Property and Equipment,
net.................... 4,038,651 50,000 -- 4,088,651
Other Assets............ 509,158 -- -- 509,158
Deferred Income Taxes... 838,000 -- -- 838,000
Related Party Notes
Receivable............. 546,793 -- -- 546,793
Intangible Assets, net
Goodwill.............. 90,092,125 -- 4,404,190 (b)(c) 94,496,315
Noncompete
Agreements........... 1,463,928 -- 100,000 (c) 1,563,928
Financing Fees........ 2,981,676 -- -- 2,981,676
------------ ---------- ----------- ------------
Total Assets........ $155,913,054 $3,134,000 $ 5,152,190 $164,199,244
============ ========== =========== ============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Current Liabilities:
Accounts Payable...... $ 10,564,648 $ 163,000 -- $ 10,727,648
Accrued Liabilities... 3,350,029 32,000 -- 3,382,029
Accrued Compensation
and Benefits......... 3,120,989 -- -- 3,120,989
Current Maturities of
Long-term Debt....... 268,985 -- -- 268,985
Deferred Revenue...... 11,053,619 872,000 -- 11,925,619
------------ ---------- ----------- ------------
Total Current
Liabilities........ 28,358,270 1,067,000 -- 29,425,270
Long-term Debt, Less
Current Maturities..... 92,340,216 -- $ 5,600,000 (c) 97,940,216
------------ ---------- ----------- ------------
Total Liabilities... 120,698,486 1,067,000 5,600,000 127,365,486
Stockholders' Equity:
Pre-Acquisition
Equity............... -- 2,067,000 (2,067,000)(c) --
Class A Common Stock.. 3,329 -- 70 (b) 3,399
Class B Common Stock.. 93,148 -- 1,320 (b) 94,468
Class C Common Stock.. 8,946 -- -- 8,946
Additional Paid-in
Capital.............. 32,291,100 -- 1,617,800 (b) 33,908,900
Retained Earnings..... 3,090,682 -- -- 3,090,682
------------ ---------- ----------- ------------
35,487,205 2,067,000 (447,810) 37,106,395
Less Stockholder
Receivables.......... (272,637) -- -- (272,637)
------------ ---------- ----------- ------------
Total Stockholders'
Equity............. 35,214,568 2,067,000 (447,810) 36,833,758
------------ ---------- ----------- ------------
Total Liabilities
and Stockholders'
Equity............. $155,913,054 $3,134,000 $ 5,152,190 $164,199,244
============ ========== =========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 1997
(a) This column represents the assets and liabilities of the Business Systems
Division of Bloom's Inc. at December 31, 1997 acquired by the Company.
(b) These pro-forma adjustments consist of a transaction whereby the seller of
Connecticut Business Systems, Inc. purchased stock of the Company on
January 9, 1998, in accordance with the company purchase agreement at
below fair market value resulting in additional goodwill.
(c) These pro-forma adjustments consist of the purchase accounting adjustments
in connection with the purchase of the Business Systems Division of
Bloom's, Inc. which became effective February 1, 1998. These adjustments
relate to goodwill, non-compete agreements, and debt obtained to finance
the purchase.
F-5
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
-------------------------
HISTORICAL ACQUIRED PURCHASE PRO-FORMA
COMPANY BUSINESSES(A)(G) ACCOUNTING OTHER CONSOLIDATED
----------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $41,200,292 $102,932,447 -- -- $144,132,739
Service and rental
revenues............. 22,892,898 29,816,889 -- -- 52,709,787
----------- ------------ ---------- ---------- ------------
Total revenues...... 64,093,190 132,749,336 -- -- 196,842,526
Costs and operating
expenses:
Cost of equipment and
supplies sales....... 27,087,299 79,061,787 -- -- 106,149,086
Service and rental
costs................ 11,467,191 16,135,807 -- $ (699,142)(b) 26,903,856
Selling, general, and
administrative
expenses............. 18,279,813 30,269,416 -- (2,581,941)(c) 45,967,288
Intangible asset
amortization and
charges.............. 1,939,288 -- $2,373,605 (d) -- 4,312,893
----------- ------------ ---------- ---------- ------------
Total costs and
operating
expenses........... 58,773,591 125,467,010 2,373,605 (3,281,083) 183,333,123
----------- ------------ ---------- ---------- ------------
Income (loss) from
operations......... 5,319,599 7,282,326 (2,373,605) 3,281,083 13,509,403
Interest expense........ 3,189,204 434,642 6,173,564 (e) -- 9,797,410
----------- ------------ ---------- ---------- ------------
Income (loss) before
income taxes......... 2,130,395 6,847,684 (8,547,169) 3,281,083 3,711,993
Income taxes.......... 1,007,071 2,637,377 (3,123,402)(f) 1,283,137 (f) 1,804,183
----------- ------------ ---------- ---------- ------------
Net income (loss)..... 1,123,324 4,210,307 (5,423,767) 1,997,946 1,907,810
Yield adjustment on
class A common stock (1,402,225) (2,445,064)
----------- ------------
Net (loss) available
to common
stockholders $ (278,901) $ (537,254)
=========== ============
Loss per common share
(basic and diluted)... $ (0.03) $ (0.05)
=========== ============
Weighted average
number of common
shares used in the
calculation.......... 9,886,668 11,583,792
=========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997
(a) Represents historical operating results of the following fifteen entities
prior to acquisition of their stock or certain of their assets and
liabilities by the Company: Cascade Office Systems, Inc., Copy World of
Pittsburgh, Inc., DAPCO Copy Products, Inc., Connecticut Business Systems,
Inc., the Business Systems Division of Bloom's, Inc., Copy Service &
Supply, Inc., Duplicating Specialties, Inc. d/b/a Copytronix, Eastern Copy
Products, Inc. and Subsidiaries, Electronic Systems, Inc., Electronic
Systems of Richmond, Inc., Quality Business Systems, Inc., South Alabama
Business Machines, Inc., Southern Business Communications Group, Copy
Care, and United Office Systems, Inc.
(b) Reflects identified personnel cost savings related to elimination of
certain service positions at acquired companies. Prior to completing an
acquisition, the Company formulates a cost savings program involving the
elimination of certain service positions. These positions are typically
eliminated within several months of the acquisition date. The Company
classifies service salaries and related costs in the cost of sales
(service and rental costs) section of the Company's financial statements.
(c) Includes estimated cost savings directly related to the acquisition. These
include the elimination of certain sales and administrative positions, net
of additional expenses related to added positions (net savings of
$334,447); a decrease in former owners' salaries and perquisites of
$2,047,066 and $158,223, respectively, to reflect current compensation
levels of former owners as specified in employment agreement; and a
decrease in building lease payments of $42,205 to reflect current lease
rates as specified in acquisition agreements. Staff reductions are
typically completed within several months of the acquisition date.
(d) Reflects additional goodwill amortization expense of $1,919,978 and non-
compete covenant amortization expense of $453,627. The goodwill
amortization periods range from 20 to 40 years; goodwill is amortized
using the straight-line method. The non-compete covenant amortization
periods range from 2 to 4 years; non-compete covenants are amortized using
the straight-line method.
(e) Reflects additional interest expense related to borrowings that would have
been incurred by the Company, had all of the acquisitions been consummated
at April 1, 1996. An average interest rate of 8.9% was used for this
calculation, which approximates the Company's actual borrowing rate during
such period.
(f) Represents the income tax impact of purchase accounting adjustments and
other pro forma adjustments.
(g) Certain acquired businesses contain periods of activity that are included
both in the March 31, 1997 and December 31, 1997 pro forma statements of
operations, due to the fact that the acquired business' fiscal year-end
does not coincide with the Company's fiscal year-end. Revenues of
$6,746,321 and a net loss of $314,277 of Connecticut Business Systems,
Inc., for the period from April 1, 1997 through September 30, 1997 is
included in both the March 31, 1997 and December 31, 1997 pro forma
statements of operations. Revenues of $5,418,394 and net income of
$370,317 of Eastern Copy Products, Inc. and Subsidiaries for the period
from April 1, 1997 through July 31, 1997, is included in both the March
31, 1997 and December 31, 1997 pro forma income statements of operations.
F-7
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
---------------------------
HISTORICAL ACQUIRED PURCHASE PRO-FORMA
COMPANY BUSINESSES (A) (G) ACCOUNTING OTHER CONSOLIDATED
----------- ------------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $80,515,099 $36,336,885 -- -- $116,851,984
Service and rental
revenue.............. 29,514,904 13,023,619 -- -- 42,538,523
----------- ----------- ----------- ----------- ------------
Total revenues...... 110,030,003 49,360,504 -- -- 159,390,507
Costs and operating ex-
penses:
Cost of equipment and
supplies sales....... 57,487,742 25,226,248 -- -- 82,713,990
Service and rental
costs................ 14,492,645 6,718,837 -- $ (236,597)(b) 20,974,885
Selling, general, and
administrative
expenses............. 25,817,773 14,997,190 -- (1,293,353)(c) 39,521,610
Intangible asset
amortization and
charges.............. 2,159,538 -- $ 993,977(d) -- 3,153,515
----------- ----------- ----------- ----------- ------------
Total costs and
operating
expenses........... 99,957,698 46,942,275 993,977 (1,529,950) 146,364,000
----------- ----------- ----------- ----------- ------------
Income (loss) from
operations......... 10,072,305 2,418,229 (993,977) 1,529,950 13,026,507
Interest expense........ 4,534,167 26,179 2,513,829(e) -- 7,074,175
----------- ----------- ----------- ----------- ------------
Income (loss) before
income taxes......... 5,538,138 2,392,050 (3,507,806) 1,529,950 5,952,332
Income taxes.......... 2,749,337 952,167 (1,288,867)(f) 596,365(f) 3,009,002
----------- ----------- ----------- ----------- ------------
Net income (loss)..... 2,788,801 1,439,883 (2,218,939) 933,585 2,943,330
----------- ----------- ----------- ----------- ------------
Yield adjustment on
class A common
stock................ (1,349,128) (1,844,086)
----------- ------------
Net income available
to common
stockholders......... $ 1,439,673 $ 1,099,244
=========== ============
Earnings per common
share
(basic and diluted)... $ 0.13 $ 0.09
=========== ============
Weighted average number
of common shares
outstanding............ 10,767,240 11,583,792
=========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997
(a) Represents historical operating results of the following eleven entities
prior to acquisition of their stock or certain of their assets and
liabilities by the Company: Cascade Office Systems, Inc., Connecticut
Business Systems, Inc., the Business Systems Division of Bloom's, Inc.,
Duplicating Specialties, Inc. d/b/a Copytronix, Eastern Copy Products,
Inc. and Subsidiaries, Electronic Systems, Inc., Electronic Systems of
Richmond, Inc., Quality Business Systems, Inc., South Alabama Business
Machines, Inc., Copy Care, Inc. and United Office Systems, Inc.
(b) Reflects identified personnel cost savings directly related to elimination
of certain service positions at acquired companies. Prior to completing an
acquisition, the Company formulates a cost savings program involving the
elimination of certain service positions. These positions are typically
eliminated within several months of the acquisition date. The Company
classifies service salaries and related costs in the cost of sales
(service and rental costs) section of the Company's financial statements.
(c) Includes estimated cost savings directly related to the acquisition. These
include the elimination of certain sales and administrative positions, net
of additional expenses related to added positions (net savings of
$54,385); a decrease in former owners' salaries and perquisites of
$1,166,219 and $60,519, respectively, to reflect current compensation
levels of former owners as specified in employment agreements; and a
decrease in lease payments of $12,230 to reflect current lease rates as
specified in acquisition agreements. Staff reductions are typically
completed within several months of the acquisition date.
(d) Reflects additional goodwill amortization expense of $854,049 and non-
compete covenant amortization expense of $139,928. The goodwill
amortization periods range from 20 to 40 years; goodwill is amortized
using the straight-line method. The non-compete covenant amortization
periods range from 2 to 4 years; non-compete covenants are amortized using
the straight-line method.
(e) Reflects additional interest expense related to borrowings that would have
been incurred by the Company, had all of the acquisitions been consummated
at April 1, 1996. An average interest rate of 8.9% was used for this
calculation which approximates the Company's actual borrowing rate during
such period.
(f) Represents the income tax impact on purchase accounting adjustments and
other pro forma adjustments.
(g) Certain acquired businesses contain periods of activity that are included
both in the March 31, 1997 and December 31, 1997 pro forma statements of
operations, due to the fact that the acquired business' fiscal year-end
does not coincide with the Company's fiscal year-end. Revenues of
$6,746,321 and a net loss of $314,277 of Connecticut Business Systems,
Inc., for the period from April 1, 1997 through September 30, 1997 is
included in both the March 31, 1997 and December 31, 1997 pro forma
statements of operations. Revenues of $5,418,394 and net income of
$370,317 of Eastern Copy Products, Inc. and Subsidiaries for the period
from April 1, 1997 through July 31, 1997 is included in both the March 31,
1997 and December 31, 1997 pro forma income statements of operations.
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Global Imaging Systems, Inc.
We have audited the accompanying consolidated balance sheets of Global
Imaging Systems, Inc. as of March 31, 1996 and 1997 and December 31, 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows from inception (June 3, 1994) to March 31, 1995, for each of the
two years in the period ended March 31, 1997 and for the nine-month period
ended December 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 consolidated financial position of Global
Imaging Systems, Inc. at March 31, 1996 and 1997 and December 31, 1997 and the
consolidated results of its operations and its cash flows from inception (June
3, 1994) to March 31, 1995, for the years ended March 31, 1996 and 1997, and
for the nine-month period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Tampa, FL
February 13, 1998,
except for Note 12, as to which the date is
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
F-10
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-11
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
----------------------- DECEMBER 31
1996 1997 1997
----------- ----------- ------------
A S S E T S
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 397,727 $ 960,758 $ 3,897,598
Accounts receivable, net of allowance
for doubtful accounts ($200,000,
$309,000 and $879,000 at March 31, 1996
and 1997 and December 31, 1997,
respectively).......................... 5,653,186 10,856,167 26,532,661
Inventories............................. 5,526,050 10,055,214 17,573,337
Deferred income taxes................... 251,000 554,000 1,770,000
Prepaid expenses and other current
assets................................. 134,448 112,260 790,081
----------- ----------- ------------
Total current assets.................. 11,962,411 22,538,399 50,563,677
Rental equipment, net..................... 2,634,613 3,668,106 4,879,046
Property and equipment, net............... 1,246,512 1,721,134 4,038,651
Other assets.............................. 294,930 173,816 509,158
Deferred income taxes..................... 121,500 870,000 838,000
Related party notes receivable............ -- 46,793 546,793
Intangible assets, net:
Goodwill................................ 25,074,904 35,824,147 90,092,125
Noncompete agreements................... 1,933,333 1,615,855 1,463,928
Financing fees.......................... 406,987 2,531,917 2,981,676
----------- ----------- ------------
Total assets.......................... $43,675,190 $68,990,167 $155,913,054
=========== =========== ============
</TABLE>
See accompanying notes.
F-12
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31 PRO FORMA
------------------------ DECEMBER 31 DECEMBER 31
1996 1997 1997 1997
----------- ----------- ------------ -----------
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable........ $ 1,468,904 $ 3,811,761 $ 10,564,648
Accrued liabilities..... 773,833 1,467,343 3,350,029
Accrued compensation and
benefits............... 940,328 1,789,605 3,120,989
Current maturities of
long-term debt......... 312,641 562,700 268,985
Deferred revenue........ 3,358,279 5,252,390 11,053,619
Income taxes payable.... 70,000 -- --
----------- ----------- ------------
Total current
liabilities.......... 6,923,985 12,883,799 28,358,270
Long-term debt, less
current maturities....... 21,518,848 36,310,123 92,340,216
----------- ----------- ------------
Total liabilities..... 28,442,833 49,193,922 120,698,486
Stockholders' equity:
Class A common stock,
$.01 par value: 400,000
shares authorized;
172,917, 211,146 and
332,925 shares issued
and outstanding at
March 31, 1996 and 1997
and December 31, 1997,
respectively........... 1,729 2,111 3,329 $ --
Class B common stock,
$.01 par value:
50,000,000 shares
authorized; 8,114,436,
8,562,708 and 9,314,839
shares issued and
outstanding at March
31, 1996 and 1997 and
December 31, 1997,
respectively........... 81,144 85,627 93,148 104,728
Class C common stock,
$.01 par value: 900,000
shares authorized; and
-0-, 633,996 and
894,596 shares issued
and outstanding at
March 31, 1996 and 1997
and December 31, 1997,
respectively........... -- 6,340 8,946 8,946
Additional paid-in
capital................ 15,970,927 19,500,286 32,291,100 730,836
Retained earnings
(deficit).............. (821,443) 301,881 3,090,682 (1,007,494)
----------- ----------- ------------ -----------
15,232,357 19,896,245 35,487,205 (162,984)
Less stockholder
receivables............ -- (100,000) (272,637) (272,637)
----------- ----------- ------------ -----------
Total stockholders'
equity............... 15,232,357 19,796,245 35,214,568 $ (435,621)
----------- ----------- ------------ ===========
Total liabilities and
stockholders'
equity............... $43,675,190 $68,990,167 $155,913,054
=========== =========== ============
</TABLE>
See accompanying notes.
F-13
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH PERIOD ENDED
(JUNE 3, 1994) YEAR ENDED MARCH 31 DECEMBER 31
TO MARCH 31 ------------------------ -------------------------
1995 1996 1997 1996 1997
-------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $ 6,541,079 $20,561,009 $41,200,292 $27,502,695 $ 80,515,099
Service and rentals... 3,734,730 16,404,888 22,892,898 16,610,942 29,514,904
----------- ----------- ----------- ----------- ------------
Total revenues...... 10,275,809 36,965,897 64,093,190 44,113,637 110,030,003
Costs and operating
expenses:
Cost of equipment and
supplies sales....... 4,193,323 13,455,435 27,087,299 17,982,519 57,487,742
Service and rental
costs................ 1,885,150 8,302,791 11,467,191 8,274,398 14,492,645
Selling, general and
administrative
expenses............. 4,122,500 11,687,398 18,279,813 12,741,792 25,817,773
Intangible asset
amortization......... 328,868 1,396,463 1,939,288 1,397,826 2,159,538
----------- ----------- ----------- ----------- ------------
Total costs and
operating
expenses........... 10,529,841 34,842,087 58,773,591 40,396,535 99,957,698
----------- ----------- ----------- ----------- ------------
Income (loss) from
operations............. (254,032) 2,123,810 5,319,599 3,717,102 10,072,305
Interest expense........ (375,043) (2,041,178) (3,189,204) (2,325,431) (4,534,167)
----------- ----------- ----------- ----------- ------------
Income (loss) before
income taxes........... (629,075) 82,632 2,130,395 1,391,671 5,538,138
Income taxes............ -- 275,000 1,007,071 657,843 2,749,337
----------- ----------- ----------- ----------- ------------
Net income (loss)....... (629,075) (192,368) 1,123,324 733,828 2,788,801
Yield adjustment on
Class A common stock... (189,883) (1,022,979) (1,402,225) (1,028,812) (1,349,128)
----------- ----------- ----------- ----------- ------------
Net income (loss)
available to common
stockholders........... $ (818,958) $(1,215,347) $ (278,901) $ (294,984) $ 1,439,673
=========== =========== =========== =========== ============
Earnings (loss) per
share
Basic and diluted..... $ (.13) $ (.13) $ (.03) $ (.03) $ .13
=========== =========== =========== =========== ============
Weighted average number
of shares used in the
calculation............ 6,489,120 9,176,112 9,886,668 9,767,868 10,767,240
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes.
F-14
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK CLASS C COMMON STOCK
---------------------- ---------------------------------------------
ADDITIONAL RETAINED
PAID-IN STOCKHOLDER EARNINGS
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLES (DEFICIT)
---------- ----------- ----------- --------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
3, 1994
(Inception)..... -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Common Stock
issued......... 48,995 490 7,890,960 78,910 -- -- 4,893,491 -- --
Net loss........ -- -- -- -- -- -- -- -- (629,075)
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1995........ 48,995 490 7,890,960 78,910 -- -- 4,893,491 -- (629,075)
Common stock
issued......... 123,922 1,239 223,476 2,234 -- -- 11,077,436 -- --
Net loss........ -- -- -- -- -- -- -- -- (192,368)
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1996........ 172,917 1,729 8,114,436 81,144 -- -- 15,970,927 -- (821,443)
Common stock
issued......... 38,229 382 448,272 4,483 633,996 6,340 3,529,359 (100,000) --
Net income...... -- -- -- -- -- -- -- -- 1,123,324
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1997........ 211,146 2,111 8,562,708 85,627 633,996 6,340 19,500,286 (100,000) 301,881
Common stock
issued......... 121,779 1,218 752,136 7,521 260,588 2,606 12,790,814 (172,637) --
Net income...... -- -- -- -- -- -- -- -- 2,788,801
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at
December 31,
1997............ 332,925 $ 3,329 9,314,844 $ 93,148 894,564 $ 8,946 $32,291,100 $(272,637) $3,090,682
========== ========= =========== ========= ========== ========= =========== ========= ==========
<CAPTION>
TOTAL
------------
<S> <C>
Balance at June
3, 1994
(Inception)..... $ --
Common Stock
issued......... 4,972,891
Net loss........ (629,075)
------------
Balances at March
31, 1995........ 4,343,816
Common stock
issued......... 11,080,909
Net loss........ (192,368)
------------
Balances at March
31, 1996........ 15,232,357
Common stock
issued......... 3,440,564
Net income...... 1,123,324
------------
Balances at March
31, 1997........ 19,796,245
Common stock
issued......... 12,629,522
Net income...... 2,788,801
------------
Balances at
December 31,
1997............ $35,214,568
============
</TABLE>
See accompanying notes.
F-15
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH PERIOD ENDED
(JUNE 3, 1994) YEAR ENDED MARCH 31 DECEMBER 31
TO MARCH 31, ------------------------- --------------------------
1995 1996 1997 1996 1997
-------------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (629,075) $ (192,368) $ 1,123,324 $ 733,828 $ 2,788,801
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation.......... 399,643 2,237,923 2,533,486 1,825,808 2,538,657
Amortization.......... 373,834 1,687,168 2,575,879 1,945,582 2,581,199
Deferred income
taxes................ -- (372,500) (527,500) (261,400) (98,000)
Changes in operating
assets and
liabilities, net of
amounts acquired in
purchase business
combinations:
Accounts
receivable......... (159,906) (770,168) (2,105,605) (967,126) (3,072,141)
Inventories......... 644,059 (936,942) (1,278,697) (1,229,163) (283,287)
Prepaid expenses and
other current
assets............. (147,700) 213,760 131,414 10,337 (303,588)
Other assets........ (38,457) (201,600) 71,692 351,357 (150,407)
Accounts payable.... (1,377,852) 387,810 615,923 76,255 (1,246,837)
Accrued
liabilities........ 556,266 (1,427,399) 1,010,451 426,466 (584,194)
Deferred revenue.... (226,331) 282,893 268,518 333,069 417,462
Income taxes........ -- (63,308) (105,000) 78,000 (438,872)
------------ ----------- ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............. (605,519) 845,269 4,313,885 3,323,013 2,148,793
INVESTING ACTIVITIES
Related party notes
receivable............. -- -- (46,793) -- (500,000)
Purchases of property,
equipment and rental
equipment.............. (497,472) (1,593,964) (2,939,709) (2,240,062) (2,671,026)
Payment for purchase of
businesses, net of cash
acquired............... (25,784,492) (8,098,428) (16,008,039) (12,784,275) (61,778,957)
------------ ----------- ------------ ------------ ------------
Net cash used in
investing activities... (26,281,964) (9,692,392) (18,994,541) (15,024,337) (64,949,983)
FINANCING ACTIVITIES
Net draws (payments)
under line of credit
agreements............. 22,659,611 (1,883,248) 14,564,648 11,942,777 55,684,993
Financing fees.......... -- (697,830) (2,761,525) (3,254,790) (853,861)
Common stock issued for
cash................... 4,972,891 11,080,909 3,440,564 3,453,800 10,906,898
------------ ----------- ------------ ------------ ------------
Net cash provided by
financing activities... 27,632,502 8,499,831 15,243,687 12,141,787 65,738,030
------------ ----------- ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 745,019 (347,292) 563,031 440,463 2,936,840
Cash and cash
equivalents, beginning
of year................ -- 745,019 397,727 397,727 960,758
------------ ----------- ------------ ------------ ------------
Cash and cash
equivalents, end of
year................... $ 745,019 $ 397,727 $ 960,758 $ 838,190 $ 3,897,598
============ =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-16
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
Global Imaging Systems, Inc. was formed on June 3, 1994. The Company's
principal operating subsidiaries are located in the United States and are in
the business of supplying photocopiers, facsimile equipment, automated office
equipment, electronic presentation and document imaging equipment, network
integration services and related service, parts, and supplies. The
consolidated financial statements include the financial statements of Global
Imaging Systems, Inc. and its subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
Interim Results
The accompanying statements of income and cash flows for the nine-month
period ended December 31, 1996 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the annual financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of results of the interim
periods. The data disclosed in these notes to the consolidated financial
statements for those periods are also unaudited. Operating results for the
nine-month period ended December 31, 1997 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized as follows:
Supply sales to customers are recognized at the time of shipment. Equipment
sales are recognized at the time of customer acceptance, or in the case of
equipment sales financed by third-party leasing companies, at the time of
acceptance by the leasing company and the customer.
Maintenance contract service revenues are recognized ratably over the term
of the underlying maintenance contract. Other service revenues are recognized
as earned. Deferred revenue consists of unearned maintenance contract revenue
that is recognized over the life of the related contract, generally twelve
months.
Rental equipment revenue is recognized ratably over the lives of the
underlying cancelable operating leases, principally one to three years.
Pro Forma Stockholders' Equity (Unaudited)
The Company's presentation of unaudited pro forma stockholders' equity at
December 31, 1997 reflects the effect of the redemption of all outstanding
shares of the Company's Class A common stock, but does not give effect to the
receipt of any proceeds from the Company's initial public offering (Note 12).
The redemption price used was the original cost of $90 plus the cumulative
unpaid yield of 8% and approximately 1,158,000 shares of newly issued common
stock.
F-17
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable, long-term debt and obligations under capital leases. The
carrying amount of these financial instruments approximate their fair market
value.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when acquired to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, and trade receivables. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
industries and geographical areas. As of December 31, 1997, the Company had no
significant concentrations of credit risk.
Inventories
Inventories consist of photocopiers, facsimile equipment, automated office
equipment, electronic presentation equipment, document imaging equipment,
computers, and related software, and related parts and supplies and are valued
at the lower of cost (specific identification and/or average cost for
equipment and average cost for related parts and supplies) or market value.
Inventories are stated net of reserves of $133,026, $326,099 and $1,010,876 at
March 31, 1996 and 1997 and December 31, 1997, respectively, for excess and
slow moving inventories.
Long-Lived Assets
The recoverability of long-lived assets (including related intangibles) is
evaluated at the operating unit level by an analysis of operating results and
consideration of other significant events or changes in the business
environment. If an operating unit has current operating losses and there is a
likelihood that such operating losses will continue, the Company will
determine if impairment exists based on the undiscounted expected future cash
flows from operations before interest. Impairment losses would be measured
based on the amount by which the carrying amount exceeds the fair value.
Rental Equipment
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the assets'
estimated economic lives, principally three years.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is principally provided using the
straight-line method over the assets' estimated economic lives, which range
from three to ten years.
Intangibles
Goodwill (excess of purchase price over fair value of net assets acquired)
recognized in business combinations accounted for as purchases is amortized
over periods of between 20 and 40 years on the straight-
F-18
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
line basis. Accumulated amortization was approximately $600,000, $1,400,000,
and $2,600,000 at March 31, 1996 and 1997 and December 31, 1997, respectively.
Noncompete agreements are amortized over the lives of the agreements, which
range from two to four years, using the straight-line basis. Accumulated
amortization was approximately $1,100,000, $2,200,000 and $3,200,000 at March
31, 1996 and 1997 and December 31, 1997, respectively.
Financing fees are amortized over the terms of the underlying debt
agreements using the straight-line method, which method approximates the
effective interest rate method. Accumulated amortization at March 31, 1996 and
1997, December 31, 1997 was approximately $285,000, $230,000 and $600,000,
respectively. In August 1996, the Company refinanced its existing lines of
credit. Unamortized financing fees of $292,000 that related to the existing
lines of credit were charged to operations at that time.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
1997 presentation.
New Accounting Standard
In June 1997, the FASB issued Statement No. 131, Disclosures About Segments
of an Enterprise and Related Information (SFAS 131). SFAS 131 establishes
standards for reporting information about operating segments and supersedes
SFAS 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131
will be adopted in fiscal 1999.
2. ACQUISITIONS
From inception (June 3, 1994) to March 31, 1995, the Company acquired four
businesses that provide office imaging solutions and related services for an
aggregate purchase price of approximately $26,881,000, including the costs of
acquisitions, in cash and notes. The Company assumed liabilities of $7,019,000
in connection with these acquisitions. The Company also sold stock at its fair
market value in connection with these acquisitions.
The following summarizes these acquisitions:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION ASSETS GOODWILL
ACQUIRED COMPANY DATE ACQUIRED ACQUIRED
---------------- ------------- ----------- -----------
<S> <C> <C> <C>
Felco Office Systems, Inc. ......... July 1994 $ 5,700,000 $ 2,800,000
Copy Data........................... December 1994 4,100,000 2,000,000
Conway Office Products, Inc. ....... January 1995 18,600,000 9,400,000
Berney, Inc. ....................... January 1995 5,500,000 3,500,000
----------- -----------
$33,900,000 $17,700,000
=========== ===========
</TABLE>
During the year ended March 31, 1996, the Company acquired four businesses
that provide office imaging solutions and related services for an aggregate
purchase price of approximately $9,088,000, including the costs of
acquisitions, in cash and notes. Liabilities totaling $3,112,000 were assumed
by the Company in connection with these acquisitions. The Company also sold
stock at its fair market value in connection with these acquisitions. Total
assets related to these four acquisitions were $12,200,000, including goodwill
of approximately $8,000,000.
During the year ended March 31, 1997, the Company acquired four businesses
that provide office imaging solutions and related services for an aggregate
purchase price of approximately $16,982,000, including the costs of
acquisitions, in cash and notes. The Company assumed $4,118,000 in liabilities
in connection with these acquisitions. The Company also sold stock at its fair
market value in connection with these acquisitions. Total assets related to
these four acquisitions were $21,100,000, including goodwill of approximately
$12,000,000.
F-19
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the nine-month period ended December 31, 1997, the Company acquired
ten businesses that provide office imaging solutions and related services for
an aggregate purchase price of approximately $66,353,000, including the costs
of acquisitions, in cash. Liabilities assumed in connection with these
acquisitions totaled $20,170,000. The Company also sold stock in connection
with these acquisitions. The Class B common stock was valued from $3.30 to
$8.20 per share and the Class A common stock from $65.00 to $80.00 per share.
The excess of the fair value of the stock over the sales price amounted to
$1,723,000 and is included in the purchase price of these acquisitions.
Significant acquisitions during the nine-month period ended December 31,
1997 include Electronic Systems, Inc. (ESI), Eastern Copy Products, Inc.
(ECP), Electronic Systems of Richmond, Inc. (ESR) and Connecticut Business
Systems, Inc. (CBS).
The following summarizes these acquisitions:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION ASSETS GOODWILL
ACQUIRED COMPANY DATE ACQUIRED ACQUIRED
---------------- ------------- ----------- -----------
<S> <C> <C> <C>
ESI.................................. July 1997 $34,700,000 $24,800,000
ECP.................................. August 1997 9,100,000 5,300,000
ESR.................................. December 1997 15,700,000 8,600,000
CBS.................................. December 1997 12,800,000 9,300,000
----------- -----------
$72,300,000 $48,000,000
=========== ===========
</TABLE>
Total assets related to the remaining six acquisitions was $12,500,000,
including goodwill of approximately $7,400,000. In connection with the
acquisition of CBS, the Company issued stock in January, 1998 at below fair
market value resulting in additional goodwill.
All acquisitions have been accounted for as purchases and accordingly are
included in the results of operations from their dates of acquisitions. The
allocation of the purchase price to certain 1997 acquired assets and
liabilities is preliminary.
Under the terms of one of its purchase agreements, the Company is committed
to make contingent payments (the "Earn-out") of up to $3,000,000 to two of the
former owners of the acquired company on or before June 30, 2002. This
contingent payment is based on the future profitability, specifically earnings
before interest and taxes, of the acquired company. The former owner may
receive a portion of the Earn-out equal to $250,000, payable by June 30 of
each year for fiscal years ending March 31, 1999, 2000 and 2001. The former
owner shall be entitled to receive, on or before June 30, 2002, the balance of
the Earn-out, if applicable, minus any portion of the Earn-out previously
paid. The Earn-out, if paid, will be recorded as goodwill related to the
acquired company.
Had the purchase acquisitions been made at the beginning of the fiscal year
prior to their acquisition, unaudited pro forma results from continuing
operations would have been:
<TABLE>
<CAPTION>
INCEPTION
(JUNE 3, 1994) YEAR ENDED MARCH 31 NINE-MONTH PERIOD ENDED
TO MARCH 31 ------------------------- DECEMBER 31
1995 1996 1997 1997
--------------- ----------- ------------ -----------------------
<S> <C> <C> <C> <C>
Revenues................ $38,633,520 $75,504,139 $196,842,526 $159,390,507
Net income (loss)....... (1,697,316) (1,215,279) 1,907,810 2,943,330
Net income (loss) avail-
able to common stock-
holders................ (2,724,558) (2,738,917) (537,254) 1,099,244
Earnings (loss) per
share.................. (.29) (.26) (.05) .09
</TABLE>
F-20
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
The Company's rental equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31
------------------------ DECEMBER 31
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Rental equipment on operating
leases............................ $ 4,899,205 $ 7,959,553 $11,096,754
Less accumulated depreciation...... (2,264,592) (4,291,447) (6,217,708)
----------- ----------- -----------
Rental equipment, net.............. $ 2,634,613 $ 3,668,106 $ 4,879,046
=========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31
---------------------- DECEMBER 31
1996 1997 1997
---------- ---------- -----------
<S> <C> <C> <C>
Office furniture, equipment and
leasehold improvements.............. $1,664,452 $2,645,701 $ 5,575,614
Less accumulated depreciation and am-
ortization.......................... (417,940) (924,567) (1,536,963)
---------- ---------- -----------
Property and equipment, net.......... $1,246,512 $1,721,134 $ 4,038,651
========== ========== ===========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31
------------------------ DECEMBER 31
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Term loans............................ $20,979,105 $36,105,694 $92,299,600
Various notes payable................. 852,384 767,129 309,601
----------- ----------- -----------
21,831,489 36,872,823 92,609,201
Less current maturities............... (312,641) (562,700) (268,985)
----------- ----------- -----------
$21,518,848 $36,310,123 $92,340,216
=========== =========== ===========
</TABLE>
The Company currently has a credit facility with Jackson National Life
Insurance Company (the "Credit Facility") of up to $120,000,000 for
acquisitions and for working capital purposes. At December 31, 1997,
$27,700,000 was available under the Credit Facility, including $6,000,000
available for working capital under the revolving line of credit. The Credit
Facility bears interest at 3.25% and 3.00% over LIBOR (5.7% at December 31,
1997) for the term and revolving loans, respectively. Principal under the
Credit Facility is repayable in semi-annual installments beginning in fiscal
2000. In addition to these scheduled payments, the Company is required to
prepay outstanding principal in an amount equal to 70% of the excess cash flow
(as defined) for each fiscal year within 90 days of year end. No amounts have
been required to be prepaid under this provision or are expected to be payable
at March 31, 1998. All remaining principal under the Credit Facility is due
and payable in August 2004.
Under the terms of the Credit Facility, the Company has pledged
substantially all of its assets to the lender. The terms of the Credit
Facility also require compliance with numerous covenants that restrict, among
other things, dividend payments, sales of stock or assets or the incurrence of
additional debt.
In fiscal 1997, the Company sold approximately 633,933 shares of Class C
common stock and approximately 27,083 shares of Class A common stock at their
fair value for an aggregate amount of $2,500,000 to its lender. During the
nine months ended December 31, 1997, the Company sold approximately 260,663
shares of Class C common stock and approximately 11,136 shares of Class A
common stock in connection with certain anti-dilution provisions at the same
per share price as the fiscal 1997 shares were sold to the Company's lender,
resulting in aggregate proceeds of $1,030,000 to the Company. Additionally, in
1997, the Company paid a financing fee of 2% to the lender to increase the
Credit Facility by $40,000,000 to $120,000,000.
F-21
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In September 1996, the Company purchased an interest rate cap from a bank on
$23,500,000 of the term loan debt outstanding. In January 1998, the Company
purchased an additional rate cap on an additional $26,475,000 of the term
loan. The interest rate caps are for three-year terms and provide for the
Company to be reimbursed by the bank if the annual average of the LIBOR rate
exceeds 8%. The cost of the interest rate cap ($150,000) is amortized over the
three-year term of the agreement and is included in interest.
Aggregate annual maturities of long-term debt at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Three months ended March 31, 1998............................. $ 55,000
Fiscal year ended March 31, 1999.............................. 254,601
2000.......................................................... 6,460,972
2001.......................................................... 13,592,547
2002.......................................................... 13,074,735
Thereafter.................................................... 59,171,346
-----------
Total....................................................... $92,609,201
===========
</TABLE>
Interest paid was approximately $380,000, $1,782,000, $2,700,000 and
$3,900,000 for the ten-month period from inception (June 3, 1994) to March 31,
1995, the years ended March 31, 1996 and 1997, and the nine-month period ended
December 31, 1997, respectively.
The Company intends to replace the Credit Facility with another in the near
future. Under the terms of the Credit Facility the Company will be subject to
a prepayment fee of 1% to 4% of the outstanding balance depending on the
length of time elapsed from the beginning of the term of the loan to the date
of prepayment. In the case that the loan is repaid within 60 days of an
initial public offering of the Company's common stock, this fee will be
reduced to the lesser of 1% of the outstanding balance or $250,000.
6. STOCKHOLDERS' EQUITY
From inception through December 31, 1997 the Company has sold stock in
connection with business combinations and to its founding stockholders,
employees and others. During the nine months ended December 31, 1997 such
stock was subscribed and sold as units of approximately 7.15 shares of Class A
common stock and one share of Class B (or one share of Class C) common stock.
The sales of those units have been recorded at their estimated fair value at
the date of the commitment to sell the shares, except for shares issued in
connection with anti-dilution provisions, which shares were issued at the per-
share price at the date of the transaction giving rise to the anti-dilution
agreement. The value of the units has been allocated between shares of the
Class A and Class B (or Class C) common stock based on their estimated fair
values.
Class B stockholders are entitled to voting rights of one vote per share.
Class A and Class C stockholders are not entitled to voting rights.
No distributions other than in complete liquidation of the Company can be
made without approval of the Board of Directors. In the event of such a
distribution, the priority is as follows for the distribution of funds to
stockholders:
1. Class A stockholders are first entitled to a portion of the distribution
equivalent to 8% per annum (the "Yield") of the original share cost
($90).
2. Class A stockholders are then entitled to receive a distribution
equivalent to the original cost ($90) of the shares.
F-22
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. After the required distributions in clauses 1 and 2 above have been
completed, holders of shares of Class A common stock are entitled to
receive 10% of, and holders of shares of Class B common stock and Class
C common stock are entitled to receive 90% of, the remaining portion of
the distribution.
During 1997, the Board of Directors authorized an additional 100,000,
26,400,000 and 26,400,000 shares of Class A, Class B and Class C stock,
respectively.
In connection with the founding agreements, one of the founders and various
members of senior management have received the right to purchase, and have
purchased, an aggregate of 1,207,800 shares of Class B common stock at a price
of $0.07 per share. In June 1994, the Company's president (who is also a
founding stockholder), received an option to purchase at a price of $0.07 per
share, certain shares of common stock that were reserved for issuance to
senior management and that remain unissued as of the time of the Company's
initial public offering. At December 31, 1997, the number of such shares which
remain unissued was 86,276. These shares will be allocated between and
purchased by the Company's president and its majority stockholder (Golder,
Thoma, Cressey, Rauner, Inc.) based on their current ownership of the
Company's common stock.
7. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
128 replaced the calculations of primary and fully diluted earnings per share
with basic and diluted earnings per share.
The weighted average number of shares outstanding used in the calculation of
both basic and diluted earnings per share have been adjusted to give
retroactive effect to (i) the 86,276 shares of common stock expected to be
sold prior to the closing of the initial public offering (the "Offering")
pursuant to a pre-existing contractual obligation; (ii) the 1,158,300 shares
of common stock expected to be issued to holders of the Class A common stock
upon the closing of the Offering pursuant to the redemption of all shares of
Class A common stock and (iii) the 132-for-1 stock split effective upon the
closing of the Offering.
The Company will accrete the approximately $1,000,000 difference of the
redemption value of the Class A common stock and the value allocated to the
stock for calculation of the earnings per share beginning January 1998 (the
month following the date an initial public offering became probable) through
the estimated date of the initial public offering.
Assuming redemption of the Class A common stock using the proceeds from the
number of shares of common stock necessary at $15 per share to redeem such
shares, Earnings per share would have been $0.10 for the year ended March 31,
1997 and $0.23 for the nine months ended December 31, 1997.
8. INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109,
Accounting for Income Taxes (FASB 109). Deferred income tax assets and
liabilities are determined based upon differences between 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 differences are expected to
reverse.
F-23
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
NINE-
INCEPTION MONTH PERIOD ENDED
(JUNE 3, 1994) TO YEAR ENDED MARCH 31 DECEMBER 31
MARCH 31, --------------------- ----------------------
1995 1996 1997 1996 1997
----------------- --------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.. $ -- $ 435,000 $1,159,571 $ 689,243 $2,176,337
State.... -- 212,500 375,000 230,000 671,000
----- --------- ---------- --------- ----------
-- 647,500 1,534,571 919,243 2,847,337
Deferred:
Federal.. -- (316,500) (448,400) (196,050) (75,000)
State.... -- (56,000) (79,100) (65,350) (23,000)
----- --------- ---------- --------- ----------
-- (372,500) (527,500) (261,400) (98,000)
----- --------- ---------- --------- ----------
$ -- $ 275,000 $1,007,071 $ 657,843 $2,749,337
===== ========= ========== ========= ==========
</TABLE>
A reconciliation of the difference between the effective income tax rate and
the statutory federal tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
INCEPTION (JUNE 3, 1994) TO --------------------
MARCH 31, 1995 1996 1997
--------------------------- -------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory
rate.................... $(213,886) $ 28,095 $ 724,334
State taxes, net of
federal benefit......... (18,505) 45,142 187,080
Goodwill amortization.... 34,026 150,703 216,252
Valuation allowance...... 184,000 (8,500) (175,500)
Other permanent
differences............. 14,365 59,560 54,905
--------- -------- ----------
$ -- $275,000 $1,007,071
========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE-
MONTH PERIOD ENDED
DECEMBER 31
----------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Tax at U.S. statutory rate........................... $ 473,168 $1,882,966
State taxes, net of federal benefit.................. 123,107 427,512
Goodwill amortization................................ 161,019 297,425
Valuation Allowance.................................. (175,500) --
Other................................................ 76,049 141,434
--------- ----------
$ 657,843 $2,749,337
========= ==========
</TABLE>
F-24
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
MARCH 31
-------------------- DECEMBER 31
1996 1997 1997
-------- ---------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Noncompete agreements..................... $351,000 $ 713,000 $1,025,000
Inventory related......................... 120,000 305,000 544,000
Various accrued expenses.................. 31,200 139,000 543,000
Deferred revenue.......................... -- -- 512,000
Depreciation.............................. 191,000 269,000 246,000
Accounts receivable related............... 99,800 110,000 171,000
Capitalized acquisition costs............. -- -- 85,000
Other items............................... 20,000 33,000 --
-------- ---------- ----------
Gross deferred tax asset.................... 813,000 1,569,000 3,126,000
Less: Valuation allowance................... (395,500) -- --
-------- ---------- ----------
417,500 1,569,000 3,126,000
Deferred tax liabilities:
Goodwill.................................. 45,000 145,000 518,000
-------- ---------- ----------
Net deferred tax asset...................... $372,500 $1,424,000 $2,608,000
======== ========== ==========
Classified as follows:
Current asset............................. $251,000 $ 554,000 $1,770,000
Noncurrent asset.......................... 121,500 870,000 838,000
-------- ---------- ----------
$372,500 $1,424,000 $2,608,000
======== ========== ==========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. A
portion of the reduction of the valuation allowance during the years ended
March 31, 1996 and 1997 was credited to goodwill since it related to basis
differences from previous business combinations not previously recognized.
After consideration of all the evidence, both positive and negative,
management has determined that a valuation allowance is not necessary as of
December 31, 1997.
Cash paid for income taxes was $0, $645,000, $1,581,000 and $2,776,400 from
inception (June 3, 1994) to March 31, 1995, for the years ended March 31, 1996
and 1997 and for the nine-month period ended December 31, 1997, respectively.
9. EMPLOYEE BENEFIT PLANS
The majority of the employees of the Company are eligible to participate in
defined contribution plans (the "Plans") established under Section 401(k) of
the U.S. Internal Revenue Code. Employees are generally eligible to contribute
voluntarily to the Plans after one year of service. The Company may contribute
a discretionary amount of the employee contribution up to specified limits.
Employees are always vested in their contributed balance and generally
become fully vested in the Company's contributions after seven years of
service. The expense related to the Company's contributions to the Plans for
the inception (June 3, 1994) to March 31, 1995, the years ended March 31, 1996
and 1997 and the nine-month period ended December 31, 1997, was approximately
$61,000, $206,000, $302,000 and $372,000, respectively.
F-25
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LEASES
The Company is obligated under various noncancelable operating leases for
its office facilities, office equipment and vehicles. Certain of the leases
for its office facilities are with various employee stockholders. Future
noncancelable lease commitments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED-PARTY
LEASES OTHER LEASES TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
Three months ended March 31, 1998.... $ 251,042 $ 404,261 $ 655,303
Fiscal year ended March 31, 1999..... 952,938 1,505,660 2,458,598
2000................................. 826,352 1,348,347 2,174,699
2001................................. 472,532 1,231,221 1,703,753
2002................................. 376,028 804,540 1,180,568
Thereafter........................... 140,028 693,644 833,672
---------- ---------- ----------
Total.............................. $3,018,920 $5,987,673 $9,006,593
========== ========== ==========
</TABLE>
Rental expense related to the above leases was as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER LEASE
LEASE EXPENSE EXPENSE TOTAL
------------- ----------- ----------
<S> <C> <C> <C>
Inception (June 3, 1994) to March 31,
1995................................ $ 25,099 $177,901 $ 203,000
Year ended March 31, 1996............ 249,712 315,288 565,000
Year ended March 31, 1997............ 530,407 261,593 792,000
Nine-month period ended December 31,
1997................................ 611,381 763,619 1,375,000
</TABLE>
11. RELATED-PARTY TRANSACTIONS
During 1994, the Company entered into a seven-year consulting agreement with
its majority stockholder, Golder, Thoma, Cressey, Rauner, Inc. (the "Majority
Stockholder"). Under the terms of this agreement, the Company is obligated to
pay the Majority Stockholder an annual management fee of $200,000. The Company
is also obligated to pay a 1% placement fee to the Majority Stockholder for
all debt and equity raised by the Company during the term of the agreement.
The agreement will terminate earlier than the aforementioned seven-year term
upon the closing of any initial public offering of the Company's common stock
or a sale of substantially all of the Company's assets or common stock.
The majority stockholder agreed to waive their 1% placement fee related to
debt refinancing completed in August 1996, because the majority of the work to
obtain the financing was performed by another related party, Green, Manning &
Bunch, which charged a 1% fee.
In connection with the aforementioned agreements, the Company incurred
management fees and placement fees. The following shows the fees paid in each
period:
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH
(JUNE 3, 1994) YEAR ENDED MARCH 31 PERIOD ENDED
TO MARCH 31 ------------------- DECEMBER 31
1995 1996 1997 1997
-------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Management fees.............. $130,000 $ 200,000 $ 200,000 $150,000
Placement fees............... 75,000 390,000 800,000 --
</TABLE>
The Company entered into a consulting agreement with Capitol Office
Solutions (Capitol) in July 1997, whereby the Company will provide certain
human resources, administration, financial, accounting, and
F-26
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consulting services to Capitol for an annual fee of $150,000. Additionally,
the Company received a one-time fee of $270,000 from Capitol related to
assisting Capitol in obtaining financing. The majority stockholders of the
Company also own the majority of the outstanding stock of Capitol.
Related party notes receivable relate to amounts loaned to officers of the
Company to purchase stock in Capitol. These notes, which bear interest of 8%
per annum, are due and payable, with interest, on June 30, 2000, and are
collateralized by the shares purchased with the proceeds of the notes.
Also at December 31, 1997, the Company held notes receivable from employees
with balances totaling $272,637. These notes arose from transactions in fiscal
years 1997 and 1998, whereby the Company loaned the employees money to
purchase shares of the Company's stock. The notes, which bear interest of 8%
per annum, are due and payable, with interest, on dates from July 1 to
November 1, 2000. These notes are collateralized by the shares purchased with
the proceeds of the notes. These receivables are shown on the balance sheet as
a component of stockholders' equity.
12. SUBSEQUENT EVENTS
The Board of Directors contemplates an initial public offering (the
"Offering") of the Company's Common Stock.
Effective , the Board of Directors approved a change in the Company's
capital stock to authorize 10,000,000 shares of $.01 par value preferred
shares, 50,000,000 shares of $.01 par value Class B common stock and 900,000
shares of $.01 par value Class C common stock. At this time, the Board also
authorized a 132-for-1 split for holders of its Class B and Class C common
stock; provided for the automatic conversion into one share of Class B common
stock of each share of its Class C common stock upon consummation of the
Offering; provided that, upon consummation of the Offering, each share of
Class A common stock would automatically be redeemed for $90 plus 8% per annum
from the time of its purchase through May 31, 1998 (provided that the Offering
closes prior to June 30, 1998) and approximately 3.41 shares of Class B common
stock; and renamed its Class B common stock "Common Stock". The accompanying
consolidated financial statements have been restated to reflect this change in
capitalization.
The Board of Directors has adopted a stock option plan, which is to take
effect upon the closing of the Offering. Under the terms of the stock option
plan, 1,800,000 shares of the Company's common stock may be granted pursuant
to stock options or granted or sold as restricted stock to directors, officers
and employees of and consultants and advisors to the Company. Under the stock
option plan, the Board has authorized that upon the closing of the Offering,
options to purchase shares of common stock of the Company at an exercise
price equal to the Offering price per share will be granted to key employees.
All of these options are subject to vesting requirements based on length of
service or satisfaction of certain performance milestones.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Copy Service and Supply, Inc.
Statesville, North Carolina
We have audited the accompanying combined statements of income and owners'
capital and cash flows of Copy Service and Supply, Inc. for the five months
ended May 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
Copy Service and Supply, Inc. for the five months ended May 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Barnard, Combs, Potts & Rhyne, PA
Statesville, North Carolina
February 12, 1998
F-28
<PAGE>
COPY SERVICE AND SUPPLY, INC.
COMBINED STATEMENT OF INCOME
AND OWNERS' CAPITAL
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Revenue:
Equipment and supplies............................................. $ 833,370
Service agreement renewal.......................................... 628,202
Rental income...................................................... 92,872
---------
1,554,444
Cost of goods sold:
Equipment and supplies............................................. 569,600
Cost of service agreement renewal.................................. 361,240
Cost of rental income.............................................. 16,906
---------
947,746
Gross profit..................................................... 606,698
Selling, general and administrative expenses......................... 508,740
---------
Income from operations............................................... 97,958
Other income (deductions):
Gain on sale of fixed assets....................................... (7,740)
Interest income.................................................... 6,182
Interest expense................................................... (17,864)
---------
Income before income taxes....................................... 78,536
---------
Income taxes:
Current............................................................ (1,646)
Deferred........................................................... 21,288
---------
19,642
---------
Net income....................................................... 58,894
Owners' capital, beginning of period................................. 522,642
---------
Owners' capital, end of period..................................... $ 581,536
=========
</TABLE>
See accompanying notes.
F-29
<PAGE>
COPY SERVICE AND SUPPLY, INC
COMBINED STATEMENT OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income......................................................... $ 58,894
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization..................................... 37,719
Loss on sale of fixed assets...................................... 7,740
Deferred tax...................................................... 21,288
(Increase) decrease in:
Accounts receivable.............................................. (55,689)
Inventory........................................................ 68,433
Refundable income tax............................................ (531)
Increase (decrease) in:
Accounts payable................................................. (51,702)
Accrued expenses................................................. 14,303
Deferred income.................................................. (55,658)
---------
Net cash provided by operating activities....................... 44,797
---------
Cash flows from investing activities:
Purchase of fixed assets........................................... (2,679)
Lease obligation................................................... (2,335)
Proceeds from sale of fixed assets................................. 47,036
---------
Net cash used by investing activities........................... 42,022
---------
Cash flows from financing activities:
New borrowings:
Short-term........................................................ 74,592
Debt reduction:
Long-term......................................................... (110,220)
Shareholder loans.................................................. (14,000)
---------
Net cash provided (used) by financing activities................ (49,628)
---------
Increase in cash.................................................... 37,191
Cash at beginning of period......................................... 83,417
---------
Cash at end of period........................................... $ 120,608
=========
</TABLE>
Supplemental disclosures of noncash investing and financing activities.
See accompanying notes.
F-30
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination--The combined financial statements include the
accounts of Copy Service and Supply, Inc., CSS Leasing, LLC, and Office
Furniture Concepts, Inc. All material intercompany transactions have been
eliminated.
Organization And Operations--Copy Service and Supply, Inc. incorporated on
January 1, 1984, and operations began immediately thereafter. The Company
sells copiers, business machines and office furniture. The Company services
and furnishes supplies for the equipment it sells.
CSS Leasing, LLC is a limited liability company pursuant to 57C-2-20 of the
General Statue of North Carolina. The Company was formed for the purpose of
entering into various leasing contracts for office equipment, furniture or
other business equipment. Operations began on September 30, 1994.
Office Furniture Concepts, Inc. was incorporated on August 17, 1995, and
operations began immediately thereafter. The Company sells office furniture.
Receivables--Receivables are shown at face value. At May 31, 1996 management
reviewed receivables and all accounts considered uncollectible have been
written off.
Inventory--Inventories are valued at the lower of cost, on the first-in,
first-out basis, or market.
Fixed Assets--Fixed assets are stated at cost. For financial reporting
depreciation prior to 1987 is computed using the accelerated cost recovery
method over the estimated useful lives of 3 to 5 years. Fixed assets purchased
after 1987 are depreciated using the straight line method over the estimated
useful lives of 3 to 40 years. Maintenance and repairs are charged to expense
as incurred and renewals and improvements are capitalized. Gains and losses on
disposals are reflected in current operations except for the gains on traded
properties, which are reflected in the basis of new assets.
Income Taxes--The provision for income taxes includes deferred taxes arising
from temporary differences between financial and tax depreciation due to the
use of accelerated method for tax purposes, and allowance for inventory
obsolescence for book purposes. Tax credits are treated as a reduction of
federal income taxes for the year in which the credits are used. The tax
provision is for Copy Service and Supply, Inc. only because CSS Leasing, LLC
and Office Furniture Concepts, Inc. are entities which are taxed at the owner
level.
Revenue Recognition--The Company sells service contracts for the equipment
it sells. The contracts are for a specified number of copies or for a
specified time period, primarily from one to three years. The customer pays
for the service contracts in advance and the Company recognizes revenue on
these contracts ratably over the life of the contracts. Other service revenues
are recognized as earned.
Supply sales to customers are recognized at the time of shipment. Equipment
sales are recognized at the time of customer acceptance, or in the case of
equipment sales financed by third-party leasing companies, at the time of
acceptance by the leasing company and the customer.
Rental equipment revenue is recognized ratably over the lives of the
underlying cancelable operating leases, principally one to three years.
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
F-31
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could vary from the estimates that were used.
Cash And Cash Equivalents--The Company considers all highly liquid
investments with maturities of three months or less when acquired to be cash
equivalents.
NOTE 2--OBLIGATION UNDER SALES-TYPE LEASES:
CSS Leasing, LLC is in the business of leasing office furniture and
equipment. At the inception of the lease, determination is made whether it
qualifies as a sales-type or operating lease.
The following is an analysis of minimum future sales-type lease payments to
be received as of May 31, 1996:
<TABLE>
<S> <C>
May 31, 1997........................................................ $19,738
May 31, 1998........................................................ 15,963
May 31, 1999........................................................ 12,014
May 31, 2000........................................................ 5,012
-------
Total minimum lease receivable...................................... 52,727
Less: imputed interest 13,893
-------
Present value of lease receivable at May 31, 1996................... $38,834
=======
Current portion..................................................... $13,050
=======
Long-term portion................................................... $25,784
=======
</TABLE>
NOTE 3--OPERATING LEASES:
CSS Leasing, LLC is a lessor of office furniture and equipment. The
following is the book value of equipment under operating leases as of May 31,
1996.
<TABLE>
<S> <C>
Leased equipment.................................................... $243,457
Less: accumulated depreciation...................................... 50,744
--------
Net book value...................................................... $192,713
========
</TABLE>
Total depreciation expense was $16,906 for the five months ended May 31,
1996.
Future minimum rentals on noncancelable leases in the aggregate and for the
next three years are as follows:
<TABLE>
<S> <C>
May 31, 1997........................................................ $153,426
May 31, 1998........................................................ 69,473
May 31, 1999........................................................ 8,367
--------
Total minimum rentals............................................. $231,266
========
</TABLE>
F-32
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--FIXED ASSETS:
The major components of fixed assets are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment................................... $369,299
Vehicles............................................................ 178,774
Leasehold improvements.............................................. 51,683
--------
Total fixed assets................................................ 599,756
Accumulated depreciation............................................ 264,544
--------
Net fixed assets.................................................... $335,212
========
</TABLE>
Depreciation expense for the five months ended May 31, 1996 was $37,673.
NOTE 5--NOTES PAYABLE AND LONG-TERM DEBT:
An analysis of long-term debt is as follows:
<TABLE>
<S> <C>
$200,000 line of credit with bank, interest rate of prime plus
.50%, collateralized by inventory and equipment.................. $200,000
Note payable to bank, due in monthly installments of $276, includ-
ing interest at 7%, collateralized by vehicle.................... 3,700
Note payable to bank, due in monthly installments of $257,
including interest at 6.75%, collateralized by vehicle........... 5,067
Note payable to bank, due in monthly installments of $357,
including interest at 8.25%, collateralized by vehicle........... 6,027
Note payable to bank, due in monthly installments of $333,
including interest at 9.25%, collateralized by vehicle........... 7,276
Note payable to bank, due in monthly installments of $572,
including interest at 9.0%, collateralized by equipment.......... 12,986
Note payable to bank, due in monthly installments of $329,
including interest at 8.75%, collateralized by vehicle........... 7,754
Note payable to bank, due in monthly installments of $7,100,
including interest at 8.50%, collateralized by equipment......... 52,661
Note payable to bank, due in monthly installments of $4,821,
including interest at 8.75%, collateralized by equipment......... 63,116
Credit line with bank, interest payable monthly at 8.5%, maturity
date January 10, 1997, collateralized by equipment .............. 32,213
--------
390,800
Less current installments of long-term debt....................... 361,644
--------
Long-term debt, excluding current installments ................... $ 29,156
========
</TABLE>
F-33
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Principle payments for the next three years are as follows:
<TABLE>
<S> <C>
May 31, 1997......................................................... $361,644
May 31, 1998......................................................... 28,017
May 31, 1999......................................................... 1,139
--------
$390,800
========
</TABLE>
NOTE 6--PROFIT SHARING PLAN:
The Company has a profit sharing plan which is available to all employees
who have attained certain age and service requirements. Contributions made to
the plan are entrusted to an investment company which provides investment
consultation and administration. No contribution was made for the five months
ended May 31, 1996.
NOTE 7--OPERATING LEASE:
The Company conducts its operations from leased facilities. The main office,
showroom space and one branch office are leased from the 100% shareholder.
There are four annual renewable leases, payable $9,999 per month, expiring on
various dates.
Two of the Company's branch offices are leased for a total of $700 per
month. These leases are month to month leases. Also, the Company has one
branch office which is a 36 month lease for a total of $1,046 per month.
Lease expense for the five months ended May 31, 1996 was $58,725.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
May 31, 1997......................................................... $70,693
</TABLE>
NOTE 8--SUPPLEMENTARY CASH FLOWS INFORMATION:
<TABLE>
<S> <C>
Interest paid........................................................ $ 9,321
Income taxes paid.................................................... $ 0
</TABLE>
NOTE 9--CONCENTRATED CREDIT RISK:
The Companies are principally engaged in the business of selling and leasing
copiers business machines and office furniture. Consequently, the ability to
collect the amounts due from customers may be affected by economic fluctuation
in the industry.
NOTE 10--RELATED PARTY:
The 100% shareholder of Copy Service and Supply, Inc. also owns 60% of CSS
Leasing, LLC.
During 1995 the furniture division of Copy Service and Supply, Inc. was
Incorporated. The Corporate name is Office Furniture Concepts, Inc. The
inventory and various fixed assets were transferred into the newly formed
corporation. The 100% shareholder of Copy Service and Supply, Inc. also owns
49% of Office Furniture Concepts, Inc.
F-34
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES:
A reconciliation of the provision for income taxes with the amount of income
tax computed at the Federal statutory rate (34%) follows:
<TABLE>
<S> <C>
Tax expense at statutory rate....................................... $26,702
Increase (decrease) in taxes resulting from:
Elimination of non taxable entities................................. (6,164)
Expenses not tax deductible......................................... 2,708
State taxes, net of federal benefit................................. (3,604)
-------
Provision for income taxes charged to operation..................... $19,642
=======
</TABLE>
NOTE 12--SUBSEQUENT EVENTS:
On June 1, 1996 the Company was sold to new owners. After the sale CSS
Leasing LLC and Office Furniture Concepts, Inc. were merged into Copy Service
and Supply, Inc.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors Southern Business Communications Group
We have audited the accompanying combined statements of income and cash
flows of Southern Business Communications Group for the nine months ended
September 30, 1996. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Southern Business Communications Group for the nine months ended September 30,
1996 in conformity with generally accepted accounting principles.
Atlanta, Georgia
January 8, 1998
F-36
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Revenues
Net product sales................................................ $11,878,102
Service and rentals.............................................. 1,534,257
-----------
13,412,359
Costs and Expenses
Cost of products sold............................................ 9,106,579
Service and rental costs......................................... 427,911
Selling, general and administrative.............................. 2,680,675
-----------
12,215,165
-----------
Operating Income................................................... 1,197,194
Other Income (Expense)
Interest expense................................................. (93,993)
Other............................................................ 24,932
-----------
(69,061)
-----------
Net Income..................................................... $ 1,128,133
===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Cash received from customers.................................. $ 13,537,742
Cash paid to suppliers and employees.......................... (12,017,450)
Interest paid................................................. (93,993)
Other income.................................................. 24,932
------------
Net Cash Provided by Operating Activities................... 1,451,231
------------
Cash Flows from Investing Activities:
Purchases of property and equipment........................... (46,594)
Loans to shareholders......................................... (360,000)
------------
Net Cash Required by Investing Activities................... (406,594)
------------
Cash Flows from Financing Activities:
Net line of credit borrowings................................. 206,759
Principal payments on notes payable to related parties, net... (300,047)
Proceeds from issuance of long-term debt...................... 228,926
Principal payments on long-term debt and capital lease
obligation................................................... (345,330)
Distributions to shareholders................................. (819,643)
------------
Net Cash Required by Financing Activities................... (1,029,335)
------------
Net Increase in Cash............................................ 15,302
Cash at Beginning of Period..................................... 62,624
------------
Cash at End of Period........................................... $ 77,926
============
Reconciliation of Net Income to Net Cash Provided by Operating
Activities:
Net Income...................................................... $ 1,128,133
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation.................................................. 90,558
Decrease in accounts receivable............................... 282,258
Decrease in inventories....................................... 144,627
Decrease in accounts payable and checks outstanding........... (71,181)
Decrease in deferred revenue.................................. (156,875)
Increase in accrued liabilities............................... 33,711
------------
Total Adjustments........................................... 323,098
------------
Net Cash Provided by Operating Activities....................... $ 1,451,231
============
</TABLE>
See accompanying notes.
F-38
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1. DESCRIPTION OF THE BUSINESS
Southern Business Communications Group (the Company) is engaged in the sale
and installation or leasing of electronic presentation equipment, document
imaging management, and system integration. The Company also provides
maintenance on the equipment and microfilm service bureau work to convert
paper files to microfilm.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements include the accounts of Southern Business
Communications, Inc. (SBC), Southern Business Communications of D.C., Inc.
(SBC of DC), and ATS Atlanta (ATS), three companies affiliated through common
ownership. All significant inter-company transactions have been eliminated.
Revenue Recognition
Revenues from product sales are recognized upon shipment to customer.
Revenues related to systems support agreements are recognized ratably over the
terms of the agreements, generally one year.
Inventories
Inventories consist of audio, visual, micrographic and computer equipment
and related parts and supplies valued at the lower of cost or market as
determined using the first-in, first-out (FIFO) method.
Depreciation and Amortization
Depreciation of property and equipment is provided over the useful lives of
the assets primarily on the straight-line method.
Useful lives for depreciable assets are as follows:
<TABLE>
<S> <C>
Building and improvements....................................... 31 years
Machinery and equipment......................................... 3 to 7 years
Furniture and fixtures.......................................... 5 to 7 years
Equipment held for lease........................................ 5 years
</TABLE>
Income Taxes
As a result of elections with the IRS made by the stockholders of the
entities comprising the Company, the Company is not liable for income taxes as
of September 30, 1996. The stockholders are liable for individual income taxes
on their respective shares of the entities' taxable income, and the
accompanying combined financial statements do not include a provision for
income taxes.
NOTE 3. LINES OF CREDIT
The Company has working capital revolving line of credit agreements with a
bank which provide for total borrowings of $2,100,000. Borrowings are limited
to 85% of accounts receivable and 50% of inventories, with borrowings based on
inventories limited to specified amounts per the agreements. Borrowings under
the agreements are secured by accounts receivable, inventories and the
personal guarantees of the Company's stockholders. Interest is payable monthly
at the bank's prime rate. Outstanding borrowings under the agreements at
September 30, 1996 totaled $907,189 as follows: SBC--$785,225, SBC of DC--
$111,964, ATS--$10,000.
F-39
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
SBC also has a second line of credit with the same bank which provides for
borrowings up to $250,000 for capital expenditures. Interest is payable
monthly at the bank's prime rate. Borrowings under the agreement are secured
by a second lien on the SBC's land and building. There were no outstanding
borrowings under this agreement at September 30, 1996.
NOTE 4. LONG-TERM DEBT
Principal payments on long-term debt are as follows for years ending
September 30:
<TABLE>
<S> <C>
1997................................................................ $ 30,991
1998................................................................ 28,429
1999................................................................ 26,862
2000................................................................ 26,161
2001................................................................ 29,919
Thereafter.......................................................... 284,942
--------
$427,304
========
</TABLE>
NOTE 5. LEASES
The Company leases office space under operating leases that expire at
various dates through 2000. Rent expense under these leases approximated
$44,000. Future minimum rental payments required under operating leases with
initial or remaining noncancellable lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1997................................................................ $ 66,912
1998................................................................ 68,364
1999................................................................ 48,840
2000................................................................ 10,977
--------
$195,093
========
</TABLE>
NOTE 6. PROFIT SHARING PLAN
The Company has a profit sharing 401(k) plan (the Plan) which is qualified
under Section 401(k) of the Internal Revenue Code and covers substantially all
employees. Under the provisions of the Plan, the Company contributes
discretionary amounts as determined by the Board of Directors. Participants'
vested interests in the Company's contributions are based upon years of
service, as defined, with the Company. Contributions to the Plan were $23,628.
NOTE 7. SUBSEQUENT EVENT
Subsequent to September 30, 1996, all of the outstanding stock of SBC, SBC
of DC and ATS was purchased by an unrelated corporation which owns other
companies engaged in the same lines of business as the Company.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Electronic Systems, Inc.
We have audited the accompanying statements of income and retained earnings
and cash flows of Electronic Systems, Inc. for the years ended December 31,
1995 and 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 results of operations and cash flows of
Electronic Systems, Inc. for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young
Richmond, Virginia
January 23, 1998
F-41
<PAGE>
ELECTRONIC SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ JUNE 30
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Equipment, supplies and parts........ $24,096,319 $35,903,314 $20,373,983
Service and training................. 4,013,939 6,304,117 3,899,523
Rental............................... 758,271 802,465 422,963
----------- ----------- -----------
Total revenue...................... 28,868,529 43,009,896 24,696,469
Cost of goods and services sold:
Equipment, supplies and parts........ 20,478,529 31,008,200 17,294,908
Service and training................. 1,883,456 3,115,095 1,804,993
Rental............................... 470,729 513,096 282,111
----------- ----------- -----------
Total cost of goods and services
sold.............................. 22,832,714 34,636,391 19,382,012
----------- ----------- -----------
6,035,815 8,373,505 5,314,457
Selling, general, and administrative
expenses.............................. 4,824,892 5,961,952 4,482,983
----------- ----------- -----------
1,210,923 2,411,553 831,474
Other income (expense):
Interest expense..................... (78,207) (87,713) (17,250)
Interest income...................... 16,498 21,850 34,135
Management fee....................... 15,000 25,000 14,000
Other, net........................... 100,008 32,740 90,031
----------- ----------- -----------
53,299 (8,123) 120,916
----------- ----------- -----------
Net income............................. 1,264,222 2,403,430 952,390
Retained earnings at beginning of
year.................................. 1,958,487 2,877,594 4,682,982
Distributions to shareholders.......... (345,115) (598,042) (1,174,346)
----------- ----------- -----------
Retained earnings at end of year....... $ 2,877,594 $ 4,682,982 $ 4,461,026
=========== =========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE>
ELECTRONIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ JUNE 30
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 1,264,222 $ 2,403,430 $ 952,390
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 398,866 521,799 250,726
(Gain) loss on sale of assets........ 1,610 8,243 (26,620)
Provision for doubtful accounts...... 20,776 -- 108,000
Changes in operating assets and
liabilities:
Accounts receivable................. (1,725,911) 35,132 (691,819)
Inventories......................... (617,253) (463,747) 248,873
Prepaid expenses and other.......... 42,368 (336) (44,952)
Accounts payable.................... 801,781 2,032,101 (1,301,766)
Accrued expenses and other
liabilities........................ 162,239 371,848 554,626
----------- ----------- -----------
Net cash provided by operating
activities............................ 348,698 4,908,470 49,458
INVESTING ACTIVITIES
Purchases of property and equipment.... (659,254) (444,200) (339,048)
Proceeds on sale of property and
equipment............................. 39,176 101,242 45,043
Proceeds on notes receivable from
shareholders.......................... -- -- 166,980
----------- ----------- -----------
Net cash used in investing activities.. (620,078) (342,958) (127,025)
FINANCING ACTIVITIES
Borrowings on revolving credit loan.... 1,792,325 200,000 --
Repayments on revolving credit loan.... (1,026,630) (1,178,705) --
Principal payments on long-term debt... (149,200) (236,700) (20,000)
Distributions to shareholders.......... (345,115) (598,042) (1,174,346)
----------- ----------- -----------
Net cash (used) provided by financing
activities............................ 271,380 (1,813,447) (1,194,346)
(Decrease) increase in cash............ -- 2,752,065 (1,271,913)
Cash at beginning of year.............. 10,450 10,450 2,762,515
----------- ----------- -----------
Cash at end of year.................... $ 10,450 $ 2,762,515 $ 1,490,602
=========== =========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Electronic Systems, Inc. (the Company) is an office technology supplier
incorporated in Virginia. The Company sells and services computer hardware,
software and copiers and provides consulting and training services for various
office systems. The following is a description of the Company's significant
accounting policies:
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, primarily using
specific identification.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
both straight-line and accelerated methods over the estimated useful lives of
the related assets.
Rental Equipment
Equipment is rented to customers under operating leases. Rental equipment is
stated at cost. Depreciation is computed using the straight-line method over
the estimated useful life of the related asset. Future minimum rentals as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------------------- --------
<S> <C>
1998................................................................ $426,258
1999................................................................ 261,103
2000................................................................ 105,828
--------
$793,189
========
</TABLE>
Revenue Recognition
Revenues are recognized as follows:
Equipment and supply sales revenues are recognized when shipped or delivered
and title and risk of loss pass to the customer.
Maintenance contract service revenues are recognized ratably over the term
of the underlying maintenance contract. Other service revenues are recognized
as earned.
Rental revenue is recognized ratably over the term of the underlying leases,
typically one to three years.
Advertising
The costs of advertising the Company's products and services are generally
expensed as incurred. Total advertising costs amounted to $176,910, $197,525
and $47,392 in 1995, 1996 and 1997, respectively.
Income Taxes
The Company is organized to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
federal or state income taxes on its corporate income. Instead the Company's
income is included in the income of its stockholders for federal and state
income tax purposes.
F-44
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management make estimates and
assumptions which affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Long Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in 1996 and such adoption had no effect on the
financial statements.
2. BORROWINGS
The Company has a term loan collateralized by its headquarters land and
building. The loan bears interest at 90.2778% of prime and principal payments
are $40,000 for each of the next five years.
Interest paid on all indebtedness was $78,207, $87,713 and $17,256 in 1995,
1996 and 1997, respectively.
3. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan which covers all full-time employees meeting
certain eligibility requirements. Participants may elect to contribute up to
15% of their compensation on a pre-tax basis, as defined in the plan. The
Company contributes an amount equal to 50% of the participant's contribution
not to exceed 5% of each participant's base compensation. Participants are
fully vested in the Company contributions. The Company made contributions of
$68,404, $93,390 and $62,766 in 1995, 1996 and 1997, respectively.
The Company also maintains a profit sharing plan which covers all full time
employees meeting certain eligibility requirements. Contributions to the plan
are at the discretion of the Board of Directors. The Company contributed
$92,000, $120,000 and $60,000 in 1995, 1996 and 1997, respectively.
4. LEASES
The Company is obligated under various noncancelable operating leases for
facilities, warehouse space and training centers.
Future minimum lease payments under the noncancelable operating leases as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------------------- --------
<S> <C>
1998................................................................ $113,449
1999................................................................ 74,339
2000................................................................ 65,570
2001................................................................ 68,849
2002................................................................ 41,309
--------
$363,516
========
</TABLE>
Rent expense amounted to $57,914, $77,126 and $61,658 in 1995, 1996 and
1997, respectively.
F-45
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company provides certain administrative and accounting services to
Electronic Systems of Richmond, Inc., a corporation owned by certain
shareholders of Electronic Systems, Inc. Management fees of $15,000, $25,000
and $14,000 were received by the Company in 1995, 1996 and 1997, respectively.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and
accounts receivable. The Company's temporary cash is invested in short-term
money market accounts.
The Company markets its products and services to customers located primarily
in Virginia. The Company performs credit evaluations of its customers prior to
delivery or commencement of services and normally does not require collateral.
Payments for equipment are typically due within thirty days of billing and
supplies and services are typically due upon receipt. The Company maintains an
allowance for potential credit losses and losses have historically been within
management's expectations. Credit losses have historically been insignificant.
The carrying values of amounts classified as current assets and current
liabilities approximate fair values due to the short-term nature of these
instruments. The carrying value of long-term debt approximates fair value as
current borrowing rates approximately market rates for loans with similar
rates.
Two customers accounted for 11%, 20% and 8% of the Company's sales in 1995,
1996 and 1997, respectively.
7. SUBSEQUENT EVENTS
Effective July 7, 1997, all outstanding stock of the Company was acquired by
Global Imaging Systems, Inc. In connection with the acquisition, the Company's
S Corporation election was terminated and from the date of acquisition forward
the earnings of the Company will be taxed at the corporate level.
Immediately prior to the acquisition, the headquarters building and land and
related term debt were transferred in the form of a shareholder distribution
to an entity owned by the shareholders of the Company. The Company has entered
into an agreement to lease these facilities for five years, with initial rent
of $185,082 per year, escalating 2% annually.
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Eastern Copy Products, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of EASTERN COPY PRODUCTS, INC. AND
SUBSIDIARIES for the years ended July 31, 1997, 1996, and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES as of July 31, 1997,
1996, and 1995 in conformity with generally accepted accounting principles.
/s/ Pasquale & Bowers, LLP
Syracuse, New York
December 17, 1997
F-47
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JULY 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales and service
Equipment sales....................... $ 8,389,297 $ 5,838,732 $ 4,691,487
Service............................... 5,897,324 5,281,391 4,640,232
Rental income......................... 737,113 761,268 733,635
Other................................. 230,241 163,977 203,475
----------- ----------- -----------
15,253,975 12,045,368 10,268,829
----------- ----------- -----------
Cost of sales and service
Cost of equipment sales............... 5,549,634 3,914,590 2,822,924
Cost of service....................... 3,982,670 3,645,680 3,142,454
Depreciation on rental equipment...... 254,990 170,193 182,768
Other................................. 126,740 104,937 96,405
----------- ----------- -----------
9,914,034 7,835,400 6,244,551
----------- ----------- -----------
Gross profit............................ 5,339,941 4,209,968 4,024,278
Selling, general and administrative
expenses............................... 4,971,142 4,087,298 3,689,948
----------- ----------- -----------
Income from operations.................. 368,799 122,670 334,330
Other expense--net, including interest
expense of $108,879, $111,947, and
$123,441............................... 76,090 54,537 78,732
----------- ----------- -----------
Income before provision for income
taxes.................................. 292,709 68,133 255,598
Provision for income taxes (Note 5)..... 110, 000 12,400 99,800
----------- ----------- -----------
Net income.............................. 182,709 55,733 155,798
Retained earnings (accumulated
deficit)--beginning of year............ 55,645 (88) (155,886)
----------- ----------- -----------
Retained earnings (accumulated
deficit)--end of year.................. $ 238,354 $ 55,645 $ (88)
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-48
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1997, 1996, AND 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................. $ 182,709 $ 55,733 $ 155,798
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Deferred tax expense (benefit)............ (29,000) (138,000) 65,000
Depreciation.............................. 283,640 210,788 232,672
Bad debt expense.......................... 124,242 40,236 38,889
Loss on disposal of assets................ 0 0 3,355
Changes in assets and liabilities
affecting cash flow from operating
activities:
Accounts receivable..................... (263,488) (317,460) (129,802)
Inventory............................... 677,796 34,657 (456,844)
Other current assets.................... 17,179 (52,319) 66,530
Other assets............................ 0 800 0
Accounts payable........................ (111,511) (439,855) 36,831
Notes payable........................... (231,243) 424,747 85,940
Accrued expenses........................ 12,309 115,168 (65,573)
Deferred revenue........................ 8,419 195,200 (79,325)
Income taxes payable.................... 126,000 86,964 14,688
Other current liabilities............... (29,028) 2,802 (5,512)
--------- --------- ---------
Total adjustments..................... 585,315 163,728 (193,151)
--------- --------- ---------
Net cash provided by (used in) operat-
ing activities....................... 768,024 219,461 (37,353)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures--Net................... (559,067) (102,409) (70,609)
--------- --------- ---------
Net cash used in investing activi-
ties................................. (559,067) (102,409) (70,609)
--------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt................ 131,219 93,611 55,472
Payments on long-term debt.................. (202,168) (180,436) (161,000)
Payments on capital lease obligations....... 0 (5,426) (57,887)
(Advances) Repayments on shareholder loan--
Net........................................ (10,925) (39,985) 41,415
--------- --------- ---------
Net cash used in financing activi-
ties................................. (81,874) (132,236) (122,000)
--------- --------- ---------
Net increase (decrease) in cash............... 127,083 (15,184) (229,962)
Cash--Beginning of year....................... 112,274 127,458 357,420
--------- --------- ---------
Cash--End of year............................. $ 239,357 $ 112,274 $ 127,458
========= ========= =========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
F-49
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The parent company is primarily involved in the selling, leasing and
servicing of Konica office copiers. Eastern Copy Credit Corporation, Inc., a
wholly-owned subsidiary, was formerly involved in the leasing of office
copiers and is now inactive. Eastern Copy Products Vend-A-Copy Division, Inc.,
a wholly-owned subsidiary, is engaged in providing copy vending services to
the general public.
Principles of Consolidation
The consolidated financial statements include the accounts of Eastern Copy
Products, Inc., and both of its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated. "Company" as used herein
refers to the consolidated group.
Concentrations of Credit Risk
The Company, in the normal course of business, grants credit to customers,
essentially all of whom are located in central or western New York State. The
Company uses the direct write-off method to provide for bad debts. Management
considers any allowance necessary for uncollectible accounts receivable at
July 31, 1997, 1996, and 1995 as not material to the financial statements.
At July 31, 1997, the Company had approximately $92,000 in bank deposits in
excess of federally insured levels.
Inventory
Inventory represents copiers, parts and supplies held for sale or lease.
Inventory is stated at the lower of average cost or market.
Revenue Recognition
Revenue is recognized when earned. The Company recognizes revenue on
maintenance contracts primarily on a straight-line basis over the term of the
related agreements. Lengths of the maintenance agreements generally range from
one to three years.
The three year agreements generally involve the Company providing a copier
and the related maintenance under one installment contract. Essentially all of
these contracts, and the conditional title to the associated equipment, are
subsequently sold to a third party financing company in exchange for cash
proceeds. A portion of the proceeds are allocated to machine sales and
recognized currently, while the remainder is deferred and recognized as
service income on a straight-line basis over the term of the related
agreement.
Revenue is recorded on equipment sales upon delivery to a customer. Service
revenue is recorded at the time service is performed.
Depreciation
Fixed assets are recorded at cost.
The cost of fixed assets is depreciated over the estimated useful lives of
the related assets using the straight-line method for financial statement
purposes.
F-50
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of deferred revenue
and fixed assets for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
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.
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for--Interest.......... $108,879 $111,947 $123,441
--Income taxes................................... $ 2,093 $ 69,747 $ 20,460
</TABLE>
Capital expenditures reflected in the statements of cash flows includes the
net increase in vending copiers in service and the net increase in copiers on
operating lease.
Non-Cash Financing Activities
During fiscal 1996, the Company issued 10 shares of common stock at its fair
market value to Konica Business Machines, Inc. In consideration for the
shares, Konica transferred all of the assets and liabilities of Konica's
Buffalo, New York branch to the Company. The assets and liabilities
transferred consisted of computer parts and equipment inventory, and
obligations under customer maintenance agreements. Following is a summary of
the transaction:
<TABLE>
<S> <C>
Copier inventory transferred.................................... $ 261,024
Liabilities under maintenance agreements assumed................ (110,400)
---------
Value assigned to common stock issued........................... $ 150,624
=========
</TABLE>
2. NOTES PAYABLE
The Company has various notes payable owed to financing companies under
inventory financing arrangements. The arrangements call for the respective
financing company to pay the invoice cost, less available discounts, on
inventory purchases. The Company then remits payment for the full invoiced
cost to the financing company; if payment to the finance company is made
within 30 days, the Company retains a portion of the discount. Interest is
charged on any late payments.
F-51
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Scheduled maturities of long-term debt for the next four years and in the
aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
------------
<S> <C>
1998............................... $732,017
1999............................... 70,438
2000............................... 49,528
2001............................... 19,411
--------
$871,394
========
</TABLE>
4. COMMITMENTS
The Company leases vehicles, office equipment, office and warehouse
facilities under various noncancelable operating leases. Lease expense under
these arrangements for the years ended July 31, 1997, 1996, and 1995,
approximated $234,000, $96,000, and $63,000, respectively. Minimum future
rental payments due under the agreements for the next five years and in the
aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
------------
<S> <C>
1998............................. $ 287,868
1999............................. 239,428
2000............................. 241,615
2001............................. 205,865
2002............................. 171,990
Thereafter....................... 79,464
----------
$1,226,230
==========
</TABLE>
The Company also leases certain other office and warehouse facilities on a
month-to-month basis, and accounts for the agreements as operating leases.
5. INCOME TAXES
The components of the provision for income taxes at July 31, 1997, 1996, and
1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current expense--Federal..................... $129,000 $ 133,000 $ 50,600
--State...................................... 10,000 17,400 6,200
Current benefit from utilization of operating
loss carryforward--Federal.................. 0 0 (22,000)
Deferred tax expense (benefit)--Federal...... (23,000) (110,000) 47,000
--State...................................... (6,000) (28,000) 18,000
-------- --------- --------
$110,000 $ 12,400 $ 99,800
======== ========= ========
</TABLE>
F-52
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax asset at July 31, 1997, 1996, and 1995, is comprised of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets.......................... $796,000 $ 787,000 $ 703,000
Deferred tax liabilities..................... (94,000) (114,000) (168,000)
-------- --------- ---------
Net deferred tax asset....................... $702,000 $ 673,000 $ 535,000
======== ========= =========
</TABLE>
The reconciliation of the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate....................................... 34% 15% 34%
State taxes, net of federal income tax benefit................ 6 6 6
Other, net.................................................... (2) (3) (1)
--- --- ---
38% 18% 39%
=== === ===
</TABLE>
Deferred tax assets result primarily from different methods of revenue
recognition on certain maintenance contracts for book and tax purposes.
Deferred tax liabilities result mainly from the use of accelerated
depreciation methods for tax purposes.
At July 31, 1997, the Company has a state operating loss carryforward of
approximately $146,000 available to offset future state taxable income
expiring through the year 2011.
6. RELATED PARTY TRANSACTIONS
The Company leases office and warehouse space from its shareholder on a
month-to-month basis. Rent expense incurred under the arrangements amounted to
$150,000 for fiscal years 1997, 1996, and 1995, and is included in selling,
general and administrative expenses.
7. MAJOR SUPPLIER
The Company buys substantially all of its equipment, parts, and supplies
held for resale from Konica. Net amounts due Konica at July 31, 1997, 1996,
and 1995, approximated $724,000, $780,000, and $1,398,000, respectively, and
are included in accounts payable.
8. PENSION PLAN
The Company maintains a 401(k) profit sharing plan covering substantially
all employees meeting certain age and length of service requirements. Employer
contributions are at the discretion of the Board of Directors. No
contributions were made for the years ended July 31, 1997, 1996, and 1995.
9. SUBSEQUENT EVENTS
Stock Purchase Agreement
Effective August 1, 1997, the Company entered into a Stock Purchase
Agreement with Conway Office Products, Inc. ("Conway"), a wholly-owned
subsidiary of Global Imaging Systems, Inc. for all the capital stock of the
Company. The total purchase price for the stock of the Company was
approximately $6,750,000.
Merger
Effective September 1, 1997, Eastern Copy Products Vend-A-Copy Division,
Inc. and Eastern Copy Credit Corporation, Inc., merged into Eastern Copy
Products, Inc.
F-53
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Duplicating Specialties, Inc.
We have audited the accompanying statements of income and retained earnings
and cash flows of Duplicating Specialties, Inc. for the ten months ended
August 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Duplicating Specialties, Inc. for the ten months ended August 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Vancouver, Washington
December 19, 1997
F-54
<PAGE>
DUPLICATING SPECIALTIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TEN MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Revenue
Equipment and supplies............................................ $4,240,383
Service agreement revenue......................................... 2,006,268
Rental income..................................................... 72,736
----------
6,319,387
Cost of sales
Cost of equipment and supplies sales.............................. 2,642,715
Cost of service agreement revenue................................. 927,691
Cost of rental income............................................. 22,184
----------
3,592,590
Gross profit........................................................ 2,726,797
Selling, general and administrative expenses........................ 2,493,602
Provision for doubtful accounts..................................... 25,201
----------
Operating income.................................................... 207,994
----------
Other income (expense)
Miscellaneous income.............................................. 10,556
Interest expense.................................................. (7,470)
----------
3,086
----------
Net income before income taxes...................................... 211,080
Income taxes........................................................ 93,361
----------
Net income.......................................................... 117,719
Retained earnings, beginning of period.............................. 625,249
----------
Retained earnings, end of period.................................... $ 742,968
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
DUPLICATING SPECIALTIES, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income........................................................ $ 117,719
Adjustments to reconcile net income to net cash flows from
operating activities
Depreciation.................................................... 57,560
Net deferred taxes.............................................. (94,687)
Gain on sale of assets.......................................... (456)
Increase (decrease) in cash due to changes in assets and
liabilities
Accounts receivable, net........................................ (24,421)
Inventory....................................................... 141,727
Prepaid expense................................................. 24,110
Cash surrender value of life insurance.......................... 9,473
Deposits........................................................ 1,317
Accounts payable................................................ (188,859)
Accrued expenses................................................ 413,033
Deferred service contract revenue............................... 40,921
---------
Net cash flows from operating activities...................... 497,437
Cash flows from investing activities
Purchase of equipment............................................. (112,570)
Proceeds from sale of assets...................................... 17,040
---------
Net cash flows from investing activities...................... (95,530)
Cash flows from financing activities
Net change in short-term note payable............................. (202,000)
Proceeds from long-term borrowings................................ 25,000
Payments on long-term borrowings.................................. (18,774)
Increase in due from stockholder.................................. (10,686)
---------
Net cash flows from financing activities...................... (206,460)
---------
Net increase in cash................................................ 195,447
Cash, beginning of period........................................... 46,930
---------
Cash, end of period................................................. $ 242,377
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
DUPLICATING SPECIALITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1--NATURE OF BUSINESS
The Company is an Oregon corporation engaged in the business of selling and
providing maintenance and supplies for reproduction equipment and facsimile
machines. Customers are primarily located in Oregon and Southwest Washington.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The Company maintains its cash
in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable--Management periodically assesses the collectability of
accounts receivable. This assessment provides the basis for the allowance for
doubtful accounts and related bad debt expense. The allowance for doubtful
accounts was $30,000 as of August 31, 1997. Credit is generally extended to
customers without collateral requirements.
Inventory--Inventory is stated at the lower of cost (first-in first-out
method) or market.
Equipment and vehicles--Expenditures for maintenance and repairs are charged
to expense as incurred, whereas major betterments and equipment additions are
capitalized. The Company has provided for depreciation of equipment using
straight-line and accelerated methods over estimated useful lives ranging from
three to ten years.
Revenue recognition--Revenues are recorded at the time of shipment of
products or performance of services. Deferred service contract revenue is
recognized over the estimated service period, based upon copier usage.
Contracts are billed in increments of preventive maintenance cycles.
Income taxes--Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the bases of the
equipment and vehicles for financial and income tax reporting. The deferred
tax assets and liabilities represent future tax return consequences of these
differences which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Use of estimates--The preparation of the financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 3--INVENTORY
Inventory as of August 31, 1997 consists of:
<TABLE>
<S> <C>
Duplicating equipment............................................ $330,520
Supplies......................................................... 118,651
Service parts and accessories.................................... 309,955
--------
$759,126
========
</TABLE>
F-57
<PAGE>
DUPLICATING SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt as of August 31, 1997 consists of:
<TABLE>
<S> <C>
Notes payable collateralized by automotive equipment. Interest
rates from 3.9% to 8.58%. Due in monthly payments totaling
$1,792, including interest. Maturing from October 1998 to March
2002. Paid in full during September 1997......................... $41,925
Less current portion.............................................. 16,087
-------
$25,838
=======
</TABLE>
The following is a schedule of required principal payments on long-term debt
during the succeeding five years:
<TABLE>
<CAPTION>
YEAR ENDING
AUGUST
31,
-----------
<S> <C>
1998............................................................ $16,087
1999............................................................ 12,286
2000............................................................ 5,081
2001............................................................ 5,283
2002............................................................ 3,188
-------
$41,925
=======
</TABLE>
NOTE 5--LEASES
The Company leases office and warehouse space under a long-term operating
lease. The lease agreement provides for monthly payments of $6,500 (increasing
to $7,850 effective September 1, 1997), plus property taxes. The lease expires
November 30, 2003. Lease expense for the ten months ended August 31, 1997 was
$73,990. The following is a schedule of future minimum facility lease
payments, required for the next 5 years, under the operating lease as of
August 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDING
AUGUST 31,
-----------
<S> <C>
1998 ......................................................... $ 94,200
1999 .......................................................... 94,200
2000 .......................................................... 94,200
2001 .......................................................... 94,200
2002 .......................................................... 94,200
--------
$471,000
========
</TABLE>
NOTE 6--PROFIT SHARING AND 401(K) PLAN
The Company adopted a profit sharing plan effective November 1, 1969. The
plan provides for contributions to be determined annually by the board of
directors of up to 15% of eligible compensation. The Company approved a
contribution of $116,027 for the ten months ended August 31, 1997.
In addition, the Company provides a 401(k) plan benefit whereby eligible
employee contributions are matched by the Company. The Company contribution
for the 401(k) plan was $32,071 for the ten months ended August 31, 1997.
F-58
<PAGE>
DUPLICATING SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As more fully described in Note 10, the Company was acquired subsequent to
period end and these plans were terminated and replaced by plans of the new
parent company.
NOTE 7--INCOME TAXES
The deferred tax asset and liability as of August 31, 1997 consist of the
following:
<TABLE>
<S> <C>
Current deferred tax asset
Allowance for doubtful accounts................................ $ 11,700
Accrued officer salaries....................................... 86,171
Accrued vacation............................................... 9,849
--------
$107,720
========
Noncurrent deferred tax liability
Depreciation................................................... $ 23,584
========
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current.......................................................... $188,048
Deferred......................................................... (94,687)
--------
$ 93,361
========
</TABLE>
The Company's income tax expense differed from the statutory Federal rate as
follows:
<TABLE>
<S> <C>
Statutory rate applied to net income before income taxes.......... $65,571
Increase in income taxes resulting from
Effect of non-deductible expenses under federal tax code........ 4,049
State and local taxes, net of federal tax benefit............... 25,051
Other........................................................... (1,310)
-------
$93,361
=======
</TABLE>
NOTE 8--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C>
Cash paid for interest............................................ $ 7,470
=======
Cash paid for income taxes........................................ $81,688
=======
</TABLE>
NOTE 9--CONCENTRATION
Approximately 80% of all inventory purchases of the Company were from one
vendor during the ten months ended August 31, 1997.
NOTE 10--SUBSEQUENT EVENT
Subsequent to, but effective as of, August 31, 1997 all outstanding stock of
the Company was purchased by Global Imaging Systems, Inc., a Delaware
corporation.
F-59
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors Global Imaging Systems, Inc. Tampa, Florida
We have audited the accompanying statements of income and retained earnings
and statements of cash flow of Electronic Systems of Richmond, Inc. for the
eleven-month and twelve-month periods ended November 30, 1997 and December 31,
1996, respectively. These financial statements are the responsibility of
Electronic Systems of Richmond, Inc.'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 statements of income and retained earnings and
statements of cash flows referred to above present fairly, in all material
respects, the results of operations and cash flows of Electronic Systems of
Richmond, Inc. for the eleven-month and twelve-month periods ended November
30, 1997 and December 31, 1996, respectively, in conformity with generally
accepted accounting principles.
/s/ EDMONDSON, LEDBETTER & BALLARD, L.L.P.
Norfolk, Virginia
January 27, 1998
F-60
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE ELEVEN-MONTH AND TWELVE-MONTH PERIODS ENDED
NOVEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenue
Net sales of products............................. $ 9,337,430 $ 20,075,135
Service and rental................................ 1,635,354 1,474,899
----------- ------------
Total revenue................................... 10,972,784 21,550,034
----------- ------------
Costs and expenses
Cost of goods sold................................ 6,260,046 16,973,045
Service and rental costs.......................... 676,726 686,579
Selling, general and administrative............... 1,939,057 2,190,345
----------- ------------
Total costs and expenses........................ 8,875,829 19,849,969
----------- ------------
Net profit...................................... 2,096,955 1,700,065
----------- ------------
Other income
Interest income................................... 152,943 110,746
Other income...................................... 78,178 7,755
----------- ------------
Total other income.............................. 231,121 118,501
----------- ------------
Net income...................................... 2,328,076 1,818,566
Retained earnings, beginning of period.......... 2,783,057 1,606,491
Dividends declared................................ (3,956,262) (642,000)
----------- ------------
Retained earnings, end of period................ $ 1,154,871 $ 2,783,057
=========== ============
</TABLE>
See Independent Auditor's Report
and Accompanying Notes to Financial Statements
F-61
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
STATEMENTS OF CASH FLOWS
FOR THE ELEVEN-MONTH AND TWELVE-MONTH PERIODS ENDED
NOVEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income......................................... $ 2,328,076 $1,818,566
Adjustments to reconcile net income to net cash
from operating activities
Depreciation...................................... 17,074 19,213
Uncollectible accounts expense.................... -- 37,747
Loss on disposition of assets..................... -- 84
(Increase) decrease in operating assets
Accounts receivable.............................. (1,531,626) 1,611,357
Inventories of machines, parts and supplies...... (155,670) 453,519
Prepaid expense.................................. 2,054 (1,396)
Increase (decrease) in operating liabilities
Accounts payable................................. (3,277,819) 1,941,085
Accrued commissions.............................. 701,623 33,855
Sales tax payable................................ (4,080) 650
Deferred income.................................. 67,315 113,321
Other............................................ 1,169 342
----------- ----------
Net cash provided (used) by operating activities... (1,851,884) 6,028,343
----------- ----------
Cash flows from investing activities
Acquisition of equipment........................... (12,431) (19,557)
----------- ----------
Net cash used by investing activities.............. (12,431) (19,557)
----------- ----------
Cash flows from financing activities
Proceeds from issuance of common stock............. 110,670 --
Dividends paid..................................... (1,120,440) (642,000)
----------- ----------
Net cash used by financing activities.............. (1,009,770) (642,000)
----------- ----------
Increase in cash and cash equivalents................ (2,874,085) 5,366,786
Cash and cash equivalents, beginning of period....... 6,844,570 1,477,784
----------- ----------
Cash and cash equivalents, end of period............. $ 3,970,485 $6,844,570
=========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 2,721 $ 4,075
=========== ==========
Supplemental schedule of noncash investing and fi-
nancing activities
Increase in dividends payable...................... $ 2,835,822 $ --
=========== ==========
</TABLE>
See Independent Auditor's Report
and Accompanying Notes to Financial Statements
F-62
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
NOTES TO FINANCIAL STATEMENTS
NATURE OF BUSINESS
The Company is engaged in the sale of technologies and related services,
primarily as a systems integrator with a focus on computer networking,
networking security, data systems security, migration services and Internet
access and connectivity. The Company serves its customers from locations in
Richmond and Arlington, Virginia.
Effective December 1, 1997, Electronic Systems of Richmond, Inc. became a
subsidiary of Electronic Systems, Inc. and adopted a March 31 year-end.
SIGNIFICANT ACCOUNTING POLICIES
Estimates Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported assets and
liabilities and the reported revenues and expenses. Actual results could vary
from the estimates that were used.
Revenue Recognition Income is recognized at point of sale except for income
from maintenance agreements and training which is recognized over individual
contract terms and as training is provided.
Cash Equivalents The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Accounts Receivable The Company routinely extends its customers trade
credit, most of which is not collateralized or otherwise secured.
Uncollectible accounts receivable are charged to operations in the period in
which an account is determined to be uncollectible.
Inventory Inventories are valued at the lower of cost or market, using the
specific identification method.
Equipment All equipment is recorded at cost and depreciated using the
straight-line method. Depreciable lives are from five to seven years.
Advertising Advertising costs are charged to operations when incurred.
Income Taxes The Corporation is not subject to corporate income tax because
its shareholders have elected to be taxed according to Subchapter S of the
Internal Revenue Code. As such, net income or loss; certain items of income
and expense; and credits, if any, are passed through to the shareholders for
inclusion in their tax returns.
UNCOLLECTIBLE ACCOUNTS
Included in expense for the period ended December 31, 1996 are $37,747 of
uncollectible acccounts. There were no uncollectible accounts charged to
expense for the period ended November 30, 1997.
ADVERTISING
Advertising expenses were $30,788 and $71,822 for the periods ended November
30, 1997 and December 31, 1996, respectively.
DEPRECIATION
Depreciation charges of $17,074 and $19,213 were expensed for the periods
ended November 30, 1997 and December 31, 1996, respectively.
F-63
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RELATED PARTY TRANSACTIONS
The Company receives administrative and accounting personnel assistance from
Electronic Systems, Inc., an affiliated corporation with in excess of 50% of
its stock owned by several of the stockholders of Electronic Systems of
Richmond, Inc. Included in administrative expense are management fees of
$33,750 and $25,000 paid to Electronic Systems, Inc., for the periods ended
November 30, 1997 and December 31, 1996, respectively.
OPERATING LEASES
The Company leases its Richmond facilities through a non-cancelable
operating lease which expires November 30, 2000. The Company leases its
Arlington facilities through a non-cancelable operating lease which expires
May 31, 2000. These leases provide for annual operating expense adjustments.
Occupancy expense attributable to operating leases was $103,813 and $95,554,
respectively, for the periods ended November 30, 1997 and December 31, 1996,
respectively.
Minimum future rent commitments under these leases for the four months
ending March 31, 1998, and for each of the next four years ending March 31,
are:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 TOTAL
------- -------- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
$37,428 $114,610 $119,464 $ 55,492 $ -- $326,994
</TABLE>
EMPLOYEE BENEFIT PLANS
Effective July 1, 1996, the Company began to offer a profit sharing plan
with a 401(k) deferral feature covering substantially all employees who have
attained age 21, have been employed for at least one year, and who work a
minimum of 1,000 hours annually. Contributions to the plan are an employer-
matching contribution of 50% of employee elective deferrals up to 5% of
salary. The Company's policy is to fund the contributions as accrued. Employer
contributions to this plan were $16,772 and $7,454 for the periods ended
November 30, 1997 and December 31, 1996, respectively, exclusive of plan
administration costs.
CONCENTRATION OF CREDIT RISK
At November 30, 1997 and at various times during the periods ended November
30, 1997 and December 31, 1996, the Company had on deposit with a single
financial institution, more than $100,000, which is the limit currently
insured by the Federal Deposit Insurance Corporation.
DIVIDENDS
The Company declared dividends of $3,693.99 and $629.41 per share for the
periods ended November 30, 1997 and December 31, 1996, respectively.
SUBSEQUENT EVENT
Effective December 1, 1997, shareholders of record November 30, 1997 were
redeemed by a new shareholder, Electronic Systems, Inc.
RECLASSIFICATIONS
Certain amounts in the December 31, 1996 financial statements have been
reclassified to conform with the current year financial statement
presentation. These reclassifications had no effect on operating results as
previously reported.
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Connecticut Business Systems, Inc.:
We have audited the accompanying statements of income (loss) and retained
earnings (deficit) and cash flows of Connecticut Business Systems, Inc. for
the years ended September 30, 1996 and September 30, 1997 and for the three
months ended December 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 results of operations and cash flows of
Connecticut Business System, Inc. for the years ended September 30, 1996 and
September 30, 1997 and for the three months ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 16, 1998
F-65
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------- THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net sales:
Equipment............. $ 5,608,784 $ 6,577,866 $1,592,616
Supplies.............. 2,083,713 2,241,317 601,013
Service............... 3,995,009 4,330,964 1,154,604
Other................. 113,613 139,469 34,507
----------- ----------- ----------
Total net sales..... 11,801,119 13,289,616 3,382,740
----------- ----------- ----------
Costs and operating
expenses:
Equipment............. 3,505,491 4,113,684 934,930
Supplies.............. 1,230,029 1,314,995 343,953
Service............... 2,279,942 2,207,399 558,607
Selling, general and
administrative....... 4,545,790 5,227,111 1,261,578
Other................. 166,414 193,563 38,562
----------- ----------- ----------
11,727,666 13,056,752 3,137,630
----------- ----------- ----------
Income from
operations......... 73,453 232,864 245,110
Interest expense........ 122,405 123,402 38,352
----------- ----------- ----------
Income (loss) before
provision for income
taxes................ (48,952) 109,462 206,758
Provision (benefit) for
state income taxes..... -- (18,000) 20,000
----------- ----------- ----------
Net income (loss)... (48,952) 127,462 186,758
Retained earnings
(deficit), beginning of
period................. (112,471) (161,423) (33,961)
Distribution to
shareholders........... -- -- 32,000
----------- ----------- ----------
Retained earnings
(deficit), end of
period................. $ (161,423) $ (33,961) $ 120,797
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30, THREE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activ-
ities:
Net income (loss)............. $ (48,952) $ 127,462 $ 186,758
Adjustments to reconcile net
income (loss) to net cash
provided by operating activi-
ties:
Depreciation................ 192,147 275,788 82,191
Changes in operating assets
and liabilities--
Accounts receivable....... 2,622 (57,816) 47,680
Inventories............... 81,146 99,995 (31,621)
Other receivables......... (44,529) 29,785 12,580
Deposits.................. 28,770 (25,995) (3,172)
Accounts payable.......... (99,723) (158,858) 53,425
Accrued expenses.......... 65,956 201,445 (82,069)
Unearned income........... (68,118) (188,668) 74,477
Deferred tax asset........ -- (18,000) 12,000
--------- --------- ---------
Net cash provided by oper-
ating activities......... 109,319 285,138 352,249
--------- --------- ---------
Cash flows from investing activ-
ities:
Acquisition of property and
equipment.................... (483,194) (701,678) (120,335)
Disposition of property and
equipment.................... 268,384 281,497 25,907
--------- --------- ---------
Net cash used for invest-
ing activities........... (214,810) (420,181) (94,428)
--------- --------- ---------
Cash flows from financing activ-
ities:
Net proceeds from notes pay-
able to stockholders......... 216,776 566,697 --
Repayments of revolving and
other note payable, net...... (59,284) (439,433) (165,000)
(Decrease) increase of long-
term liabilities............. (64,207) 10,912 13,994
--------- --------- ---------
Net cash provided by (used
for) financing
activities............... 93,285 138,176 (151,006)
--------- --------- ---------
Net (decrease) increase in
cash........................... (12,206) 3,133 106,815
Cash, beginning of period....... 28,073 15,867 19,000
--------- --------- ---------
Cash, end of period............. $ 15,867 $ 19,000 $ 125,815
========= ========= =========
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 122,883 $ 127,892 $ 38,252
========= ========= =========
Cash paid for state income
taxes........................ $ 3,529 $ 4,508 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997 AND DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization--
Connecticut Business Systems, Inc. (the Company) commenced operations on
April 18, 1986 when it purchased property, equipment and inventory from
Columbia Business Systems, Inc. The Company sells, rents and services
photocopy machines, facsimile machines and duplicators and distributes related
supplies.
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.
Inventories--
Inventories are stated at the lower of cost (average cost and specific
identification) or market. The inventory value at September 30, 1996,
September 30, 1997 and December 31, 1997 are net of reserves for
excess/obsolete inventory of approximately $-0-, $170,000 and $58,000,
respectively.
Property and equipment--
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Demo and showroom equipment...................................... 2-5 years
Furniture and fixtures........................................... 5 years
Warehouse equipment.............................................. 5 years
Vehicles......................................................... 3 years
Leasehold improvements........................................... 7 years
</TABLE>
Revenue recognition and unearned income--
Revenue on the sale of machines and supplies is recorded when the machines
and supplies are shipped. Revenue for services is recorded when the services
are provided. Maintenance contract service revenues are recognized ratably
over the term of the applicable maintenance contract.
Amounts billed under maintenance agreements are reflected in unearned income
and recognized as income on a straight-line basis over the term of the related
contract. Contract terms range from one to three years, but primarily are for
a one year term.
Concentration of credit risk--
Financial instruments which may subject the Company to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company purchases a
majority of its machines for resale from one vendor. Purchases from this
vendor are based on inventory requirements and no purchase commitments or
blanket purchase orders existed at September 30, 1996, September 30, 1997 or
December 31, 1997.
F-68
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. REVOLVING AND OTHER NOTE PAYABLE:
At September 30, 1996, September 30, 1997 and December 31, 1997, the Company
had the following notes payable:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
Revolving note payable, with
interest at bank's prime (8.50% at
September 30, 1997) plus 1%,
payable monthly................... $600,000 $165,000 $--
Note payable with interest at
14.123% payable monthly........... 4,433 -- --
-------- -------- ----
604,433 165,000 --
Less--current maturities........... (604,433) (165,000) --
-------- -------- ----
Long-term debt..................... $ -- $ -- $--
======== ======== ====
</TABLE>
Under the terms of the revolving note payable (the Note), the Company may
borrow up to $1,250,000, not to exceed 80% of eligible accounts receivable, as
defined, and 45% of eligible inventory, as defined. As of September 30, 1996,
September 30, 1997 and December 31, 1997, the Company had $650,000, $1,085,000
and $1,250,000, respectively, of available borrowing under the Note.
The Note is collateralized by substantially all assets of the Company and
personally guaranteed by the stockholders.
The Note also contains certain restrictive financial covenants including
minimum tangible net worth of $500,000 (which considers amounts due
stockholders as capital), a current ratio greater than 1.1, minimum working
capital of $450,000 (as defined) and a debt service ratio greater than 1.2. As
of September 30, 1996, September 30, 1997 and December 31, 1997, the Company
was in compliance with these covenants.
3. NOTES PAYABLE TO STOCKHOLDERS:
The Company has entered into note agreements with its two stockholders.
These notes are due upon demand and bear interest at 10%, payable quarterly.
These notes are classified as long-term as the stockholders do not intend to
request repayment until after December 31, 1998. A portion of these notes
payable is subordinated to the Company's bank debt and is classified as
Subordinated Notes Payable to Stockholders in the accompanying financial
statements (see Note 8 for Subsequent Event).
4. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
standard requires that a deferred tax asset or liability be recognized for the
estimated future tax effects attributable to temporary differences.
The Company has elected to be taxed as an S corporation for Federal income
tax purposes. As such, the Company is not subject to Federal income taxes as
the taxable income of the Company is included in the individual income tax
returns of the stockholders of the Company.
F-69
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for state income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30, THREE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Current....................... $-- $ -- $ 8,000
Deferred...................... -- (18,000) 12,000
---- -------- -------
$-- $(18,000) $20,000
==== ======== =======
</TABLE>
Deferred tax assets and liability are comprised of the following:
<TABLE>
<CAPTION>
CURRENT ASSET LONG-TERM LIABILITY
---------------------------------------- ----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1996 1997 1997
------------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Depreciation............ $ -- $ -- $ -- $28,600 $18,000 $18,000
Inventory reserves...... -- 18,000 6,000 -- -- --
Deferred income......... 15,000 15,000 15,000 -- -- --
------- ------- ------- ------- ------- -------
$15,000 $33,000 $21,000 $28,600 $18,000 $18,000
======= ======= ======= ======= ======= =======
</TABLE>
5. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1992, the Company established a salary deferral plan
under Section 401(k) of the Internal Revenue Code. Substantially all full-time
salaried employees are eligible to participate in the plan which provides for
salary deferrals from 1% to 15% of gross wages, up to a maximum deferral of
$9,500. The Company's annual contribution to the plan is discretionary.
Approximately $17,000, $20,000 and $3,000 are included in general and
administrative expenses on the accompanying Statements of Income and Retained
Earnings (Deficit) for the years ended September 30, 1996, September 30, 1997
and for the three months ended December 31, 1997, respectively, relating to
the Company's discretionary contribution.
6. OTHER LONG-TERM LIABILITIES:
As of September 30, 1996, September 30, 1997 and December 31, 1997 other
long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
Unearned income..................... $29,924 $51,436 $65,430
Deferred state income taxes......... 28,600 18,000 18,000
------- ------- -------
$58,524 $69,436 $83,430
======= ======= =======
</TABLE>
7. COMMITMENTS:
The Company leased its Rocky Hill facility from CBS Realty Associates (CBS
Realty), a partnership related through common ownership through March, 1997.
In March, 1997, CBS Realty sold the building to an unrelated third party. The
Company has entered into a seven year triple net lease for this space at
approximately $140,000 per year. The Company also leases office space in
Norwalk, CT. (expires September, 1998) and Westchester, NY. (expires August,
1998) and office equipment and vehicles under operating leases expiring in
various years. Total lease expense resulting from the agreements noted above
approximated $277,000, $293,000 and $82,000 for the years ended September 30,
1996, September 30, 1997 and the three months ended December 31, 1997,
respectively.
F-70
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Minimum future annual rental payments under noncancellable operating leases,
as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 (nine months).............................................. $ 246,044
1999............................................................ 222,789
2000............................................................ 214,562
2001............................................................ 192,443
2002............................................................ 168,068
Thereafter...................................................... 230,554
----------
$1,274,460
==========
</TABLE>
8. SUBSEQUENT EVENT:
As of the close of business on December 31, 1997, the stockholders of the
Company sold their stock to Global Imaging Systems, Inc. (Global) for
$8,700,000 in cash and $650,000 in stock. In addition, the Company, through
funding provided by Global, repaid the notes due the former stockholders of
approximately $1,405,000.
F-71
<PAGE>
To the Stockholder and To the Stockholders and
Board of Directors Board of Directors
Bloom's, Incorporated Global Imaging Systems, Inc.
Enfield, Connecticut Tampa, Florida
We have audited the accompanying statement of divisional net assets of
Business Systems Division ("BSD"), an operating division of Bloom's,
Incorporated (which is a Massachusetts S Corporation) as of December 31, 1997
and January 31, 1997, and the related statements of divisional operations,
changes in divisional net assets, and divisional cash flows for the eleven
months ended December 31, 1997 and the year ended January 31, 1997. These
financial statements are the responsibility of the management of Bloom's,
Incorporated. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 provides a reasonable basis
for our opinion.
The accompanying financial statements were prepared on the basis of
presentation as described in Note 1, and are not intended to be a complete
presentation of all of the assets and liabilities of Business Systems Division
as if it were a standalone entity.
In our opinion, the accompanying financial statements as of December 31,
1997 and January 31, 1997 and for the periods then ended, present fairly, in
all material respects, the net assets of Business Systems Division and its
divisional operations, cash flows and changes in net assets in accordance with
the basis of accounting described in Note 1 in conformity with generally
accepted accounting principles.
/s/ Joseph D. Kalicka & Company, LLP
JOSEPH D. KALICKA & COMPANY, LLP
Certified Public Accountants
Holyoke, Massachusetts
February 6, 1998 (for the period ended December 31, 1997)
February 20, 1998 (for the period ended January 31, 1997)
F-72
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL NET ASSETS
DECEMBER 31, 1997 AND JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
A S S E T S
<S> <C> <C>
Current assets:
Cash funds.......................................... $ 50 $ 50
Accounts receivable--trade.......................... 1,327,584 1,324,137
Other receivables................................... 2,074 3,555
Inventory........................................... 820,921 659,316
----------- -----------
Total current assets.............................. 2,150,629 1,987,058
----------- -----------
Property and equipment:
Equipment rental fleet.............................. 2,117,793 2,146,233
Vehicles............................................ 238,871 249,177
Furniture and equipment............................. 80,815 70,207
----------- -----------
2,437,479 2,465,617
Accumulated depreciation............................ (2,052,535) (1,776,567)
----------- -----------
Total property and equipment...................... 384,944 689,050
----------- -----------
Other assets:
Deposits............................................ 450 450
Accounts receivable--trade--noncurrent.............. 480,260 306,799
----------- -----------
Total other assets................................ 480,710 307,249
----------- -----------
Total assets...................................... $ 3,016,283 $ 2,983,357
=========== ===========
L I A B I L I T I E S A N D D I V I S I O N A L N E T A S S E T S
Current liabilities:
Accounts payable.................................... $ 45,493 $ 44,859
Accrued expenses.................................... 137,634 195,501
Deferred revenues................................... 726,703 817,128
----------- -----------
Total current liabilities......................... 909,830 1,057,488
----------- -----------
Other liabilities:
Deferred revenues--noncurrent....................... 132,345 67,494
Accounts payable--noncurrent........................ 119,970 --
----------- -----------
Total other liabilities........................... 252,315 67,494
----------- -----------
Total liabilities................................. 1,162,145 1,124,982
----------- -----------
Divisional net assets............................... 1,854,138 1,858,375
----------- -----------
Total liabilities and divisional net assets....... $ 3,016,283 $ 2,983,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Net sales:
Equipment........................................... $3,173,138 $2,399,948
Supplies............................................ 1,205,492 1,152,446
Service............................................. 2,320,161 2,481,687
Rental.............................................. 718,711 795,731
Other............................................... 600,623 522,216
---------- ----------
Total net sales................................... 8,018,125 7,352,028
---------- ----------
Costs and operating expenses:
Equipment........................................... 2,470,845 1,911,202
Supplies............................................ 862,645 804,788
Service............................................. 1,046,690 1,081,357
Rental.............................................. 91,196 85,157
Selling, general and administrative................. 3,578,078 3,822,870
---------- ----------
Total costs and operating expenses................ 8,049,454 7,705,374
---------- ----------
Loss from operations.................................. (31,329) (353,346)
Other income (expense):
Interest expense.................................... (41,553) (62,184)
Interest income..................................... 21,283 22,750
---------- ----------
(20,270) (39,434)
---------- ----------
Loss before provision for income taxes................ (51,599) (392,780)
(Provision) benefit for state income taxes.......... 5,000 31,000
---------- ----------
Divisional net loss................................... $ (46,599) $ (361,780)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF CHANGES IN DIVISIONAL NET ASSETS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
Divisional net assets, February 1, 1996............................ $1,693,200
Activity--year ended January 31, 1997:
Net assets provided by Bloom's, Incorporated to Business Systems
Division........................................................ 526,955
Net loss for year................................................ (361,780)
----------
Divisional net assets, January 31, 1997............................ 1,858,375
Activity--eleven months ended December 31, 1997:
Net assets provided by Bloom's, Incorporated to Business System's
Division........................................................ 42,362
Net loss for period.............................................. (46,599)
----------
Divisional net assets--December 31, 1997........................... $1,854,138
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (46,599) $(361,780)
Adjustment to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation...................................... 359,567 464,128
Changes in operating assets and liabilities:
Accounts receivable--trade...................... (176,908) (487,440)
Other receivables............................... 1,481 (3,555)
Inventories..................................... (161,605) 130,741
Accounts payable................................ 120,604 (70,924)
Accrued expenses................................ (57,867) 104,818
Deferred income................................. (25,574) (14,735)
--------- ---------
Net cash provided (used) by operating
activities..................................... 13,099 (238,747)
--------- ---------
Cash flows from investing activities:
Acquisition of equipment............................ (55,461) (287,758)
Deposits made....................................... -- (450)
--------- ---------
Net cash used by investing activities........... (55,461) (288,208)
--------- ---------
Cash flows from financing activities:
Cash provided by Bloom's Incorporated............... 42,362 526,955
--------- ---------
Net cash provided by financing activities....... 42,362 526,955
--------- ---------
Net change in cash.................................... -- --
Divisional cash, beginning of period.................. 50 50
--------- ---------
Divisional cash, end of period........................ $ 50 $ 50
========= =========
Supplemental cash flow information:
Interest paid during period......................... $ 41,553 $ 62,184
========= =========
Taxes paid during period............................ None None
========= =========
</TABLE>
Additional cash flow disclosures:
During the eleven months ended December 31, 1997 the Division disposed of
$84,977 of fully depreciated equipment through retirement or sale and $220,557
was disposed of during the earlier period.
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JANUARY 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
Business Systems Division ("BSD", the "Division") is an operating division
of Bloom's, Incorporated, (the "Company", "Bloom's"). Bloom's was organized
under the laws of the Commonwealth of Massachusetts in 1948 and maintains its
corporate offices in Enfield, Connecticut with sales and service locations in
Massachusetts and Connecticut. Bloom's, Incorporated is a Massachusetts S
corporation, and closes its fiscal year on January 31, of each year.
The Company is engaged in retail sales, service, and lease of graphic arts
equipment, photocopiers and fax machines. The Printed Products Division
provides graphic arts equipment and supplies to the printing trade. Business
Systems Division provides copiers and fax machines to the general business and
educational community.
In January, 1998, the Company agreed to sell substantially all of the direct
operating assets of the Business Systems Division (exclusive of cash and
prepaids), subject to certain direct liabilities and obligations, to Global
Imaging System's, Inc. ("Global") through its Connecticut subsidiary,
Connecticut Business Systems, Inc. to be effective, February 1, 1998.
These divisional financial statements have been prepared using the
historical basis of accounting but include only the net assets and resulting
cash flows directly attributable to the BSD division along with the related
revenues and expenses for the Division including certain corporate
allocations, all of which are included in Bloom's financial statements. Net
assets, as used in these financial statements, may also include certain
liabilities which are not to be assumed by Global.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 55, these statements have been adjusted to include certain
corporate expenses incurred by Bloom's on the Division's behalf. The financial
statements may not necessarily present BSD's net assets, results of
operations, changes in net assets and cash flows if the Division was a
standalone entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Corporate allocation:
Bloom's, Incorporated provides services to BSD, including management,
accounting, working capital financing, tax, financial accounting and
reporting, benefits administration, occupancy, shipping/receiving, insurance,
information systems management, accounts receivable and credit, and accounts
payable functions. For purposes of these financial statements, the above
corporate costs have been allocated based upon the percentage of time
corporate administrative personnel were estimated to spend on the BSD division
along with an estimated percentage of common occupancy costs deemed incurred
by BSD. Such allocations and corporate charges totalled approximately
$1,170,000 for the eleven months ended December 31, 1997, of which
approximately $568,000 was for remuneration paid to the majority
stockholder/officer.
Corporate allocations for the year ended January 31, 1997 amounted to
approximately $1,435,000, of which approximately $684,000 was for remuneration
to the same stockholder/officer.
Management believes that the basis used for allocating corporate
administrative services is reasonable. However, the amounts included in these
allocations may differ from those that would result from transactions among
unrelated parties. In addition, these allocations were not based on specific
costs attributable to BSD
F-77
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
division and may not be representative of actual costs that would have been
incurred if BSD division had been operating independently.
B. Revenue recognition:
Assets, liabilities, revenues and expenses are recognized on the accrual
method of accounting. Revenues from the sale of machines and supplies is
recognized when the product is shipped to the customer through a regular sale
or a direct-sales type lease. Revenues for service are recorded at the time
the service is provided. Maintenance contract service revenues are recognized
ratably over the term of the applicable maintenance contract or on a per copy
basis, where the contract stipulates a minimum number of copies.
Unearned revenues at December 31, 1997 of $859,048 are the result of
billings to customers under maintenance service agreements which are scheduled
to be earned after December 31, 1997. Contract terms range from one month to
three years, but are generally for periods of one year. Unearned revenues at
January 31, 1997 amounted to $884,622.
C. Accounts receivable:
The Company uses the direct write-off method to provide for bad debts.
Management considers an allowance for uncollectible accounts at December 31,
1997 and January 31, 1997 unnecessary and not material to the financial
statements.
Accounts receivable at December 31, 1997 and January 31, 1997 include
billings for product sales, service, contracts, and equipment sold under
Company financed sales type leases. When the Company directly finances the
sale of equipment through direct leasing arrangement and the economic risks of
ownership are effectively borne by the customer, the arrangement is recognized
as a sale upon shipment of the equipment. Customer payments under these
arrangements are to be received over the life of the lease and give rise to
deferred receivables.
D. Inventories:
Inventories, which consist of equipment, supplies and parts are stated at
the lower of average cost or market. Inventory at December 31, 1997 is stated
net of reserves for excess/obsolete inventory of approximately $41,000
($31,500 at January 31, 1997).
E. Concentrations of credit risk:
Financial instruments which may subject the Company (and BSD) to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentrations of credit risk relating to cash and cash
equivalents arose when from time to time during the period cash deposited in
one financial institution exceeded the FDIC insured limits of $100,000. Credit
risks relating to concentrations from accounts receivable are mitigated due to
the large number of customers within the Company's customer base, all of whom
are located in the New England region.
In addition, BSD purchases substantially all of its equipment inventory for
resale and a majority of its resale supplies and parts from one vendor.
Purchases from this vendor are based upon inventory requirements and no
purchase commitments or blanket purchase orders exist at December 31, 1997.
The Company's formal agreement with that vendor expired in 1996 and continues
on an informal basis.
F-78
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
F. Equipment and depreciation:
Equipment is recorded at cost. Depreciation is provided using straight line
and accelerated methods over estimated useful lives (for furniture, fixtures,
and motor vehicles) and the rental period for depreciation of the equipment
rental fleet. Components of accumulated depreciation at December 31, 1997 and
January 31, 1997 are as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
DEPRECIATION DEPRECIATION LIFE
12/31/97 1/31/97 (YEARS)
------------ ------------ -------
<S> <C> <C> <C>
Equipment Rental Fleet................... $1,787,124 $1,540,013 1-5
Motor vehicles........................... 222,335 206,158 5
Furniture & equipment.................... 43,076 30,396 5
---------- ----------
Totals................................. $2,052,535 $1,776,567
========== ==========
</TABLE>
Depreciation charged to expense for the eleven months ended December 31,
1997 amounted to $359,567 ($464,128 for the year ended January 31, 1997).
Expenditures for maintenance and repairs are charged against income as
incurred. Company policy is to charge or credit to income any loss or gain
resulting from disposal or retirements of vehicles or furniture and equipment.
Gains or losses on disposition of equipment rental fleet are included in net
sales on the statement of operations.
G. Leases:
The Company is the lessor of equipment under operating leases expiring in
various years. The cost and accumulated depreciation of leased assets are
included in equipment as rental (Note 1F).
H. 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. One
significant estimate is the amounts of corporate expenses allocable to BSD as
more fully described in Note 2A.
I. Advertising costs:
The Company expenses production costs of advertising the first time
advertising takes place. Advertising costs for the eleven months ended
December 31, 1997 amounted to approximately $147,000, ($176,000 for the year
ended January 31, 1997) which is stated net of manufacturers' reimbursement.
3. INCOME TAXES:
Bloom's has elected and the stockholders have consented to be taxed under
the provisions of Subchapter S of the Internal Revenue Code effective for tax
years after January 31, 1987. In lieu of federal corporation income taxes, the
stockholders of an S corporation are taxed on their proportionate share of the
corporation's taxable income. Therefore, no provisions or liabilities for
federal income taxes has been included in these financial statements.
F-79
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a Massachusetts S corporation, the Company is subject to corporate income
taxes on its net income because total receipts aggregate $6 million or more.
The Company is also subject to Connecticut corporate income taxes.
Statement of Financial Accounting Standards No. 109 requires that deferred
income taxes be computed using the liability method under which deferred
income tax assets and liabilities are computed based on differences between
the financial statement and tax basis of assets and liabilities which will
result in taxable or deductible amounts on future tax returns. These financial
statements do not include any provisions for deferred state income taxes since
they are not considered material.
State income tax benefits of $5,000 and $31,000, respectively, included on
the statement of operations for the period ended December 31, 1997 and January
31, 1997 result from the tax savings inuring to the Company each year, when
taxes are computed on all operations.
4. WORKING CAPITAL AND ALLOCATED INTEREST:
The working capital employed by BSD is provided directly by Bloom's,
Incorporated and by an unsecured revolver note payable to a commercial bank
held in the name of Bloom's, Incorporated. The note, currently limited to
$2,500,000, was amended in August, 1997 and is scheduled to expire on July 31,
1998 unless renewed. This note is not included as those liabilities to be
assumed by Global. However, interest, at the prime rate, of approximately
$42,000 for the eleven months ended December 31, 1997, has been allocated to
these financial statements on the basis of direct employable assets of each of
the operating divisions of Bloom's, Incorporated. Amounts for the year ended
January 31, 1997 approximated $62,000.
5. RELATED PARTY TRANSACTIONS--LEASE:
In March 1981, the Company entered into a 25 year lease agreement with the
Company's majority stockholder (lessor) covering its general offices and
warehouse in Enfield, Connecticut.
During the eleven months ended December 31, 1997, the Company made rental
payments under the lease of $107,000. Of this amount, approximately $58,000
has been allocated to BSD on the basis of the occupancy formula discussed in
Note 2A ($63,000 for the earlier period). Aggregate future annual minimum
rentals to Bloom's, Incorporated (excluding payment for real estate taxes,
maintenance, utilities and insurance) are estimated as follows:
<TABLE>
<CAPTION>
THRU DECEMBER 31,
-----------------
<S> <C>
1998............................................................ $107,000
1999............................................................ 107,000
2000............................................................ 107,000
2001............................................................ 107,000
2002............................................................ 107,000
Thereafter...................................................... 330,000
--------
$865,000
========
</TABLE>
Obligations under this lease will not be assumed by Global.
F-80
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS:
The Company is obligated under three leases at December 31, 1997 which are
used exclusively by BSD division for outside sales offices. The terms of these
arrangements are summarized below:
East Hartford, CT:
The facility lease is dated March 15, 1996 which calls for minimum
monthly payments of $2,500 per month through September 30, 1998, plus a
share of operating expenses.
Pittsfield, MA:
The facility is rented on a month to month basis and currently calls for
monthly rents of $700 per month plus common expenses.
Fairfield, CT:
The facility arrangement calls for monthly rents of $750 plus common
expenses on a month to month basis. In January, 1998, monthly rents were
increased to $1,000.
The Company is also committed under three (3) vehicle leases which will
expire during 1998 and 1999. Minimum monthly rents aggregate $646 per month,
with two leases expiring in May, 1998 ($406 per month) and the third lease
expiring in October, 1999 for $240 per month. All vehicles are used in BSD
operations.
Future minimum monthly payments under facility and vehicle leases (all of
which are to be transferred to Global) are as follows at December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE
MINIMUM
PAYMENTS
---------
<S> <C>
1998............................................................. $29,910
1999............................................................. 2,400
-------
Total.......................................................... $32,310
=======
</TABLE>
7. EMPLOYEE BENEFIT PLAN:
The Company maintains a salary deferral plan under section 401(k) of the
Internal Revenue Code which covers substantially all employees. Company
contributions to the plan are at the discretion of the Board of Directors.
There were no employer contributions to the plan for the eleven months ended
December 31, 1997. Employer contributions amounted to approximately $110,000
for the year ended January 31, 1997, of which approximately $65,000 was
charged to BSD Division.
8. SUBSEQUENT EVENT:
Effective February 1, 1998, one of BSD's larger customers decided not to
renew a portion of their rental arrangement and returned approximately 90
copiers out of a total of approximately 250 under lease during 1997.
Financially, this may result in a reduction in future annual rental (and total
annual sales) of approximately $200,000 to $250,000.
F-81
<PAGE>
Customers continue to demand more integrated office imaging solutions. As
the technology that drives copiers, facsimiles, printers, electronic
presentation equipment and DIM equipment continues to converge, there is an
increasing role for computers and networks in the functioning of these
products.
[Graphic depicting "Office Imaging Solutions" as the center of a "Network"
hub. The hub has eight spokes. One spoke is an image labeled "Document
Management System." One is an image of a classroom and teacher labeled
"Training and Support." One is an image of an office building labeled "Remote
Location." One is an image of a computer labeled "Computer Workstation." One
is an image of a fax machine labeled "Facsimile." One is an image of a copier
labeled "Digital Copier/Printer." One is simply designated "Network Services."
One is an image of a projector and screen labeled "LCD Projector."]
Global intends to expand its offerings to provide products and services in
the automated office equipment market, the electronic presentation systems
market, the DIM systems market and the network integration markets in each of
its geographic markets.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JU-
RISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED 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, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (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 ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Capitalization............................................................. 15
Dilution................................................................... 16
Selected Pro Forma Financial Data.......................................... 17
Selected Financial Data.................................................... 18
Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................... 19
Business................................................................... 26
Management................................................................. 34
Certain Transactions....................................................... 38
Principal and Selling Stockholders......................................... 43
Description of Capital Stock............................................... 45
Shares Eligible for Future Sale............................................ 47
Underwriting............................................................... 48
Legal Matters.............................................................. 49
Experts.................................................................... 49
Additional Information..................................................... 50
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,000,000 Shares
Global Imaging Systems, Inc.
[LOGO, including the text "Think Globally, Act Locally"]
Common Stock
----------------
P R O S P E C T U S
----------------
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
RAYMOND JAMES & ASSOCIATES, INC.
April , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 37,996
NASD filing fee.................................................. 13,380
Nasdaq National Market fee....................................... 90,000
Blue sky qualification fees and expenses......................... 20,000
Accounting fees and expenses..................................... 1,221,000
Legal fees and expenses.......................................... 200,000
Printing and engraving expenses.................................. 270,000
Transfer agent and registrar fees................................ 2,000
Miscellaneous expenses........................................... 145,624
----------
Total.......................................................... $2,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Certificate of Incorporation to be filed and
effective upon the closing of the Offering (the "Charter") and Amended and
Restated Bylaws of the Company provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company
pursuant to the Company's Certificate of Incorporation, as amended, Bylaws and
the Delaware General Corporation Law, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
As permitted by the Delaware General Corporation Law, the Charter provides
that directors of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, relating
to prohibited dividends or distributions or the repurchase or redemption of
stock or (iv) for any transaction from which the director derives an improper
personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for
breach of his or her duty of care.
Additionally, the Company has entered into indemnification agreements with
certain of its directors, officers and other key personnel, which may, in
certain cases, be broader than the specific indemnification provisions
contained under applicable law. The indemnification agreements may require the
Company, among other things, to indemnify such officers, directors and key
personnel against certain liabilities that may arise by reason of their status
or service as directors, officers or employees of the Company, to advance the
expenses incurred by such parties as a result of any threatened claims or
proceedings brought against them as to which they could be indemnified, and to
cover such officers, directors and key employees under the Company's
directors' and officers' liability insurance policies to the maximum extent
that insurance coverage is maintained.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 17, 1995 the Company has sold and issued the following
unregistered securities:
(a) In January 1996, the Company sold 3,832.83 shares of Class A Common
Stock ("Class A Common Shares") and 111,672 shares of Common Stock ("Common
Shares") for aggregate purchase prices of $344,955 and $8,845, respectively,
to executives of three companies in connection with the Company's acquisition
of those companies. One of the executives paid for his purchase with a three-
year secured promissory note in the principal amount of $49,800, bearing an
annual interest rate of 8%.
(b) In January 1996, the Company sold 1,083.333 Class A Common Shares and
31,563 Common Shares for purchase prices of $97,500 and $2,500, respectively,
as an employment incentive to an individual who paid for his purchase with a
three-year secured promissory note in the principal amount of $100,000,
bearing an annual interest rate of 8%.
(c) In January 1996, the Company sold 216.660 Class A Common Shares and
6,312 Common Shares for purchase prices of $19,500 and $500, respectively, to
an individual as an employment incentive.
(d) In February 1996, the Company sold 2,535 Class A Common Shares and
73,859 Common Shares for aggregate purchase prices of $228,150 and $5,850,
respectively, to executives of a company in connection with its acquisition by
the Company.
(e) In April 1996, the Company entered into a transaction pursuant to which
2,210 shares of Class A Common Stock and 64,390 shares of Common Stock were
purchased from a departing employee and transferred to certain investors, all
of whom were employees of the Company, including Neal Berney, Raymond
Schilling and Michael Mueller, for a purchase price based on the stock's fair
market value at the time the transaction was agreed upon.
(f) In June 1996, the Company sold 2,608.667 Class A Common Shares and
76,005 Common Shares for aggregate purchase prices of $234,780 and $6,020,
respectively, to executives of a company in connection with its acquisition by
the Company. The executives provided $190,800 of the aggregate purchase price
in the form of capital stock of Office Furniture Concepts, Inc., a North
Carolina corporation.
(g) In August 1996, the Company sold 27,083.33 Class A Common Shares and
633,932 shares of Class C Common Stock for purchase prices of $2,437,500 and
$62,500, respectively, to Jackson National Life Insurance Company ("JNL") in
connection with the Company's obtaining a credit facility from JNL.
(h) In September 1996, the Company sold 1,354.166 Class A Common Shares and
31,696 Common Shares for purchase prices of $121,875 and $3,125, respectively,
to an investor in a private placement.
(i) In November 1996, the Company sold 6,370 Class A Common Shares and
149,100 Common Shares for aggregate purchase prices of $573,300 and $14,700,
respectively, to executives of a company in connection with its acquisition by
the Company.
(j) In March 1997, the Company sold 812.50 Class A Common Shares and 19,017
Common Shares for aggregate purchase prices of $73,125 and $1,875,
respectively, as an employment incentive to an individual and to an investor
in a private placement.
(k) In March 1997, the Company sold 172,547 Common Shares for a purchase
price of $11,764.62 to Alfred N. Vieira as an employment incentive.
(l) In April 1997, the Company sold 2,600 Class A Common Shares and 47,999
Common Shares for aggregate purchase prices of $234,000 and $6,000,
respectively, to executives of a company in connection with its acquisition by
the Company. One of the executives paid for her purchase with a 21-month
secured promissory note in the principal amount of $20,000, bearing an annual
interest rate of 8%.
(m) In July 1997, the Company sold 1,083.33 Class A Common Shares and 19,999
Common Shares for purchase prices of $97,500 and $2,500, respectively, as an
employment incentive to an individual who paid for the purchase with a three-
year secured promissory note in the principal amount of $100,000, bearing
interest at an annual rate of 8%.
II-2
<PAGE>
(n) In August 1997, the Company sold 18,200 Class A Common Shares and
335,999 Common Shares for aggregate purchase prices of $1,638,000 and $42,000,
respectively, to an individual, an entity and to executives of a company in
connection with the company's acquisition by the Company.
(o) In August 1997, the Company sold 117 Class A Common Shares and 2,159
Common Shares for purchase prices of $10,530 and $270, respectively, to an
individual as an employment incentive.
(p) In September 1997, the Company sold 617.499 Class A Common Shares and
11,399 Common Shares for aggregate purchase prices of $55,575 and $1,425,
respectively, to individuals as employment incentives.
(q) In September 1997, the Company sold 4,901 Class A Common Shares and
90,480 Common Shares for aggregate purchase prices of $441,090 and $11,310,
respectively, to executives of a company in connection with its acquisition by
the Company and to an individual as an employment incentive.
(r) In September 1997, the Company sold 1,083.33 Class A Common Shares and
19,999 Common Shares for purchase prices of $97,500 and $2,500, respectively,
to an individual as an employment incentive, who paid for the purchase with a
three-year secured promissory note in the principal amount of $100,000,
bearing an annual interest rate of 8%.
(s) In October 1997, the Company sold 1,300 Class A Common Shares and 23,999
Common Shares for aggregate purchase prices of $117,000 and $3,000,
respectively, to individuals as employment incentives.
(t) In November 1997, the Company entered into a transaction pursuant to
which 1,083.333 shares of Class A Common Stock and 31,564 shares of Common
Stock were purchased from a departing employee and transferred to certain
investors. In connection with the transaction, the Company received the
purchase price of such shares, and canceled amounts due under a promissory
note delivered to it by the departing employee for the purchase price of such
shares. The investors in the transaction were all employees of or consultants
or advisors to the Company, including Raymond Schilling, Michael Mueller and
Alfred Vieira. In connection with the transaction, the Company received cash
in the amount of approximately $113,000 and forgave indebtedness and made
payments to the departing employee in an aggregate amount of approximately
$115,000.
(u) In November 1997, the Company sold 4,283.5 Class A Common Shares and
79,079 Common Shares for aggregate purchase prices of $385,515 and $9,885,
respectively, to executives of a company in connection with its acquisition by
the Company.
(v) In November 1997, the Company sold 45,166.953 Class A Common Shares for
a purchase price of $4,065,025.80 to Golder Thoma Cressey Rauner Fund IV
Limited Partnership and 1,106.258 Class A Common Shares for a purchase price
of $99,563.20 to Thomas Johnson under the terms of an Equity Purchase
Agreement dated June 9, 1994.
(w) In November 1997, the Company sold 11,136.268 Class A Common Shares and
260,663 shares of Class C Common Stock for purchase prices of $1,002,264.16
and $25,699.08, respectively, to JNL in connection with an amendment to the
Company's credit facility from JNL.
(x) In November 1997, the Company sold 556.643 Class A Common Shares and
13,029 Common Shares for purchase prices of $50,097.84 and $1,284.56,
respectively, to an investor in a private placement.
(y) In January 1997, the Company sold 5,850 Class A Common Shares and
107,999 Common Shares for aggregate purchase prices of $526,500 and $13,500,
respectively, $540,000 to executives of a company in connection with its
acquisition by the Company and to an individual as an employment incentive.
(z) In January 1998, the Company sold 7,020 Class A Common Shares and
129,599 Common Shares for aggregate purchase prices of $631,800 and $16,200,
respectively, to an individual in connection with the Company's acquisition of
a company.
(aa) In March or April 1998, the Company expects to sell 86,276 Common
Shares to GTCR IV and Thomas Johnson for an aggregate purchase price of $5,882
pursuant to a preexisting contractual obligation.
The share amounts set forth above give effect to the company's 132-for-1
stock split of the Common Stock expected to be effected in March or April
1998. The sales and issuances of securities in the transactions described
above were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) or Regulation D promulgated thereunder.
II-3
<PAGE>
Appropriate legends are affixed to the stock certificate issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients received adequate
information about the Company or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation (to be filed with the
Secretary of State of Delaware prior to the closing of this offering).*
3.2 Amended and Restated Certificate of Incorporation (to be filed with the
Secretary of State of Delaware upon the closing of this offering).*
3.3 Bylaws**
3.4 Amended and Restated Bylaws (to become effective upon the closing of
this offering).*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality of the
Common Stock.*
10.1 Equity Purchase Agreement, dated as of June 9, 1994, as amended, by and
among Global; Thomas S. Johnson; Golder, Thoma, Cressey, Rauner Fund IV
Limited Partnership ("GTCR IV") and additional stockholders.**
10.2 Registration Agreement, dated as of June 9, 1994, as amended, by and
among Global and the stockholders identified therein.**
10.3 Termination Agreement, dated as of , 1998, by and among Global;
GTCR IV; Golder, Thoma, Cressey, Rauner, Inc. ("GTCR") and the
stockholders identified therein.*
10.4 Form of Equity Subscription Agreement, by and between Global and certain
of its stockholders.**
10.5 Amended and Restated Credit Agreement, dated as of November 14, 1997, by
and among Jackson National Life Insurance Company ("JNL") as Lender and
PPM America, Inc., as Agent, Global and its subsidiaries.*
10.6 Investor Purchase Agreement, dated as of August 14, 1996, between Global
and JNL.**
10.7 Investor Purchase Agreement, dated as of September 30, 1996, between
Global and Green Manning & Bunch Holdings, Inc.**
10.8 Executive Agreement, dated as of June 9, 1994, as amended, by and among
Global, Thomas S. Johnson and GTCR IV.+*
10.9 Executive Agreement, dated as of June 9, 1994, as amended, by and among
Global, Raymond Schilling and GTCR IV.+*
10.10 Executive Agreement, dated as of January 1, 1995, as amended, by and
among Global, H. Michael Mueller and GTCR IV.+*
10.11 Executive Agreement, dated as of March 31, 1997, by and among Global,
Alfred N. Vieira and GTCR IV.+*
10.12 Stock Option and Restricted Stock Plan (to be adopted by Global prior to
the closing of this offering).+*
10.13 Form of Supply Agreement between the Company and Konica.++
10.14 Non-Exclusive Third Party Lessor Agreement, dated July 16, 1996, as
amended, by and between Global and General Electric Capital
Corporation.++
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.15 License Agreement, dated as of July 31, 1996, as amended, between Global
and Copelco Capital, Inc.++
10.16 Non-Exclusive Third Party Lessor Agreement, dated July 26, 1996, as
amended, by and between Global and Tokai Financial Services, Inc.++
10.17 Stock Purchase Agreement, dated as of June 27, 1996 by and among Global
as Buyer, Copy Service & Supply, Inc., Office Furniture Concepts, Inc.,
CSS Leasing, LLC and Terry K. Smith and Crystal E. Smith as Sellers.++
10.18 Stock Purchase Agreement, dated as of November 13, 1996 by and among
Global as Buyer and Southern Business Communications, Inc. and Mark M.
Lloyd and Arthur E. Kreps as Sellers.++
10.19 Asset Purchase Agreement, dated as of November 13, 1996 by and among
ATS-Atlanta One, LLC as Seller, ATS-Atlanta One, Inc. as Purchaser, and
ATS-Atlanta, Inc., Mark M. Lloyd and Arthur E. Kreps.++
10.20 Stock Purchase Agreement, dated as of August 7, 1997 by and among
Global, ESI Acquisition Corporation as Buyer, Electronic Systems, Inc.
("ESI") and the Shareholders of ESI as Sellers.++
10.21 Stock Purchase Agreement, dated as of August 29, 1997 by and among
Global, Conway Office Products as Buyer, Eastern Copy Products, Inc. and
Michael E. Kleinhans as Seller.++
10.22 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Duplicating Specialties, Inc. (d/b/a Copytronix) and
Dean Groves as Seller.++
10.23 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Quality Business Systems, Inc. and Gary Stevens as
Seller.++
10.24 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Cascade Office Systems, Inc. and Fred Woodard as
Seller.++
10.25 Stock Purchase Agreement, dated as of December 23, 1997 by and among
Global, ESI as Buyer, Electronic Systems of Richmond, Inc. ("ESRI") and
the Shareholders of ESRI as Seller.++
10.26 Stock Purchase Agreement, dated as of December 31, 1997, as assigned, by
and among Global, Connecticut Business Systems, Inc. as Buyer, and the
Company, Michael E. Shea, Jr. and Peter Wenzke as Sellers.++
10.27 Asset Purchase Agreement, dated as of February 26, 1998 by and among
Connecticut Systems, Inc., Bloom's Business Systems, a division of
Bloom's Incorporated, the Assets and Bloom's Incorporated as Seller.++
21.1 Subsidiaries of Global.**
23.1 The consent of Ernst & Young LLP.**
23.2 The consent of Barnard, Combs, Potts & Rhyne, PA.**
23.3 The consent of Smith & Howard, P.C.**
23.4 The consent of Ernst & Young LLP.**
23.5 The consent of Pasquale & Bowers, LLP.**
23.6 The consent of Moss Adams LLP.**
23.7 The consent of Edmondson, LedBetter & Ballard, L.L.P.**
23.8 The consent of Arthur Andersen LLP.**
23.9 The consent of Joseph D. Kalicka & Company, LLP.**
23.10 The consent of Hogan & Hartson L.L.P. (to be included in Exhibit 5.1).*
24.1 Power of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
** Previously filed.
+ Management contract or compensatory plan, contract or arrangement.
++ Confidential treatment has been requested for portions of this exhibit.
II-5
<PAGE>
(b) Financial Statement Schedules
Report of Independent Auditors on Schedule
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
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 provisions described under Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby 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 the 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; and
(2) For the purpose 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.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as may be required by the
underwriter to permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GLOBAL IMAGING
SYSTEMS, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
TAMPA, STATE OF FLORIDA ON THE 25TH DAY OF MARCH, 1998.
Global Imaging Systems, Inc.
By: /s/ Thomas S. Johnson
-----------------------------------
THOMAS S. JOHNSON President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
NAME TITLE DATE
President, Chief
/s/ Thomas S. Johnson Executive Officer March 25, 1998
- ------------------------------------ and Director
THOMAS S. JOHNSON (Principal
Executive Officer
Vice President,
/s/ Raymond Schilling Chief Financial March 25, 1998
- ------------------------------------ Officer, Secretary
RAYMOND SCHILLING and Treasurer
(Principal
Financial and
Accounting
Officer)
Chairman of the
* Board March 25, 1998
- ------------------------------------
CARL D. THOMA
Director
* March 25, 1998
- ------------------------------------
L. NEAL BERNEY
Director
* March 25, 1998
- ------------------------------------
BRUCE D. GORCHOW
Director
* March 25, 1998
- ------------------------------------
WILLIAM C. KESSINGER
*By: /s/ Thomas S. Johnson
-------------------------------
THOMAS S. JOHNSON
Attorney-In-Fact
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of Global Imaging
Systems, Inc. as of March 31, 1996 and 1997 and December 31, 1997, and for the
period from inception (June 3, 1994) to March 31, 1995, the years ended March
31, 1996 and 1997 and the nine-month period ended December 31, 1997, and have
issued our report thereon dated February 13, 1998 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Tampa, Florida
February 13, 1998
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR RETURNS AND ALLOWANCES AND BAD DEBTS:
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT THE CHARGED TO CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND OTHER END OF
THE PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS THE PERIOD
-------------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Period Ended:
March 31, 1995........ $ -- $ 8,125 $135,000 $ 6,125 $137,000
March 31, 1996........ $137,000 $ 34,498 $ 58,666 $30,164 $200,000
March 31, 1997........ $200,000 $ 30,824 $147,005 $68,785 $309,044
December 31, 1997..... $309,044 $116,251 $519,689 $65,840 $879,144
</TABLE>
RESERVE FOR EXCESS AND SLOW-MOVING INVENTORY:
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT THE CHARGED TO CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND OTHER END OF
THE PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS THE PERIOD
-------------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Period Ended:
March 31, 1995........ $ -- $ -- $270,000 $ 13,222 $ 256,778
March 31, 1996........ $256,778 $197,248 $ 98,000 $419,000 $ 133,026
March 31, 1997........ $133,026 $256,280 $340,000 $403,207 $ 326,099
December 31, 1997..... $326,099 $443,000 $642,877 $401,100 $1,010,876
</TABLE>
- --------
(1) These amounts primarily represent reserve balances acquired in connection
with business combinations.
<PAGE>
[******Certain portions of exhibits identified on this page have been
omitted and filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the omitted
portions.]
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------- ---
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation (to be filed
with the Secretary of State of Delaware prior to the closing of
this offering).*
3.2 Amended and Restated Certificate of Incorporation (to be filed
with the Secretary of State of Delaware upon the closing of this
offering).*
3.3 Bylaws**
3.4 Amended and Restated Bylaws (to become effective upon the
closing of this offering).*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality
of the Common Stock.*
10.1 Equity Purchase Agreement, dated as of June 9, 1994, as amended,
by and among Global; Thomas S. Johnson; Golder, Thoma, Cressey,
Rauner Fund IV Limited Partnership ("GTCR IV") and additional
stockholders.**
10.2 Registration Agreement, dated as of June 9, 1994, as amended, by
and among Global and the stockholders identified therein.**
10.3 Termination Agreement, dated as of , 1998, by and among
Global; GTCR IV; Golder, Thoma, Cressey, Rauner, Inc. ("GTCR")
and the stockholders identified therein.*
10.4 Form of Equity Subscription Agreement, by and between Global and
certain of its stockholders.**
10.5 Amended and Restated Credit Agreement, dated as of November 14,
1997, by and among Jackson National Life Insurance Company
("JNL") as Lender and PPM America, Inc., as Agent, Global and
its subsidiaries.*
10.6 Investor Purchase Agreement, dated as of August 14, 1996,
between Global and JNL.**
10.7 Investor Purchase Agreement, dated as of September 30, 1996,
between Global and Green Manning & Bunch Holdings, Inc.**
10.8 Executive Agreement, dated as of June 9, 1994, as amended, by
and among Global, Thomas S. Johnson and GTCR IV.+*
10.9 Executive Agreement, dated as of June 9, 1994, as amended, by
and among Global, Raymond Schilling and GTCR IV.+*
10.10 Executive Agreement, dated as of January 1, 1995, as amended, by
and among Global, H. Michael Mueller and GTCR IV.+*
10.11 Executive Agreement, dated as of March 31, 1997, by and among
Global, Alfred N. Vieira and GTCR IV.+*
10.12 Stock Option and Restricted Stock Plan (to be adopted by Global
prior to the closing of this offering).+*
10.13 Form of Supply Agreement between the Company and Konica.++
10.14 Non-Exclusive Third Party Lessor Agreement, dated July 16, 1996,
as amended, by and between Global and General Electric Capital
Corporation.++
</TABLE>
<PAGE>
[******Certain portions of exhibits identified on this page have been
omitted and filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the omitted
portions.]
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.15 License Agreement, dated as of July 31, 1996, as amended,
between Global and Copelco Capital, Inc.++
10.16 Non-Exclusive Third Party Lessor Agreement, dated July 26, 1996,
as amended, by and between Global and Tokai Financial Services,
Inc.++
10.17 Stock Purchase Agreement, dated as of June 27, 1996 by and among
Global as Buyer, Copy Service & Supply, Inc., Office Furniture
Concepts, Inc., CSS Leasing, LLC and Terry K. Smith and Crystal
E. Smith as Sellers.++
10.18 Stock Purchase Agreement, dated as of November 13, 1996 by and
among Global as Buyer and Southern Business Communications, Inc.
and Mark M. Lloyd and Arthur E. Kreps as Sellers.++
10.19 Asset Purchase Agreement, dated as of November 13, 1996 by and
among ATS-Atlanta One, LLC as Seller, ATS-Atlanta One, Inc. as
Purchaser, and ATS-Atlanta, Inc., Mark M. Lloyd and Arthur E.
Kreps.++
10.20 Stock Purchase Agreement, dated as of August 7, 1997 by and
among Global, ESI Acquisition Corporation as Buyer, Electronic
Systems, Inc. ("ESI") and the Shareholders of ESI as Sellers.++
10.21 Stock Purchase Agreement, dated as of August 29, 1997 by and
among Global, Conway Office Products as Buyer, Eastern Copy
Products, Inc. and Michael E. Kleinhans as Seller.++
10.22 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Duplicating Specialties, Inc. (d/b/a
Copytronix) and Dean Groves as Seller.++
10.23 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Quality Business Systems, Inc. and Gary
Stevens as Seller.++
10.24 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Cascade Office Systems, Inc. and Fred
Woodard as Seller.++
10.25 Stock Purchase Agreement, dated as of December 23, 1997 by and
among Global, ESI as Buyer, Electronic Systems of Richmond, Inc.
("ESRI") and the Shareholders of ESRI as Seller.++
10.26 Stock Purchase Agreement, dated as of December 31, 1997, as
assigned, by and among Global, Connecticut Business Systems,
Inc. as Buyer, and the Company, Michael E. Shea, Jr. and Peter
Wenzke as Sellers.++
10.27 Asset Purchase Agreement, dated as of February 26, 1998 by and
among Connecticut Systems, Inc., Bloom's Business Systems, a
division of Bloom's Incorporated, the Assets and Bloom's
Incorporated as Seller.++
21.1 Subsidiaries of Global.**
23.1 The consent of Ernst & Young LLP.**
23.2 The consent of Barnard, Combs, Potts & Rhyne, PA.**
23.3 The consent of Smith & Howard, P.C.**
23.4 The consent of Ernst & Young LLP.**
23.5 The consent of Pasquale & Bowers, LLP.**
23.6 The consent of Moss Adams LLP.**
23.7 The consent of Edmondson, LedBetter & Ballard, L.L.P.**
23.8 The consent of Arthur Andersen LLP.**
23.9 The consent of Joseph D. Kalicka & Company, LLP.**
The consent of Hogan & Hartson L.L.P. (to be included in Exhibit
23.10 5.1).*
24.1 Power of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Management contract or compensatory plan, contract or arrangement.
++Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 10.13
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***
GLOBAL IMAGING
1998 MARKETING SUPPORT AGREEMENT
PROGRAM DATE: January 1, 1998-December 31, 1998
DEALER: Berney, Inc. - Birmingham, AL (Discount & CWO only)
Conway Office Products - Nashua, NH
Business Equipment Unlimited - Portland, ME
Cameron Office Products - Amesburg, MA
Copy Service & Supply - Statesville, NC
Quality Business Systems - Redmond, WA
Cascade Office Systems - Redmond, WA
Copytronix - Lake Oswega, OR
Eastern Copy Products, Syracuse, NY
COMMITMENT: [**] specific targets by dealer location (page 3).
Extra Bonus[**] If entire Global companies listed above attain [**]
PRICING: [**] Off Dealer Price - Machines*
[**] Off Dealer Price - Accessories*
[**] Off Dealer Price - Supplies & High Mortality
Parts* (1997 list to be updated)
[**] to be added to M&A component commitment through
participation in the 1998 Maximizer Program.
CWO DISCOUNT: 7% - 30 Days - Machines, Accessories
[**] Off Supply Purchases - 30 days net
[**] CWI Parts (Maximizer Only)
REBATES: Gate 1 - 6/26/98 - 45% of annual revenue & 30%
annual digital unit commitment
Gate 2 - 12/31/98 - 55% of annual revenue & 70%
annual digital unit commitment
Each dealership will earn a [**] rebate on all
purchases made from Konica during each 6 month period.
Each 6 month period stands alone with rebates based on
each 6 month period individually. Targets and rebates
are applicable to each individual dealership. Rebates
to be applied to each participating company when
individual gates are attained. Digital unit rebates
subject to timely release and national acceptance of
new digital products.
CO-OP: [**] on purchase of all new machines and accessories,
excluding major accounts. Annual Market Development Co-
op of [**] per month) to be allocated by Conway Office
Products to participating companies.
<PAGE>
[******Certain information on this page has been omitted and filed
separetely with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
Global Imaging 1998 Marketing Support Agreement
Page 2
SPIFFS*: 32/3340 [**] 7033/7040 [**]
4345 [**] 7050/7150 [**]
4355 [**] 7060 [**]
7410 [**] Force 50 [**]
9715/9635 [**] Force 60 [**]
3015 [**] 5370 [**]
IP301/302 [**] 6190 [**]
SPECIAL INCENTIVE*: For each analog unit purchased during 1988,
Global will accrue [**] per unit toward a
Konica Sponsored 1998 Sales Incentive Program
(trip, merchandise, etc). [**] per unit will
be accrued for each digital unit purchased
(7033, 7040, 7150, 7050, 7060, F50, F60).
HIRING SUPPORT: Component #1: $2,500 credit for each *Net
------------ ----
New sales representative hired based on
---
individual location plans.
Component #2: $2,500 credit applied to
------------
trade account once each Net New* sales
--------
representative has completed four months of
employment with Global. (Limit on entire
hiring support program is 15)
*Net New is based on the total number of
sales reps employed by each individual
Global/Konica dealerships on a quarterly
basis.
SEGMENT 1A PRICING: Model 1112 Price - $800 Net
Model 1212 Price - $1,300 Net
Model 1015 Price - $1,500 Net
Pricing only applies for minimum order of
50+ Segment 1A units (one order with one
ship) Mix and Match. Above prices are before
cash. No other discounts will be applied. No
Co-op applies towards these purchases,
however, rebates will apply if Gates 1 & 2
are attained on a location by location
basis.
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
GLOBAL INDIVIDUAL COMMITMENTS
-----------------------------
<TABLE>
<CAPTION>
1998
1998 Digital Unit Commitment
Revenue Commitment (7033, 7040, 7050, 7150, 7060, F50/60)
------------------ --------------------------------------
<S> <C> <C>
Conway [**] [**]
BEU [**] [**]
Copy Service [**] [**]
Eastern [**] [**]
Copytronix [**] [**]
Quality/Cascade [**] [**]
Total [**] [**]
</TABLE>
Accepted By:
X_________________________ __________________________________
Peter Dinan Date
<PAGE>
[LETTERHEAD OF KONICA APPEARS HERE]
January 20, 1998
Mr. Peter Dinan
CONWAY OFFICE PRODUCTS, INC.
110 Perimeter Road
Nashua NH 03063
Dear Mr. Dinan:
Enclosed for your records is a copy of a revised 1998 Schedule A to the Dealer
Agreement between CONWAY OFFICE PRODUCTS INC. and Konica Business Machines
U.S.A., Inc. which supersedes the prior Schedule A previously forwarded to you.
Unless another revision is issued, this revised Schedule A shall remain in
effect until December 31 of this year.
As always, this revised Schedule A to the Dealer Agreement details the minimum
performance levels which are expected with respect to the purchase of Konica
Product for sale and service within your area of sale and service authorization
and responsibility. Your performance will be reviewed by Konica on a quarterly
basis or more frequently, as warranted.
Please remember, the current term of the Dealer Agreement will end on December
31 of this year. If neither you nor Konica chooses not to renew the agreement,
for every year the Dealer Agreement remains in effect, Konica will provide a
revised Schedule A to you which will indicate the approved Products and Assigned
sales Quota for your Authorized Territory for that particular year.
We appreciate your business and look forward to the continuation of a mutually
profitable and enjoyable business relationship between our companies. Should you
have any questions, please do not hesitate to contact either your DSM or me.
Very truly yours,
/s/ Patricia Loveland
Patricia Loveland
Director, Dealer Operations
cc: Harry Hecht, VP Dealer Development
Gerry Glaser, DSM
<PAGE>
[LETTERHEAD OF KONICA APPEARS HERE]
Dear Dealer Principal,
Enclosed is your 1998 Schedule A. There have been some changes to the content
and the format. Those changes are as follows:
1. The 1998 Schedule A does not include the 1998 Annual Purchase Agreement
section.
2. The 1998 Schedule A Quota Assignment includes two categories, Analog &
Digital. Below is a breakdown of these two categories, on which your unit
and revenue quota will be based.
ANALOG DIGITAL
Segment Model Segment Model Model
- --------------- --------------- -----
1A 1112 3 3240 7410
1A 1015 3 3340 7050
1A 1212 4 4345 7060
2 2223 4 4355 7150
2 2230 5 5370M Force-50
2 2330 5 6190M Force-60
9635
3. Section III - Contains amendments to the Terms & Conditions of the Dealer
Agreement.
Also enclosed are the following:
* 1998 Purchase Agreement * 1998 Maximizer Program Application
* 1998 High Mortality Parts List * List of Commonly Asked Questions
Additionally, your 1997 pricing has been extended to January 30, 1998. This will
allow you time to review these programs.
Please sign your Schedule A, as well as the 1998 Purchase Agreement and
Maximizer Programs and mail back this information in the self-addressed stamped
envelope provided. This completed information must be received by Konica prior
to January 30, 1998. Confirmation that your programs have been received, will be
forwarded to you. If Konica does not receive this information by January 30,
1998, Standard Dealer Pricing will go into effect. Furthermore, please include
your most up-to-date financial report for credit review.
If you have any questions regarding the enclosed information, please contact
your Dealer Support Manager or your Sr. Dealer Support Manager to discuss these
new and exciting programs for 1998.
Thank you for your continued support of Konica Business Machines. Good Luck &
Good Selling for 1998.
Sincerely,
/s/ Pat Loveland
Pat Loveland
Director, Dealer Operations
Enclosures
<PAGE>
[******Certain information on this page has been omitted and filed
separetely with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
This Schedule A Supersedes and cancels any Schedule A bearing an earlier date.
Analog
Digital
Dealer Name CONWAY OFFICE PRODUCTS INC DEALER # 1025
and 110 PERIMETER ROAD
Authorized NASHUA, NH 03063
Locations:
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C>
Section I AGREEMENT DATE: 1/17/95
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Section II QUOTA ASSIGNMENT
UNIT REQUIREMENT CALCULATIONS REVENUE REQUIREMENT CALCULATIONS ($000)
----------------------------- ---------------------------------------
TOTAL FINAL MACHINES AND ACCESSORIES SUPPLIES PARTS
PLACEMENTS ADJUSTED UNITS AUSP REVENUE REVENUE REVENUE TOTAL
--------------------------------------------------------------------------------
Analog [**] [**] [**] [**] [**]
Digital [**] [**] [**] [**] [**]
ANNUAL [**] [**] [**] [**]
- --------------------------------------------------------------------------------------------------
</TABLE>
Section III AMENDMENT TO THE DEALER AGREEMENT BETWEEN KONICA AND DEALER
The Dealer Agreement is amended as follows:
(1) By substituting the following in place of paragraph 12:
12. DURATION OF AGREEMENT
The initial term of this Agreement shall be from its effective date until
December 31 of the year of its original execution. This Agreement will
automatically renew for subsequent terms of one year, from January 1
through December 31, unless either party gives written notice to the other
party, not less than 30 days before the end of the initial term or any
renewal term, of its election not to renew this Agreement. Neither party
shall be liable to or have any responsibility to the other party for
payment of any compensation, damages, or other amounts of money relating to
the termination or non-renewal of this Agreement in the event that either
party elects not to renew this Agreement as provided herein. Dealer shall
pay any debt owed to Konica in accordance with terms.
(2) By adding a new paragraph 25 - ORIGINAL DOCUMENTS:
Konica and Dealer agree (a) that facsimile signatures shall be accepted as
original signatures; and (b) that this Agreement or any document created
pursuant to this Agreement, may be maintained in an electronic document storage
and retrieval system, a copy of which shall be considered an original. Neither
party shall raise any objection to the authenticity of this Agreement or any
document created hereunder, based on either the use of a facsimile signature or
the use of a copy retrieved from an electronic storage system.
(3) By adding a new Schedule B: Non-Exclusive License Agreement
Except as expressly amended herein, the terms and conditions of the Dealer
Agreement shall continue in full force and effect.
Section IV NON EXCLUSIVE PRINCIPAL AREA OF SALES AND SERVICE RESPONSIBILITY
(TERRITORY) See attached detail by county.
Section V Other [For Konica use only]
Warranty
- --------
Konica warrants that all new machines purchased by Dealer from Konica shall be
free from defects in material and workmanship for 90 days from delivery by
Konica. Konica warrants that parts sold separately, accessories and supplies
will, at the time of delivery, be free from defects in material and workmanship.
Konica's sole obligation and Dealer's exclusive remedy shall be an obligation by
Konica to repair, or at Konica's option, replace any machine, part thereof,
accessory or supply which is shown, in normal and proper use, to be defective in
material or workmanship within the warranty period. This warranty shall not
apply if the item has been abused, neglected, modified, tampered with or
repaired with the use of parts not recommended by Konica. In no event shall
Konica be liable for any incidental, consequential or punitive damages.
Signature: /s/ Peter Dinan Date: 1/15/98
--------------------------- -----------------------------
Title: President Name: Peter Dinan
------------------------------- -----------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Konica Use Only - Dealer Renewal
Konica Approval: [SIGNATURE ILLEGIBLE] Date: 1-19-95
---------------------- -----------------------------
"ANNUAL RENEWAL January 1, 1998"
<PAGE>
<TABLE>
<CAPTION>
1025
- ------------------------------------------------------------------------------------------------------------------------------------
Section IV NON EXCLUSIVE PRINCIPLE AREA OF SALES AND SERVICE RESPONSIBILITY (TERRITORY)
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF DEALERS BRANCH ALTERNATE
BY PRODUCT LINE (75%)/N(100%)/C(50%) (85%)/N(100%)
ST COUNTY BEQI Analog Digital Analog Digital Analog Digital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MA ESSEX 0.269203 1 0.269203 1 0.269203 Y O.201902 Y O.201902 Y 0.171617 Y 0.171617
MA MIDDLESEX 0.647461 3 0.215820 3 0.215820 Y 0.161865 Y 0.161865 Y 0.137585 Y 0.137585
MA NORFOLK 0.297868 3 0.099289 3 0.099289 Y 0.074467 Y 0.074467 Y 0.063297 Y 0.063297
MA SUFFOLK 0.327559 2 0.163779 2 0.163779 Y 0.122835 Y 0.122835 Y 0.104409 Y 0.104409
NH BELKNAP 0.028340 1 0.028340 1 0.028340 N 0.028340 N 0.028340 Y 0.024089 Y 0.024089
NH CARROLL 0.021760 2 0.010880 2 0.010880 N 0.010880 N 0.010880 Y 0.009248 Y 0.009248
NH CHESHIRE 0.032225 1 0.032225 1 0.032225 N 0.032225 N 0.032225 Y 0.027391 Y 0.027391
NH COOS 0.013182 2 0.006591 2 0.006591 N 0.006591 N 0.006591 Y 0.005602 Y 0.005602
NH GRAFTON 0.040660 1 0.040660 1 0.040660 N 0.040660 N 0.040660 Y 0.034561 Y 0.034561
NH HILLSBOROUGH 0.168428 1 0.168428 1 0.168428 N 0.168428 N 0.168428 Y 0.143164 Y 0.143164
NH MERRIMACK 0.062285 1 0.062285 1 0.062285 N 0.062285 N 0.062285 Y 0.052942 Y 0.052942
NH ROCKINGHAM 0.121339 1 0.121339 1 0.121339 N 0.121339 N 0.121339 Y 0.103138 Y 0.103138
NH STAFFORD 0.036679 1 0.036679 1 0.036679 N 0.036679 N 0.036679 Y 0.031177 Y 0.031177
NH SULLIVAN 0.019001 1 0.019001 1 0.019001 N 0.019001 N 0.019001 Y 0.016151 Y 0.016151
- -----------------------------------------------------------------------------------
GRAND TOTAL ADJUSTED BEQI 0.924373 0.924373
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
KONICA
KONICA BUSINESS MACHINES U.S.A., INC.
DEALER AGREEMENT
This Agreement entered into as of the 12th day of January, 1995, between Konica
Business Machines U.S.A., Inc. hereinafter called "Konica", a Nevada corporation
having its principal place of business at 800 Day Hill Road, Windsor,
Connecticut 06095, and CONWAY OFFICE PRODUCTS, INC. doing business as Conway
Office Products, Inc. and with its principal place of business at 110 PERIMETER
ROAD, NASHUA County of Hillsboro, NH, 03063
(hereinafter called "Dealer")
Konica and Dealer Agree as follows:
OWNERSHIP AND OPERATION OF DEALER
This Agreement has been entered into by Konica with Dealer in reliance (i) upon
the representation and agreement that the following person(s) substantially
participate(s) in the ownership and management of Dealer:
Percentage
Name Address of Interest
/s/ James B. Conway 60 Howe lane, Hollis NH 50.1%
- ---------------------- ----------------------- -------------------
______________________ _______________________ ____________________
______________________ _______________________ ____________________
and (ii) upon the representation and agreement that the business of Dealer shall
be conducted at the address set forth in the Agreement as Dealer's principal
place of business. In the event of any change in the ownership of Dealer, or of
any change in the managerial authority or responsibility of the above named
Dealer, or change in the address of Dealer's principal place of business Dealer
shall give prior written notice thereof (except in the event of a change caused
by the death of any such person. No such change or notice thereof shall alter or
modify any of the provisions of this Agreement, unless and until embodied in an
appropriate amendment to this Agreement duly executed by a Vice President of
Konica.
BUSINESS TYPE
Sole Proprietor [_] Conway office Products,
- Partnership [_] Inc. will continue to
Corporation [X] N.H. operate but Global
---------------------- Imaging Systems, Inc.
State of Incorporation will own all the shares
Ownership is scheduled to change on 1/31/95 to:
Global Imaging Systems, Inc. P.O. Box 273478 Tampa Florida 100%
<PAGE>
1. DEFINITIONS AND RELATED PROVISIONS
(a) TERRITORY: the principal area of sales and service responsibility as
set forth in Schedule A hereto.
(b) END-USER: a customer who is acquiring Products for such customer's use
and not for sale.
(c) PROCEDURES: polcies and procedures for the Products issued by Konica
from time to time.
(d) PRODUCTS: Konica equipment as listed in Schedule A.
(e) SALES QUOTAS: The Sales Quota for each Product to be sold to End-Users
in the Territory is as set forth on Schedule A, as amended from time to
time by Konica, in its sole discretion. Konica shall assign Sales Quotas in
a fair and equitable standards of performance which reflect the actual
manufacture and sale of Konica Products and the potential of the
Territory.
(f) NON-EXCLUSIVITY: Dealer's appointment hereunder is non-exclusive and,
Konica may sell Products to End-Users (pursuant to Konica's national
account or government marketing programs or otherwise) and appoint others
as Dealers for the resale of Products in the Territory.
(g) FAIR AND EQUITABLE: Konica and Dealer agree to treat each other and
the End-User in a fair, equitable, and ethical manner throughout the term
of this Agreement and upon termination.
2. APPOINTMENT
Konica hereby appoints Dealer and Dealer accepts appointment as Konica's
dealer for the resale of Products to End-Users in the Territory. The
purpose of this Agreement is to promote the development of the market for
the Products through Konica's sale to the Dealer of reliable Products to be
sold, installed and serviced by the Dealer from Authorized Locations to the
satisfaction of End-Users. In view of the service requirements for the
Products set forth in paragraph 5 and in the Procedures Dealer will market
the Products only from Authorized Locations within the Territory in
accordance with the provisions of this Agreement.
3. SALES
Dealer agrees to promote the goodwill and name of Konica. Dealer undertakes
and agrees to purchase and sell to End-Users within the Territory a
quantity of each of the Products which is at least the amount of the
respective Sales Quotas. In determining whether Dealer meets its Sales
Quotas, Konica shall review the net amount of Products invoiced by Konica
purchased by Dealer and sold by Dealer to End-Users situated within the
Territory.
4. ADEQUATE FACILITIES
Dealer agrees to maintain the Authorized Locations at a suitable place of
business from which to conduct its business in the Territory, provided that
all costs and expenses incurred by Dealer in the performance of this
Agreement (including but not limited to all rentals, salaries, commissions,
taxes, licenses, permits, telephone, telegraph, promotional and advertising
expenses and travelling expenses) shall be paid by Dealer and Dealer shall
not be entitled to reimbursement therefor from Konica.
5. SERVICE OBLIGATIONS
(a) Dealer shall provide, in accordance with Konica's service policy
contained in the Procedures, prompt, efficient and proper installation,
service and maintenance to End-Users for all Products sold by Dealer, and
as may be required, for any National or Major Account service which has
been assigned to Dealer by Konica, and for any Products which are tendered
for service by an End-User at a location within the Territory. Dealer shall
adhere to Konica's installation and service policies as may be set forth in
writing by Konica from time to time.
(b) For purposes of servicing, Dealer agrees to stock at each Authorized
Location a minimum of spare parts for the Products in such quantities as
are necessary to provide adequate service and maintenance for the Products
as set forth in the Procedures Dealer recognizes that End-Users rely on
Konica quality and Dealer therefore will only use Konica Supplies and Spare
Parts in the Konica Products during the term of any warranty or guarantee
and after these periods will inform Konica and customers in writing if it
is using non Konica parts and supplies.
(c) As set forth in the Procedures, Dealer must be service trained by
Konica for each Authorized Location and the requisite number of Dealer's
service technicians for each Authorized Location with respect to Dealer's
field population of Products must complete service school to Konica's
standards. Such training may be provided in such place as Konica may deem
appropriate at Dealer's sole cost and expense.
(d) Dealer will maintain in accordance with the Procedures a service
history with respect to each placement by Dealer of Products for an End-
User and all other service records as may be required by the Procedures.
Konica may during normal business hours inspect Dealer's service facilities
and service records for the Products with the right to make copies of such
records. Konica will maintain confidential dealer service records which
Konica will not use other than for the purpose of assuring service for the
Products.
<PAGE>
6. PRICES, DISCOUNTS AND PAYMENTS
(a) Except as otherwise provided in the Procedures, all prices and
discounts are subject to change without notice.
(b) Dealer shall pay to Konica the full amount of the purchase price of the
Products upon due date of invoice of such Products. All accounts unpaid
beyond due date of invoice will bear interest at an annual rate equal to
one percent above the then-prevailing prime rate of interest. If, under
applicable state law, such rate is usurious, then the rate of interest
shall be the maximum legal rate of interest allowable in such state.
(c) In the event Dealer's account with Konica is past due, Konica need not
sell to Dealer nor supply Dealer with Products provided that Konica may in
appropriate circumstances continue to make available parts and supplies
against payment.
(d) All prices are F.O.B. the Konica distribution facility for Products
designated by Konica. Dealer shall bear all costs insurance premiums,
freight and all other charges or expenses incurred after Konica has placed
the Products in the custody of a carrier at the place of shipment to
Dealer.
(e) Taxes with respect to the sale of the products to Dealer, other than
taxes measured by income, will be the responsibility of Dealer; and if paid
or required to be paid by Konica, the amount thereof will be added to and
become a part of the price payable by Dealer.
7. DELIVERY, RISK OF LOSS AND INSPECTION
(a) Konica shall not be liable for failure to ship or for delay in shipment
of Products pursuant to accepted orders where such failure or delay shall
have been due wholly or in part to shortage or curtailment of material,
labor, transportation or utility services, or to any labor or production
difficulty in Konica's plants or those of its suppliers, or to any cause
beyond Konica's control or without Konica's fault or negligence, and Konica
shall not be liable for shipping Products over routes or by means of
transportation specified by Dealer.
(b) Risk of loss of the Products shall pass to Dealer upon Konica placing
such Products in the custody of a carrier for shipment.
(c) Within 10 days following the date of receipt by Dealer, Dealer shall
inspect the Products.
(d) Konica shall in no event have any responsibility for any damage caused
to the Products during shipment. It shall be the sole responsibility of
Dealer to file any appropriate claims for reimbursement with the carrier.
8. WARRANTIES
(a) Konica shall from time to time advise Dealer in writing of the warranty
or warranties applicable to the Products, and shall attend such warranty or
warranties to Dealer in connection with each sale of the Products to
Dealer. Such warranty or warranties given by Konica shall not extend to any
person whatever other than Dealer, and Dealer is expressly prohibited from
extending any warranty or warranties on behalf of Konica to any other
person. Dealer agrees to extend its own warranty or warranties, which shall
be no less extensive than the warranty or warranties extended by Konica to
Dealer, to each purchaser of the Products from Dealer.
(b) THERE SHALL BE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OR ANY OTHER OBLIGATION ON
THE PART OF KONICA WITH RESPECT TO ANY OF THE PRODUCTS EXCEPT THE
WARRANTIES EXTENDED PURSUANT TO THIS PARAGRAPH 8.
(c) In any event and notwithstanding anything herein to the contrary,
Konica's sole liability under any warranties shall be discharged by
replacing or repairing any part or parts which may prove defective under
normal and proper use, within the effective period of the warranty if shown
to be defective by proper evidence submitted by Dealer to Konica. Konica
shall have no liability whatever for any incidental, consequential or
punitive damages.
(d) It is expressly agreed that any and all warranties and/or guarantes as
stated immediately cease and terminate notwithstanding anything herein to
the contrary, in the event that any parts and/or structural components or
appurtenances thereto are altered or modified by Dealer or the End-User
without the express written consent of Konica.
(e) Konica and Dealer shall each fulfill promptly their respective
obligations under such warranty or warranties.
9. REPORTS
(a) Dealer agrees to prepare and submit to Konica, at regular intervals,
accurate service reports.
(b) Dealer shall make and submit to Konica, voluntarily or at Konica's
specific request, studies and proposals necessary for the improvement of
the retail marketing of the Products and/or improvements in the actual
Products, provided that such studies and proposals are not unduly
burdensome in view of the mutual objectives of Konica and Dealer.
<PAGE>
10. RESERVATION OF RIGHT
No order shall be deemed binding upon Konica until accepted by Konica, and
Konica reserves the right to reject any order or to cancel the same or any
part thereof after acceptance, for credit or any other reason whatsoever in
Konica's sole discretion.
11. RELATIONSHIP BETWEEN PARTIES
(a) The relationship created between Konica and Dealer is that of supplier
and dealer and neither party, nor any of its employees, dealers, customer
or agents, shall be deemed to be the representative, agent or employee of
the other party for any purpose whatsoever, nor shall they or any of them
have any authority or right to assume or create an obligation of any kind
or nature, express or implied, on behalf of the other party, nor to accept
service of any legal process of any kind addressed to, or intended for, the
other party. Dealer expressly acknowledges that no franchise relationship
has been created and no fee has been paid by Dealer for the rights provided
in this Agreement.
(b) Nothing contained in this Agreement shall be deemed to create a joint
venture, partnership or agency relationship between Konica and Dealer.
Nothing set forth herein shall be deemed to confer upon any person or
entity, other than the parties to this Agreement, a right of action either
under this Agreement or in any manner whatsoever. Dealer agrees and
represents that its employees are and shall remain the employees of Dealer,
and nothing contained in this Agreement shall be construed to create
an employment agreement or arrangement between Konica and Dealer.
12. DURATION OF AGREEMENT
The term of the Agreement shall be one year from the date hereof and will
be automatically renewed for additional one-year periods unless either
party gives written notice to the other party not less than 30 days before
the end of the initial term or any renewal term.
13. TERMINATION
(a) Konica may terminate this Agreement by giving Dealer 30 days written
notice in the event Dealer shall have failed to fulfill or perform any one
or more of the duties, obligations or responsibilities undertaken by it
hereunder.
(b) In addition, Konica may terminate this Agreement by giving Dealer
written notice, effective immediately, in any one of the following events:
(i) if Dealer shall continue in default of any duty, obligation or
responsibility imposed on it by this Agreement, other than as provided
for in subparagraph (a) of this paragraph, for 30 days after written
notice to Dealer of such default;
(ii) if Dealer shall sell Products to any person other than an
End-User pursuant to the provisions of this Agreement;
(iii)if Dealer shall alter or obliterate the serial number on any
Product or otherwise alter or modify the Products without the express
written consent of Konica;
(iv) any assignment or attempted assignment by Dealer of any interest
in this Agreement without Konica's prior written consent;
(v) any sale, transfer or relinquishment, voluntary or involuntary by
operation of law or otherwise, of any interest in the direct or
indirect ownership of Dealer;
(vi) if Dealer becomes insolvent, files or has filed against it a
case in bankruptcy, makes a general assignment for the benefit of its
creditors or has a receiver or trustee appointed for its business or
properties.
(c) In the event of termination of this Agreement:
(i) Dealer shall promptly return to Konica all documents, materials
and tangible property supplied without charge by Konica and shall
maintain confidential any confidential information received from
Konica which is incapable of return;
(ii) with respect to all new unused Products and parts in Dealer's
inventory, Konica shall have the option to purchase from Dealer, any
or all such Products or parts at the prevailing price for such
Products or parts charged to dealers by Konica at the date of
termination or at such price as the parties may mutually agree to. As
to any Products or parts so purchased by Konica, Dealer will deliver
such Products or parts to Konica free and clear of claims and
encumbrances and will bear all costs and expenses in returning them to
Konica.
(d) Any termination of this Agreement shall be without prejudice to any
right which shall have accrued to either party hereunder prior to such
termination.
(e) Dealer's right to request a Business Technology Association (BTA)
Appeal Board.
(i) upon receipt of a notice of termination, Dealer shall have 30 days
within which to make written demand of Konica for an Appeal Board
review of the termination. Dealer's written demand shall be
transmitted to Konica and a copy shall be mailed to the Business
Technology Association. Dealer's failure to demand review within such
30 day period shall waive Dealer's right to Appeal Board Review.
<PAGE>
(ii) if Dealer demands an Appeal Board review, a three-member Appeal
Board shall be selected in the following manner. Konica and Business
Technology Association shall each select one member of the Appeal
Board. The two members of the Appeal Board to selected shall agree on
the selection of a third member or, if they are unable to agree, a
third member shall be selected by the New York City Branch of the
American Arbitration Association from its panel of commercial
arbitrators.
(iii) the sole question submitted to the Appeal Board shall be whether
the termination of Dealer was in accordance with the provisions of
this Agreement. If the Appeal Board shall find that the termination
was in accord with this Agreement, then the termination shall remain
or become effective, as the case may be, as of the original effective
date of the termination and Dealer shall pay all fees and expenses of
the Appeal Board. If the Appeal Board shall find that the termination
of Dealer was not in accord with this Agreement, then Konica shall
reinstate Dealer and pay the fees and expenses of the Appeal Board.
The Appeal Board shall have no authority to make findings or grant
relief beyond that expressly authorized by this paragraph.
(iv) if Dealer waives its rights to BTA review as set forth above, or
if either party still believes that the decision of the BTA Appeal
Board is not satisfactory, then the parties agree to Binding
Arbitration. Any dispute arising out of or relating to this contract
or the breach, termination or validly thereof, which has not been
resolved by nonbinding means as provided herein, shall be finally
settled by arbitration conducted expeditiously in accordance with the
American Arbitration Association Commerical Arbitration Rules by three
independent and impartial arbitrators, of whom each party to this
agreement shall appoint one. Any Arbitrator not appointment by a party
shall be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C.
Section 1-16, and judgment upon the award rendered by the
Arbitrator(s) may be entered by any court having jurisdiction thereof.
The place of arbitration shall be Hartford, Connecticut unless the law
of the jurisdiction in which Dealer's primary place of business is
situated requires binding arbitration to take place in that
jurisdiction, in which case the arbitration shall take place in that
state Capital. The Arbitrator(s) shall not have the power to award
incidental, consequential or punitive damages nor award injunctive
relief.
(f) Any claim arising out of or relating to this Agreement or the breach,
termination or validity thereof, must be brought within one (1) year of its
accrual or it shall be deemed waived.
14. PATENTS AND TRADEMARKS
(a) Konica shall indemnify Dealer against any costs, loses, damages or
liability incurred by Dealer as the result of any third party's claim of
infringement of its patent, copyright or trademark which claim arises out
of the sale of Products in the Territory by Dealer during the term of this
Agreement. Dealer shall immediately notify Konica in writing of such claim
or demand together with all documentation related to such claim. Konica
shall have the sole right, control, and defense, thereof, and Dealer agrees
that it will not settle any such claim against itself without the prior
written consent of Konica. Provided however, that Konica shall not
indemnify Dealer with respect to any claim relating to Product(s) which
is/are manufactured according to Dealer's instructions, or modified by
Dealer or combined with other non-Konica products, equipment, systems
and/or processes. Failure of Dealer to provide timely notification of claim
to konica as described above shall relieve Konica of its obligation to
indemnify Dealer.
(b) Dealer shall not alter, obliterate, deface or remove any trade name,
brand, trademark, service mark or serial number carried on any Product or
on the packaging in which such Product is enclosed or add any name, brand,
trademark, or service mark to the Products. Dealer shall not use any part
of Konica or Konica affiliate name, trade name, trademarks, service marks,
or otherwise in identifying its business. Dealer shall not acquire, and
specially disclaims, any right or license in the names "Konica Business
Machines U.S.A., Inc.", "Konica", or the name of any affiliate, any names
or numbers relating to the Products or other Konica or Konica affiliate
products, and any other Konica or Konica affiliate trade names, brands,
trademarks or service marks, all of which are and shall remain the sole and
exclusive property of Konica or its affiliates. Dealer's sole right under
this Paragraph shall be to state orally or in writing that it is an
authorized dealer for certain Konica Products in the Territory, but no such
statement may include or refer to any Konica or Konica affiliate trademark
without consent of Konica.
(c) Upon the termination of this Agreement for any reason whatsoever,
Dealer shall except as Konica may specifically authorize in writing,
immediately cease and desist from carrying on any and all use of the name
"Konica", or other trademarks, trade names, words or symbols of any nature
indicating, explicitly or implicitly, that it is an authorized Konica
Dealer of Konica Products or other Konica goods and services.
(d) Dealer shall promptly notify Konica in writing of any claims, demands
or suits based upon or arising from the use of the mark "Konica" or any
other Konica trademark or trade name used in connection with the Products,
or of any applications for registration and registrations of conflicting
trademarks, and all infringements, limitations, illegal use or misuse of
"Konica" or any other Konica trademarks, trade names, words or symbols used
in connection with the Products which come to Dealer's attention.
<PAGE>
15. FORCE MAJEURE
Neither party shall be responsible for delays or failure in performance of
this Agreement (other than failure to pay any amounts due) to the extent
that such party was hindered in its performance by any act of God, civil
commotion, labor dispute unavailability or shortages of materials or any
other occurrence beyond its reasonable control.
16. ASSIGNMENT
Neither this Agreement nor any right hereunder or interest herein may be
assigned by either party without the prior written consent of the other
party.
17. NOTICE
Unless otherwise specified herein, all notices required or permitted to be
given hereunder shall be in writing and sent by mail to the principal
office of the other party indicated herein or at such other address as the
parties may describe in writing.
18. GOVERNING LAW
This Agreement and performance hereunder shall in all respects be governed
by and construed in accordance with the laws of the State of Connecticut
without regard to choice of law principles.
19. ENTIRE AGREEMENT
This Agreement is the full and complete statement of the obligations of the
parties relating to the subject matter hereof, and supersedes all previous
agreements, understandings, negotiations and proposals. No provisions of
this Agreement shall be deemed waived, amended, or modified by either party
unless such waiver, amendment or modification shall be in writing and
signed by a duly authorized officer of both parties.
20. NON-WAIVER
The failure or refusal by Konica to insist upon the strict performance of
any provision of this Agreement or to exercise any right in any one or more
instances or circumstances shall not be construed as a waiver or
relinquishment of such provision or right nor shall such failure or refusal
be deemed a custom or practice contrary to such provision of right.
21. SEVERABILITY
In case any one or more of the provisions contained in this Agreement shall
be invalid, illegal or unenforceable in any respect the validity, legality,
or enforceability of the remaining provisions contained herein shall not in
any way be effected or impaired thereby.
22. KONICA'S MAJOR ACCOUNTS
Dealer understands and agrees that is has no interest in Konica's national
or major accounts and it is within Konica's sole discretion which, if any,
Dealer shall provide such service. Dealer shall provide service to Konica's
National or Major Accounts upon request of Konica. Payment for service for
National or Major Accounts shall be as provided in the Procedures.
<PAGE>
23. ACCEPTANCE
This Agreement shall become binding upon Konica and Dealer only upon
approval, acceptance and execution hereof by a Vice-President of Konica at
Konica's Home Office in Windsor, Connecticut.
DEALER
By [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
------------------------------ ------------------------------
Witness
Title President
--------------------------
KONICA BUSINESS MACHINES U.S.A, INC.
By
______________________________ ______________________________
Witness
Title
__________________________
<PAGE>
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.***]
EXHIBIT 10.14
NON-EXCLUSIVE THIRD PARTY LESSOR AGREEMENT
THIS NON-EXCLUSIVE THIRD PARTY LESSOR AGREEMENT (the "Agreement") is
entered into this 26th day of July, 1996 by and between GLOBAL IMAGING SYSTEMS,
INC., a Deleware corporation, having its principal place of business at 14499 N.
Dale Mabry, Suite 280, Tampa, Florida 33618, its successors, assigns, agents,
and representatives (hereinafter collectively referred to as "GISI") and
General Electric Capital Corporation, a New York Corporation with a place of
business at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52411, its successors,
assigns, agents and representatives (hereinafter collectively referred to as
"GE Capital").
RECITALS
A. GISI is in the business of providing financial services to its wholly
owned subsidiaries (hereinafter individually and collectively referred to as
"GIS");
B. GE Capital is in the business of providing financing and leasing
services;
C. GE Capital's acceptance of this Agreement is a condition to GE Capital
being asked to and permitted to lease equipment which is sold by GIS;
D. GISI and GE Capital agree that all communications relating to GIS
shall only be made to GISI except for the communication of lease applications
and the approval thereof;
E. It is the intent of the parties hereto that GE Capital, on a
non-exclusive basis, shall provide lease financing to GIS' customers pursuant
to the directions of GISI and shall not, in conjunction with such leases,
solicit other business from GIS customers, whose identity is a trade secret;
provided GE Capital shall have the right to solicit such customers if GE Capital
maintains a separate relationship with such customers;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and indemnities contained herein, GISI and GE Capital hereby agree as
follows:
AGREEMENT
1. Services Provided by GE Capital. GE Capital shall provide lease
-------------------------------
financing to GIS customers in accordance with the terms of this Agreement. It
is contemplated by the parties that the number of GISI subsidiaries (GIS) will
increase in the future. As each such subsidiary is acquired by GISI, said
subsidiary shall receive the benefits of this Agreement upon notice of such
acquisition from GISI to GE Capital.
2. Documentation and Purchase.
--------------------------
A. Each Transaction shall be documented on such forms and
accompanying documents as may be provided by GE Capital from time
to time for use hereunder, or shall be in such form as may be
acceptable to GE Capital in its sole discretion. GISI shall
forward to GE Capital photocopies of all documentation between
GISI and a Customer relating to a Transaction prior to GE Capital
funding such Transaction.
B. GE Capital shall approve Transactions based on its own
independently determined credit criteria as then in effect,
provided that each request for approval shall include information
and documentation required by GE Capital. GE Capital shall honor
Transaction approvals for a period of ninety (90) days from the
date thereof (the "Approval Period").
C. Upon receipt of the original Transaction documentation and such
other documents as GE Capital may require, including without
limitation evidence
Page 1
<PAGE>
of the due acceptance of the Equipment by the Customer and an
invoice showing the cost of the Equipment, GE Capital shall pay
the cost of the Equipment to GISI (or such other party as may be
designated by GISI from time to time). GE Capital shall have good
title to the Equipment upon its acceptance by the Customer, free
and clear of any encumbrance or security interest whatsoever
retained by GISI.
3. Non-Recourse. Except as otherwise provided in this Agreement, all
------------
Transactions are non-recourse to GISI and/or GIS unless specifically agreed to
in writing by the Chief Financial Officer or Chief Operating Officer of GISI.
4. Administrative Services.
-----------------------
A. Private Label Administration. GE Capital shall bill, collect and
----------------------------
administer each Transaction in the name of GISI; provided there
is no default by GISI, the GIS, or the Customer. In the event
GISI shall be in material default under the terms of this
Agreement or the Program is terminated by GE Capital for cause,
GE Capital, in addition to its other rights, may upon 30 days
notice to GISI (i) deliver a copy of the Notification Letter
(attached hereto as Exhibit B and made a part hereof) to each
Customer indicating that the Transactions and the Equipment have
been assigned and sold to GE Capital (the "Notification Letter"),
and (ii) administer and collect all Transactions in the name of
GE Capital. In the event GISI is in default under the terms of a
Transaction, and such default is not cured within forty-five
(45) days of written notice, GE Capital, in addition to its other
rights, may immediately (a) deliver the Notification Letter to
the Customer, and (b) administer and collect such Transaction in
the name of GE Capital. In the event a Customer is in default
under the terms of any Transaction, GE Capital, in addition to
its other rights, may immediately (1) deliver the Notification
Letter to the Customer, and (2) administer and collect the
Transaction(s) with such Customer in the name of GE Capital.
B. Purchase Orders. GISI consents to the assignment of any Customer
---------------
purchase agreement or purchase order for the Equipment to GE
Capital and agrees to be bound by the terms of any such
assignment. Notwithstanding anything to the contrary in such
purchase order or purchase agreement, GISI agrees not to retain
any security interest in the Equipment. GISI agrees that GE
Capital shall have no obligation to pay for the Equipment
(whether or not rejected by a Customer for any reason) unless and
until (i) the Equipment conforms to the specifications, and (ii)
it is validly accepted by the Customer pursuant to the
Transaction documentation pursuant to the Transaction
documentation.
C. Books and Records. GISI agrees that, upon GE Capital providing
-----------------
prior reasonable notice to GISI, GE Capital may audit GISI's or
GIS's systems, books and records pertaining to the Transactions
during normal business hours within reason. GE Capital agrees
that, upon GISI providing prior reasonable notice to GE Capital,
GISI may audit GE Capital's systems, books and records pertaining
to the Transactions during normal business hours within reason.
D. Agreement to Purchase. GE Capital may without liability to GISI
---------------------
revoke its agreement to enter into a Transaction or purchase the
Equipment if (i) GE
Page 2
<PAGE>
Capital has not received completed documentation and/or the
Equipment is not accepted within the Approval Period or if a
Customer notifies GE Capital of its intent not to do so; or (ii)
an event occurs which would be a default by the Customer or any
guarantor under a Transaction; or (iii) GISI has breached any
provision of this Agreement; or (iv) prior to shipping the
Equipment to the Customer, such Customer shall (a) suffer a
significant negative change in any financial or other condition
from the condition reflected in such Customer's most recent
financial statements or in any other material fact concerning the
financial situation of such Customer; (b) cease doing business as
a going concern; (c) cause or consent to any material merger,
consolidation, liquidation, divestiture or any other change in
business ownership (stock, assets, or otherwise) or structure of
such Customer; or (d) materially breach any bank covenant.
Buyouts, Upgrades and Renewals. All buyouts, upgrades and
------------------------------
renewals of Transactions shall be determined by GE Capital in
accordance with mutually agreed upon standards and terms which
shall be in writing.
E. General Administrative Services. GE Capital will provide general
-------------------------------
administrative services in connection with the Transactions,
including but not limited to credit investigation, billing and
collecting, in accordance with the business practices and upon
receipt of administrative fees (if applicable) announced by GE
Capital for the Program. GE Capital shall have the right to deal
with all Transactions and Customers in the sole exercise of its
business judgment. GE Capital agrees to use reasonable efforts to
administer the Transactions as provided in this paragraph.
F. Either party shall promptly remit to the other party any payment
(or portion thereof) received on a Transaction which such party
is not entitled to pursuant to the terms of this Agreement. GISI
agrees that notwithstanding GE Capital's administration of any
Transaction in the name of GISI and/or the receipt of payments
made payable to GISI in respect of such Transactions, GISI has no
interest in such Transaction(s) or in the payments made
thereunder.
G. GISI hereby grants to GE Capital the right to use the name
"Global Imaging Systems, Inc." for all purposes in connection
with the Program and any Transaction.
5. Standard Rates. GE Capital may advise GISI from time to time, in
--------------
writing, of the standard rates which shall be applicable to all Transactions
("Standard Rates"), unless a different rate for a particular Transaction has
been previously approved by GE Capital in writing. Any rate change notice by GE
Capital shall be provided to GISI at least 45 days prior to such rate change
becoming effective. Any rate increase will become effective on the first
calendar business day of a specified month which date shall be at least 45 days
after the above-referenced notice with respect to such rate change. Such rate
changes shall only be effective with respect to applications submitted to GE
Capital after the effective date. Any rate decrease will become effective
immediately.
GE Capital shall honor all Standard Rates or special rate quotations by GISI,
provided that completed documentation is received and the Equipment is accepted
by the Customer under the Transaction within the Approval Period.
Page 3
<PAGE>
[*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
Once each calendar month, GE Capital shall remit to GISI [**]
6. GISI Financing Programs. Any trademarks, service marks and names
-----------------------
properly licensed to GISI shall be the property of GISI (collectively
hereinafter referred to as "GISI Marks"). GE Capital has no rights whatsoever in
respect of the GISI Marks except to the extent of the license granted to GE
Capital to bill, collect and administer each Transaction in the name of GISI
pursuant to Section 4(A) hereof. GE Capital shall not use the GISI Marks in any
manner except in furtherance of this Program. If GE Capital becomes aware that a
non-GIS dealer may be infringing on a GISI Mark, GE Capital shall promptly
notify GISI.
7. Lessee Charges. GE Capital shall only collect from Customers payments
--------------
which the Customer is contractually obligated to remit under the terms of the
Transaction.
8. Credit Authorizations & Transmission of Business Data. GE Capital
-----------------------------------------------------
shall maintain a toll free 800 telephone number for the transmission of leasing
customers applications for both voice applications and facsimile applications
until such time as this Agreement is terminated by either party. Such toll free
telephone number shall be provided without charge to GISI and/or GIS. In
addition, GE Capital shall provide within 180 days of the execution of this
agreement, at its expense, modem access by GISI to GIS to GE Capital for
purposes of transmitting applications. GISI & GE Capital shall use commercially
reasonable efforts to develop an expanded interface beyond that discussed above
between GIS' computer systems and GE Capital's computer systems.
9. Representations, Warranties and Covenants. In respect of each
-----------------------------------------
Transaction, GISI represents, warrants, and covenants to GE Capital, its
successors and assigns, that:
A. To the best of GISI's knowledge, all documents executed by the
Customer in respect of the Transaction are genuine, valid and
enforceable in accordance with their terms;
B. All documents provided to GE Capital in respect of the
Transaction are duly executed by GISI and, to the best of GISI's
knowledge, the entity specified as the Customer (or guarantor, as
the case may be);
C. There are no set-offs or counter claims at law or equity which
may be effective in respect of the Transaction;
D. Neither the Transaction nor any of the signatures in respect of
the documents therewith were obtained by fraud or fraudulent
misrepresentation on the part of GISI, GIS or any of their
respective employees;
E. There are no written or verbal side agreements related to the
Transaction between the Customer and GISI, GIS or their
authorized representatives which may have a negative impact on
the yield or enforceability of the Transaction;
F. GISI is the sole and absolute owner of any document assigned to
GE Capital;
G. GE Capital shall acquire marketable title to the Equipment, free
and clear of all liens, claims, security interests and
encumbrances.
Page 4
<PAGE>
H. The Equipment has been delivered to the Customer's address
indicated in the applicable Transaction, properly installed (if
applicable) and the Equipment is in good working order, condition
and repair, conforming to the terms of the Customer's purchase
order, if any;
I. GISI is aware of no circumstances or actions which would affect
the validity or enforceability of the Transaction;
J. All Equipment is new or remanufactured and subject to warranty,
unless specified otherwise;
K. GISI has not received any monies which the Customer is
contractually required to remit under the terms of the
Transaction;
L. Neither GISI nor the GIS has committed any fraudulent act or
participated in any fraudulent activity in connection with any
Transaction or any obligation hereunder,and
M. GISI (and the GIS) shall honor the terms of all agreements
entered into with the Customer in respect of the Transaction.
N. Any breach of the aforementioned warranties and representations
will obligate GIS to cure the breach within 30 days of discovery
by GISI OR GIS or notice by GE Capital or if unable to cure the
breach, purchase back the transaction for the Net Book Value at
the time the transaction is purchased back.
10. Indemnity
---------
A. GISI shall indemnify and hold harmless Ge Capital and its
affiliates, subsidiaries, employees, officers and agents from any
all losses, claims by or against GE Capital, liabilities, demands
and expenses whatsoever, including reasonably attorney's fees and
costs, arising out of or in connection with any material breach
by GISI of any representation, warranty, covenant or obligation
set forth in this Agreement, and shall, at GE Capital's request,
purchase any related Transactions hereunder which may be affected
by such breach.
B. GE Capital shall indemnify and hold harmless GISI and its
affiliates, subsidiaries, employees, officers and agents from any
and all losses, claims by or against GISI, liabilities, demands
and expenses whatsoever, including reasonable attorney's fees and
costs, arising out of or in connection with any material breach
by GE Capital of any representation, warranty, covenant or
obligation set forth in this Agreement.
C. All indemnities and obligations under this Agreement shall
survive any expiration or termination of this Agreement and the
expiration or termination of any Transaction.
11. Trade Secrets. Both parties acknowledge that certain information
-------------
provided by the other party from time to time may be considered confidential and
proprietary to such party including: subsidiary lists; customer lists; financing
programs; pricing information; statistical and information records derived from
customer records; customer credit information including information derived
therefrom; prospective customer lists; employee lists, office locations; list of
suppliers; copies of leases and related agreements entered into with Customer;
and policies
Page 5
<PAGE>
and procedures (collectively, the "Confidential Information"). Confidential
Information does not include information that: (i) is now or subsequently
becomes generally available to the public through no fault or breach on the part
of the recipient; (ii) the recipient can demonstrate to have had rightfully in
its possession prior to disclosure to it; (iii) is independently developed by
the recipient without the use of any Confidential Information; (iv) the
recipient rightfully obtains from a third party who has the right to transfer or
disclose it; or (v) is required to be disclosed by a court or administrative
agency of competent jurisdiction.
Both parties agree to use good faith efforts to maintain the confidentiality of
the Confidential Information and to prevent its unauthorized dissemination both
internally and externally. Both parties acknowledge and agree that the
Confidential Information may be disclosed by the recipient to its employees or
agents who need to know such Confidential Information in furtherance of the
matters contemplated by this Agreement. Both parties agree to not publish,
disclose, or disseminate the Confidential Information for a period of ONE (1)
YEAR after receipt thereof. No other use of such Confidential Information may
occur without the prior written consent of the other party.
Both parties acknowledge that unauthorized disclosure or use of the Confidential
Information could cause irreparable harm and significant injury to the other
party which may be difficult to ascertain. Either party will have the right to
seek and obtain immediate injunctive relief for any breaches of this Agreement,
in addition to any other rights and remedies it may have.
12. Assignment. The rights and obligations of GE Capital and GISI under
----------
this Agreement may not be assigned without the prior written consent of the
other party, which consent shall not be unreasonably withheld; provided that GE
Capital may without prior written consent (i) assign any of its rights hereunder
to another business unit, affiliate or subsidiary of GE Capital, or (ii)
syndicate or securitize Transactions from time to time. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors, and permitted assigns.
13. Independent Contractor. Nothing contained herein shall be construed
----------------------
to constitute GISI and GE Capital as partners, joint venturers, or as creating
the relationship of employer and employee, franchisor and franchisee, or
licensor and licensee. GISI and GE Capital will at all times remain independent
contractors with respect to this Agreement and otherwise. GE Capital will not at
any time represent orally or in writing to anyone that it has any right, power
or authority not expressly granted by this Agreement.
14. Termination. This Agreement shall become effective as of the date set
-----------
forth herein above upon execution by GE Capital and GISI and shall continue
until terminated by either party at any time upon sixty (60) days prior written
notice to the other party. In the event GISI fails to provide GE Capital with
such financial statements as may be requested by GE Capital from time to time,
GE Capital reserves the right to terminate this Agreement upon written notice.
Notwithstanding the foregoing, all rights and obligations of the parties in
respect of any Transactions financed by GE Capital hereunder shall survive the
termination or expiration of this Agreement.
15. Severability. If at any time any provision of this Agreement shall be
------------
held by any tribunal to be illegal, void or unenforceable, such provision shall
be of no force and effect, and shall have no effect upon, and shall not impair,
the enforceability of any other provision of this Agreement.
16. Entire Agreement; Amendments. GISI and GE Capital hereby acknowledge
----------------------------
and agree that this Agreement (together with all Exhibits attached hereto and
made a part hereof) contains all the agreements, warranties, understandings,
conditions, covenants, and representations made between GE Capital and GISI, and
shall supersede all prior written or oral
Page 6
<PAGE>
statements, agreements or understandings between the parties relating to the
subject matter of this Agreement. GE Capital and GISI may amend this Agreement,
from time to time, provided such amendment is first memorialized in writing and
signed by each parties' duly authorized representative. No waiver of any
provision of this Agreement, nor consent to any departure by either party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by a duly authorized representative of the party to be charged with
the waiver or consent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it is given.
17. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled by arbitration in Tampa,
Florida under the then existing Commercial Arbitration Rules of the American
Arbitration Association. Any arbitration conducted pursuant to the provisions
hereof shall be conducted by a recognized independent and impartial arbitrator
mutually agreeable to GISI and GE Capital or, if GISI and GE Capital cannot
agree, by three arbitrators, one chosen by GISI, one chosen by GE Capital and
the third (who shall be a recognized independent and impartial arbitrator and
who shall act as chairperson and will be compensated at a rate generally
equivalent to his or her normal billing rate or compensation) selected by the
two so chosen; provided that if either GISI or GE Capital fails to appoint an
arbitrator within twenty (20) days of written notice by the other that it has
appointed an arbitrator, then the arbitration shall be conducted by an
arbitrator selected by the American Arbitration Association. If the arbitrators
selected by GISI and GE Capital fail to agree on the third arbitrator, the third
arbitrator shall be selected by the American Arbitration Association. All costs
of each arbitration pursuant to this Section 17 (including, without limitation,
all fees of the arbitrator(s) and attorneys' fees), shall be borne equally by
the parties. Any determination reached or award granted pursuant to arbitration
shall be final and binding on the parties and payment shall be made as so
determined within fifteen (15) business days of the date of such award. The
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of this 26th day of July, 1996.
GENERAL ELECTRIC CAPITAL CORP. GLOBAL IMAGING SYSTEMS, INC.
BY: /s/ Timothy J. Reese BY: /s/ Mike Mueller
----------------------------- ----------------------------
Name: Timothy J. Reese Name: Mike Mueller
--------------------------- --------------------------
Title: General Manager Title: VP
-------------------------- -------------------------
Page 7
<PAGE>
EXHIBIT A
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Global Imaging Systems, Inc. (hereinafter
referred to as "GISI"), a Delaware corporation with a principal place of
business at 14499 N. Dale Mabry, Suite 280, Tampa, Florida 33618, hereby makes,
constitutes and appoints General Electric Capital Corporation ("GE Capital")
(and any employees of GE Capital designated by GE Capital from time to time) as
GISI's true and lawful attorney-in-fact for the purpose of executing, endorsing,
and otherwise signing for and on behalf of GISI: (a) any and all lease
agreements, rental agreements, cost-per-copy agreements, lease-purchase
agreements, and all other documents, instruments and agreements (collectively,
the "Finance Documents) requiring execution by GISI under the terms and
conditions of that certain Non-Exclusive Third Party Lessor Agreement, dated as
of July 26, 1996, entered into by and between GISI and GE Capital, as amended
from time to time (the "Agreement"), (b) billing and collecting payments due and
payable by a Customer under the terms of the Finance Documents, (c) any and all
correspondence and notices which may be required from time to time between the
Customer and GISI or GE Capital under the terms of the Agreement, (d) financing
statements filed pursuant to the Uniform Commercial Code, (e) any and all checks
or other instruments made payable to GE Capital for moneys due and payable to
GISI or to GE Capital under the terms of the Agreement, (f) any and all
instruments, documents and agreements which may be necessary to repossess and
remarket or otherwise liquidate equipment subject to Finance Documents, and (g)
any and all other documents, instruments or agreements in respect of the
Agreement as may be determined appropriate or necessary by GE Capital from time
to time in its sole discretion.
GISI hereby grants unto GE Capital full power and authority to act in any manner
both proper and necessary to exercise each of the foregoing powers and hereby
ratifies all that GE Capital (and any employees of GE Capital or third party
agents designated by GE Capital from time to time) shall lawfully do or cause to
be done by virtue of these presents.
This Power of Attorney may be revoked by GISI at any time by delivering notice
of such revocation to GE Capital. This Power of Attorney shall expire
contemporaneous with the expiration or earlier termination of the Agreement.
Executed this 31st day of July, 1996.
GLOBAL IMAGING SYSTEMS, INC.
By: /s/ Mike Mueller
-------------------------
Name: MIKE MUELLER Title: VP
----------------------- --------------------
STATE OF Florida) COUNTY OF Hillsborough)
On this 31st day of July, 1996, before me Shelley Jacob, a notary public,
appeared personally Mike Mueller, personally known to me or proved to me on the
basis of satisfactory evidence to be the person who executed the Power of
Attorney set forth above as Vice President of the corporation therein named, and
acknowledged to me that such corporation executed the Power of Attorney pursuant
to authority granted in its by-laws.
By: /s/ Shelley Jacob Notary Public for the State of Florida
----------------------- --------
My Commission expires: 2/26, 2000 (SEAL)
Page 8
<PAGE>
EXHIBIT B
NOTIFICATION LETTER
DATE
_____________________________
_____________________________
_____________________________
RE: Lease Agreement No.
Dated (the "Lease")
Dear Lessee:
Please be advised that Global Imaging Systems, Inc. ("GISI") has sold and
assigned to General Electric Capital Corporation ("GE Capital") all of its
right, title and interest in and to: (1) the Lease identified above; (2) all
rights and remedies under the Lease, (3) the equipment subject to the Lease, and
(4) all payments due and to become due under the Lease.
GISI did not transfer any of its obligations under the Lease to GE Capital. All
correspondence and questions regarding maintenance and performance of the
equipment should be directed to GISI or the dealer which delivered and installed
the equipment. Under the terms of the Lease, you are required to remit Rent and
all other payments notwithstanding any complaint you may have against the lessor
or the dealer for service, maintenance or otherwise. Please remit all Rent and
all other payments due and to become due under the Lease to GE Capital at the
address provided by GE Capital from time to time. GE Capital will invoice you
each month for the Rent due and payable under the Lease.
Please acknowledge your receipt of this Notification Letter in the space
provided below and return a copy to GE Capital at the following address:
General Electric Capital Corporation
_____________________________
_____________________________
In the event you do not acknowledge and return this Notification Letter within
ten (10) days of the above date, GE Capital will assume you have read the
information contained herein and will remit to GE Capital all payments due and
to become due under the Lease.
Sincerely,
GLOBAL IMAGING SYSTEMS, INC.
/s/ Mike Mueller
- --------------------------------
ACKNOWLEDGED THIS ___ DAY OF _______________, 19__.
________________________________
By: /s/ Mike Mueller
Name and Title:
MIKE MUELLER
VP
Page 9
<PAGE>
GLOBAL IMAGING SYSTEMS INC.
LEASE AGREEMENT MODIFICATION
As discussed our dealers are adamantly against the lease renewal verbiage, of
the Lease Agreement, that states that the agreement will renew for additional
terms of 12 months each.
Therefore, we suggest that the following modification be made to Section 5 of
the Lease Agreement, on an exception basis when needed:
__ CROSS OUT THE VERBIAGE - "FOR ADDITIONAL TERMS OF TWELVE(12) MONTHS
EACH".
__ INSERT THE VERBIAGE - "ON A MONTH TO MONTH BASIS"
The sales rep and the customer will each initial the modification on the
document.
The Conway dealer group will use this verbiage as a rule and not as an
exception.
We signify our acceptance of this modification by our signatures below:
/s/ Mike Mueller 9-24-96 /s/ David Kuenzi 9/25/96
- ---------------------------------------- --------------------------------
Mike Mueller Date David Kuenzi Date
Global Imaging Systems Inc. GE Capital
<PAGE>
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.***]
EXHIBIT 10.15
LICENSE AGREEMENT
-----------------
THIS AGREEMENT effective as of July 31, 1996 between Global Imaging Systems,
Inc., a Delaware corporation located at 14499 N. Dale Mabry, Suite 280, Tampa,
Florida 33618 ("Licensor") and Copelco Capital, Inc., a Delaware corporation
located at One Maynard Drive, Park Ridge, New Jersey 17656 ("Licensee").
WHEREAS, Licensor is in the business of providing financial services to its
subsidiaries (each, a "Global Subsidiary" and collectively, the "Global
Subsidiaries") to enable them to, among other things, sell or lease photocopiers
and other equipment ("Equipment") to its customers ("Customers")
WHEREAS, Licensee is in the business of leasing various types of equipment
including without limitation equipment similar to Licensor's Equipment;
WHEREAS, Licensor is the owner of the name and tradename "GLOBAL IMAGING
SYSTEMS" and such other trademarks, tradenames and logos as appear on Exhibit
"1" attached hereto and made a part hereof (collectively, the "Tradename");
WHEREAS, Licensee desires to obtain and Licensor is willing to grant a
non-exclusive license to Licensee to use the Tradename in a program for the
leasing of Equipment sold to Licensee by the Global Subsidiaries (the "Leasing
Program") and leased by Licensee to the Customers under Licensor's form of lease
agreement (the "Lease") and other documents entered into in connection with the
Lease modified to include some or any portion of Licensor's Tradename (the
"Lease Documents") in the manner described and upon the terms and conditions
described below.
NOW, THEREFORE, intending to be legally bound hereby, and in consideration of
the initial covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Grant of License. Subject to the terms and conditions specified
----------------
herein, Licensor hereby grants to Licensee a nontransferable and non-exclusive
license to use the Tradename (a) in all documents prepared by Licensee or any
Global Subsidiary in connection with the Leasing Program, including the Lease
and Lease Documents and all invoices for billing and collection of sums due
thereunder, and (b) in all billing and collection activities involved in the
Leasing Program. Nothing in this Agreement shall affect Licensee's rights and
obligations as lessor under the Lease and Lease Documents and Licensee's
ownership of the Equipment.
2. Supervision of License. Upon the request of Licensor, Licensee shall
----------------------
furnish to Licensor copies of the form of documents in which the Tradename is
used by Licensee.
-1-
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
3. Lease Rates. The lease rates shall be mutually agreed upon by the
-----------
parties from time to time as set forth herein. All lease rates used by the
parties shall be set forth in writing upon mutual agreement by the parties. Any
rate change must be received at least 30 days prior to such rate change becoming
effective. Any rate change will become effective on the first calendar business
day of a specified month which date shall be at least 30 days after the
above-referenced mutual agreement with respect to such rate change. Such rate
changes shall only be effective with respect to applications submitted to
Licensee after the effective date.
4. Term. The term of this Agreement shall be three (3) years, provided,
----
however, that either party may terminate this Agreement at any time, upon ten
(10) days prior notice to the other party. In the event of termination, the
license granted hereunder and any obligations hereunder shall continue as to any
Lease Document, and the billing and collection thereunder, then existing at the
time of the termination.
5. Fees. In consideration of Licensor's granting to Licensee the use of
----
the Tradename, for each Lease where the Tradename is used, Licensee shall pay
to Licensor [**]
6. Billing and Collection; Endorsement of Checks. (a) All billing and
---------------------------------------------
collection of rentals and other amounts due under the Leases shall be done by
Licensee in the name of Licensor. All bills sent by Licensee shall direct the
Customers to remit such rentals and other payments to Licensee's offices or to a
post office box or lockbox designated by and controlled by Licensee.
Notwithstanding anything in this Agreement to the contrary, all payments due and
to become due under the Leases shall be the sole property of Licensee.
(b) In the event that a Customer becomes more than ninety (90) days
delinquent under a Lease, Licensee shall pursue its collection efforts, whether
through litigation or otherwise, in its own name. In addition, in the event that
a receiver or trustee of Licensor or its assets is appointed or a petition is
filed by or against Licensor under the Bankruptcy Code or other insolvency laws
or Licensor has breached any of the representations, warranties or covenants
contained in this Agreement, Licensee shall have the right to disclose this
Agreement to the Customers under the then existing Leases and to pursue all
further billing and collection of amounts due under such Leases in its own name.
(c) Licensor hereby grants to Licensee an irrevocable power of
attorney to endorse without recourse, Licensor's name upon any and all checks,
notes, drafts or other instruments received by Licensee with respect to the
Leases and to take any action and to execute any instrument or document that
Licensee may deem necessary or advisable from time to time in its sole
discretion to collect the rentals and other amounts due under the Leases and to
exercise and enforce any and all rights, powers, and remedies thereunder.
(d) Licensor shall remit to Licensee, within two (2) business days
after receipt, any and all rentals and other amounts which Licensor or any
Global Subsidiary may receive
-2-
<PAGE>
from any Customer under any Lease at any time. Until remitted to Licensee, all
such rents and other amounts shall be held in trust by Licensor for the sole
benefit of Licensee. Licensee shall remit to Licensor, within two (2) business
days after receipt, any and all amounts which Licensee may receive from any
Customer which were paid by the lessee for the benefit of Licensor under any
Lease at any time. Until remitted to Licensor, all such rents and other amounts
shall be held in trust by Licensor for the sole benefit of Licensor.
7. Representations and Warranties. Licensor hereby represents and
------------------------------
warrants, which representations and warranties shall survive execution of this
Agreement, as follows:
A. As to each Lease and the subject Equipment, neither Licensor nor
a Global Subsidiary has not entered into any agreement with the Customer or a
Global Subsidiary which would change the terms and conditions of the Lease or
impair Licensee's rights to collect the proceeds of the Lease;
B. Licensor is validly organized, existing and in good standing in
its state of incorporation and is duly qualified to do business in the state
where its business requires it to be so qualified.
8. Buyouts, Upgrades and Renewals. All buyouts, upgrades and renewals of
------------------------------
Licensor's Customers shall be determined in accordance with mutually agreed upon
written terms and conditions.
9. Credit Authorizations and Transmission of Business Data. Licensee
-------------------------------------------------------
shall at all times maintain a toll free 800 telephone number for the
transmission of Customers' applications for both voice applications and
facsimile applications. Such toll free telephone number shall be provided
without charge to Licensor and/or Global Subsidiaries. In addition, Licensor
shall provide within 180 days of the execution of this Agreement, at its
expense, modem access by Licensor and the Global Subsidiaries to Licensee for
purposes of transmitting applications and meter reading data. Licensor and
Licensee use reasonable efforts to develop an expanded interface beyond that
discussed above between Licensor computer systems and Licensee computer systems.
Credit approval shall be made, in a time period acceptable to Licensor, in
accordance with Licensee's standard credit standards and at its sole discretion.
10. No Relationship. It is understood and agreed that no agency,
---------------
employment or partnership relationship is hereby created by the parties and the
business operated by Licensee is separate and apart from any which may be
operated by Licensor. It is agreed that Licensee is not an affiliate of
Licensor, and no representations will be made by either party which would create
an agency, employment or partnership relationship. The parties have entered into
this Agreement on an arm's-length basis.
11. Infringement. Licensor warrants that the Tradename and use thereof by
------------
Licensee is and shall be free of any claim of any third party for infringement
of any United States patent, copyright, tradename or trademark. Licensor shall
defend, or may settle at its
-3-
<PAGE>
expense, any suit or proceeding against Licensee that is based on a claimed
infringement which would result in a breach of this specific warranty and
Licensor shall pay all damages and costs awarded therein against Licensee due to
such infringement.
12. Confidential Information. Written information furnished by each party
------------------------
to the other hereunder which is identified in writing as confidential, shall be
considered confidential, proprietary and of a trade secret nature to the
furnishing party (the "Confidential Information"). Each party shall use its best
efforts not to disclose any of the Confidential Information to third parties,
except for their respective lenders, accountants and attorneys and except upon
advice by counsel, without the prior written consent of the other, provided,
however, that Licensor hereby consents to Licensee's disclosure of such
information as part of its participation in credit record exchanges and further
provided that the following information will not be considered Confidential
Information for purposes of this section: information which (i) becomes
generally available to the public other than as a result of a disclosure by the
receiving party or its representatives, or otherwise becomes general knowledge,
(ii) was available to the receiving party prior to its disclosure to the
receiving party by the disclosing party or its representatives, or (iii) becomes
available to the receiving party from a source other than the disclosing party
or its representatives. Confidential information includes but is not limited to
the following: Lists of Licensor's Customers and suppliers (provided, however,
that the parties agree that names of customers who become Licensee lessees and
the suppliers shall become part of Licensee's system and subject to disclosure,
although they shall not be identified as Licensor's customers or suppliers);
----------
Lists of employees; Licensor's financing programs; Licensor's list of its
subsidiaries; and Financial statements for customers, which are furnished by
Licensor to Licensee.
13. Non-Recourse. All Leases are non-recourse to Licensor unless
------------
specifically agreed to in writing by the Chief Financial or Operating Officer of
Licensor except for breach of any representation, warranty or covenant
hereunder.
14. Books and Records. License shall allow Licensor reasonable access to
-----------------
all Licensee records related to the Leases.
15. Severability. If any provision of this Agreement is declared invalid
------------
by any tribunal, then such provision shall be deemed automatically adjusted to
the minimum extent necessary to conform to the requirements for validity as
declared at such time and, as so adjusted, shall be deemed a provision of this
Agreement as though originally included herein. In the event that the provision
invalidated is of such a nature that it cannot be so adjusted, the provision
shall be deemed deleted from this Agreement as though such provision had never
been included herein. In either case, the remaining provisions of this Agreement
shall remain in effect.
16. Miscellaneous. This Agreement shall be binding upon and inure to the
-------------
benefit of Licensor and Licensee and their respective successors and assigns.
This Agreement shall be governed in all respects by the laws of the State of
Florida. This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter covered here in
-4-
<PAGE>
and shall not be altered or amended except in writing executed by both parties.
If any dispute or controversy between the parties hereto arises out of or
relating to this Agreement or any transaction contemplated hereunder, such
dispute or controversy shall be submitted to arbitration by a panel of three (3)
arbitrators under the Commercial Rules of Arbitration of the American
Arbitration Association in Tampa, Florida. The three (3) arbitrators shall
decide any such matter in accordance with then applicable rules of the American
Arbitration Association or any successor organization. The determination of the
arbitrators shall be final and shall not be subject to judicial review;
provided, however, that any award or determination rendered by the arbitrators
may be entered in any court of competent jurisdiction in the State of Florida
for the Federal District Court for the Middle District of Florida and the
parties hereto consent to the jurisdiction of said courts for the purpose set
forth in this section.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officers, all as of the day and year first
above written.
COPELCO CAPITAL, INC. GLOBAL IMAGING SYSTEMS INC.
By:[SIGNATURE ILLEGIBLE] By: /s/ Mike Mueller
------------------------- --------------------------
Title: Sr VP. Title: VP
---------------------- ----------------------
-5-
<PAGE>
EXHIBIT 1
Tradenames, Trademarks and Logos
--------------------------------
Global Imaging Systems Inc.
Felco Office Systems, Inc.
Copy Date, Inc.
Border Business, Inc.
Berney, Inc.
Southern Copy Systems, Inc.
CSS Leasing, LLC
Office Furniture Concepts
AMCOM Office Systems
Conway Office Products, Inc.
Cameron Office Products, Inc.
Business Equipment Unlimited
-6-
<PAGE>
ADDENDUM
--------
THIS ADDENDUM dated SEPTEMBER 30, 1996 to the License Agreement dated July
31, 1996 ("Agreement") between Global Imaging Systems, Inc ("Global") and
Copelco Capital Inc ("Copelco"):
1. All capitalized terms used herein and not otherwise defined shall have
the respective meanings ascribed to them in the Agreement.
2. Paragraph 5 of Agreement is hereby amended to add: "In further
consideration of Licensor granting to Licensee the use of the Trade name,
Licensee agrees to pay to Licensor one percent (1%) of the invoice cost of the
Equipment funded by Copelco. Fees shall be paid to Global by Copelco by the
eighth (8th) day of the month following the date of funding."
3. This Addendum amends the Agreement only to the extent and in the
manner herein set forth, and in all other respects the Agreement is ratified and
confirmed.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized officers, all as of the day and year first
above written.
COPELCO CAPITAL, INC. GLOBAL IMAGING SYSTEMS, INC.
By [SIGNATURE ILLEGIBLE] By /s/ Mike Mueller
------------------------- -------------------------
Title: SrVP Title: VP
--------------------- --------------------
<PAGE>
SECOND ADDENDUM
---------------
THIS ADDENDUM dated November 1, 1996 to the License Agreement dated July
31, 1996 ("Agreement") between Global Imaging Systems, Inc and Copelco Capital
Inc ("Copelco"):
1. All capitalized terms used herein and not otherwise defined shall have
the respective meanings ascribed to them in the Agreement.
2. Paragraph 7 of the Agreement is deleted in its entirety and amended to
read:
Representations and Warranties. Licensor hereby represents and warrants,
------------------------------
which representations and warranties shall survive execution of this Agreement,
as follows:
A. As to each Lease and the subject Equipment, neither Licensor nor a
Global Subsidiary has entered into any agreement with the customer or a Global
Subsidiary which would change the terms and conditions of the Lease or impair
Licensee's rights to collect the proceeds of the Lease.
B. Licensor is validly organized, existing and in good standing in its
state of incorporation and is duly qualified to do business in the state where
its business requires it to be so qualified.
C. To the best of Licensor's knowledge all transactions will be validly
made for consideration and represent binding obligations of the person specified
as the lessee, debtor, co-maker or guarantor and the signature tendered are
genuine and valid.
D. There will be no set-off or counter claim at law or equity that could
be effective against the transaction.
E. None of the transactions or signatures will be obtained by fraud or
fraudulent misrepresentation on the part of Licensor or its employees.
F. Licensor will be the sole and absolute owner of any document being
assigned and the Equipment will be free and clear of all liens and encumbrances.
G. Licensor is aware of no circumstances or actions which would affect
the validity of the transaction.
H. All Equipment is new or remanufactured and subject to warranty unless
specified otherwise.
1
<PAGE>
I. The Equipment has been delivered to and accepted by the Lessee.
J. Any breach of the aforementioned representations and warranties will
obligate Licensor to cure the breach within thirty (30) days of discovery by
Licensor or notice from Licensee. In the event Licensor is unable to cure the
default within said thirty (30) days, Licensor agrees to repurchase from
Licensee, within five (5) days after notice from Licensee, any said Lease. The
Repurchase Price shall be equal to all amounts then due and the present value of
all payments and other amounts to become due plus the Licensee's anticipated
residual value discounted at Licensee's implicit rate in the transaction.
K. If Licensor fails to pay any part of the Repurchase Amount when due,
Licensee shall be entitled to interest on any unpaid portion of the Repurchase
Price at the rate of 16% per annum (but only to the maximum extent permitted by
law) from the date due until paid plus reasonable attorneys' fees and costs
incurred by Licensee in the enforcement of its rights hereunder, and any and all
remedies it may have by law or equity. In addition, in the event of non-payment
of the Repurchase Price, Licensee shall have the right to set-off any amounts
due Licensor in payment, thereof.
L. Licensor's obligations herein are continuing, unconditional and primary
obligations. Nothing that Licensee does or leaves undone will in any way affect,
reduce or discharge Licensor's obligations. Any notice or demand hereunder shall
be in writing and sent by certified mail, return receipt requested, or
overnight delivery to the other party. Notice shall be deemed given 3 days after
the date mailed if sent by registered mail or when sent, if sent by overnight
mail.
M. No failure on the part of the Licensee to exercise any right or remedy
and no delay in exercising any right or remedy shall operate as a waiver
thereof.
This Addendum amends the Agreement only to the extent and in the manner
herein set forth, and in all other respects the Agreement is ratified and
confirmed.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officers, all as of the day and year first
above written.
COPELCO CAPITAL, INC. GLOBAL IMAGING SYSTEMS, INC.
(LICENSEE) (LICENSOR)
By [SIGNATURE ILLEGIBLE] By /s/ Mike Mueller
---------------------------- ------------------------------
Title: Vice President Title: VP
------------------------ --------------------------
2
<PAGE>
GLOBAL IMAGING SYSTEMS INC.
LEASE AGREEMENT MODIFICATION
As discussed our dealers are adamantly against the lease renewal verbiage, of
the Lease Agreement, that states that the agreement will renew for additional
terms of 12 months each.
Therefore, we suggest that the following modification be made to Section 5 of
the Lease Agreement, on an exception basis when needed:
- CROSS OUT THE VERBIAGE-"FOR ADDITIONAL TERMS OF TWELVE (12) MONTHS
EACH."
- INSERT THE VERBIAGE-"ON A MONTH TO MONTH BASIS"
The sales rep and the customer will each initial the modification on the
document.
The Conway dealer group will use this verbiage as a rule and not as an
exception.
We signify our acceptance of this modification by our signatures below:
/s/ Mike Mueller 9-24-96 /s/ Gary Wile
- -------------------------------- ------------------------------------
Mike Mueller Date Gary Wile Date
Global Imaging Systems Inc. Copelco Capital
<PAGE>
ADDENDUM
--------
THIS ADDENDUM dated September 25, 1997 to the License Agreement dated July
31, 1996 ("Agreement") between Global Imaging Systems, Inc. ("Global") and
Copelco Capital, Inc, ("Copelco").
The Agreement is amended as follows:
1. Southern Business Communications Inc. shall hereby be added to Exhibit
"1" ("Tradenames") of the Agreement.
2. Upon written notice to Copelco by Global, any future tradenames that are
acquired by Global shall be deemed to be added to Exhibit "1" of the Agreement.
3. This Addendum amends the Agreement only to the extent and in the manner
herein set forth, and in all other respects the Agreement is ratified and
confirmed.
IN WITNESS WHEREOF, each of the parties hereto has cause this Agreement to
be executed by its duly authorized officers, all as of the day and year first
above written.
COPELCO CAPITAL, INC. GLOBAL IMAGING SYSTEMS,
On behalf of itself and its wholly
owned subsidiaries identified on
Exhibit "1" to the Agreement.
By [SIGNATURE ILLEGIBLE] By /s/ Mike Mueller
----------------------- -------------------------
Title Vice President Title VP/COO
-------------------- ----------------------
<PAGE>
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A
COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.***]
EXHIBIT 10.16
NON-EXCLUSIVE THIRD PARTY LESSOR AGREEMENT
THIS AGREEMENT is entered into this 26th day of July, 1996 by and between
GLOBAL IMAGING SYSTEMS, INC. ("GISI"), a Delaware Corporation, and Tokai
Financial Services, Inc. ("Leasing Company"), a _______________ Corporation.
RECITALS
A. GISI is in the business of providing financial services to the
subsidiaries of GLOBAL IMAGING SYSTEMS, INC. ("GISI"), hereinafter referred to
as GLOBAL IMAGING SUBSIDIARIES ("GIS"), throughout the United States.
B. Leasing Company is in the business of providing financing and leasing
services throughout the United States.
C. Leasing Company's acceptance of this Agreement is a condition to
Leasing Company being asked to and permitted to lease equipment which is sold by
GIS.
D. GISI and Leasing Company agree that all communications relating to GIS
and this Agreement shall only be made to GISI except for the communication of
lease applications and the approval thereof.
E. It is the intent of the parties hereto that Leasing Company, on a
non-exclusive basis, shall solely provide lease financing to GIS's customers
pursuant to the directions of GISI and shall not offer other services to the GIS
customers whose identity is a trade secret with the understanding that GIS
customers may already be lessees of Leasing Company or may in the future submit
lease financing applications directly to the Leasing Company or to the Leasing
Company through other equipment vendors or manufacturers ("Leasing Company
Lessees") and Leasing Company is not precluded from accepting lease applications
from Leasing Company Lessees.
F. Leasing Company shall use its best efforts to ensure that information
supplied by GISI or GIS and which information is not available to the public
will not be supplied to anyone who competes with GISI or GIS as a manufacturer
or dealer in the Copier/Facsimile Network Solution Market.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants
herein below, GISI and Leasing Company agree as follows:
AGREEMENT
1. Services provided by Leasing Company. Leasing Company shall only
------------------------------------
provide lease financing to GIS's customers in accordance with the terms and
conditions of this Agreement. It is contemplated by the parties that the number
of GISI subsidiaries (GIS) will increase in the future. As each such subsidiary
is acquired by GISI, said subsidiary shall receive the benefits of this
agreement upon notice of such acquisition from GISI to Leasing Company.
All customers will be billed and collected by Leasing Company under the
GISI name. Permission is hereby given by GISI to use its name for billing and
other purposes
Page 1
<PAGE>
as required under the Program. All customer phone inquiries to Leasing Company
and communication from Leasing Company will be in the name of GISI. Exceptions
to this clause are allowed as required by law in the enforcement of the terms of
agreements under the Program.
GIS authorizes the Leasing Company to execute, in its name, all leases
including any and all related documentation. To facilitate the assignment of the
leases to the Leasing Company, this provision shall constitute a blanket
assignment of the leases and shall be effective for each lease at the time it is
accepted by the Leasing Company.
GIS customers that become ninety (90) days delinquent from the due date
will henceforce be billed and collected by Leasing Company under Leasing
Company's name. In addition, GISI may, from time to time, direct Leasing Company
to communicate with GIS customers solely in the name of the Leasing Company.
2. Non-Recourse. Except as set forth in this Agreement, all leases and
------------
contracts are non-recourse to GISI and/or GIS unless specifically agreed to in
writing by the Chief Financial Officer or Chief Operating Officer of GISI.
3. Lease Rates. The lease rates shall be mutually agreed upon by the
-----------
parties from time to time as set forth herein. All lease rates used by the
parties, shall be set forth in writing upon mutual agreement by the parties.
4. Rate Changes. Any rate change must be reviewed and mutually approved
------------
by the parties at least 30 days prior to such rate change becoming effective.
Any rate increase will become effective on the first calendar business day of a
specified month which date shall be at least 30 days after the above-referenced
mutual agreement with respect to such rate change. Such rate changes shall only
be effective with respect to applications submitted to Leasing Company after the
effective date. Any rate decrease will become effective immediately.
5. Documentation and Forms. Any and all forms used by Leasing Company to
-----------------------
document leases made to GIS customers shall be in a form and content which is
approved by GISI in its sole discretion.
6. Financing Programs. Leasing Company authorizes GISI to offer any
------------------
financing programs offered by Leasing Company to GIS customers. Any financing
programs provided by or originated by Leasing Company may not be used by GISI or
GIS except in connection with leases written by Leasing Company to GIS
customers, unless such financing programs are found in the public domain and
enter the public domain from a source other than GISI or GIS. Any financing
programs originated or provided by GISI to Leasing Company are the property of
GISI as set forth below. Any financing programs provided by or originated by
GISI may not be used by Leasing Company except in connection with leases written
by Leasing Company to GIS customers, unless such financing programs are found in
the public domain and enter the public domain from a source other than Leasing
Company. If Leasing Company is notified that a non-GIS dealer is believed to be
infringing on a GISI trademark or copyright protected program and Leasing
Company agrees that such an infringement exists, Leasing Company shall not
accept offending programs or close replications from
Page 2
<PAGE>
[*****Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.]
the offering dealer. Both GISI and Leasing Company will endeavor to immediately
notify each other of potentially offending programs and mutually determine if a
trademark or copyright infringement exists.
7. Buyouts, Upgrades and Renewals. All buyouts, upgrades and renewals of
------------------------------
GIS customers shall be determined in accordance with mutually agreed upon
standards and terms which shall be in writing.
8. Application of Funds. Payments received by Leasing Company shall be
--------------------
applied in the following manner for the benefit of the identified party:
Priority Purpose Benefit of
-------- ------- ----------
1 Equipment Element Leasing Company
2 Rental Tax Leasing Company
3 Other Taxes Leasing Company
4 Lessor Late Charges Leasing Company
5 Base Assurance GISI
In the event a Customer requests to upgrade a Lease with new equipment
to be supplied by GISI or GIS, Leasing Company shall waive any unpaid Lessor
Late Charges and GISI shall waive any unpaid Base Assurance charges. In the
event a Lessee elects to buyout its Lease, the Leasing Company will attempt to
include Lessor Late Charges and Base Assurance Charges in the buyout amount to
the Customer. Notwithstanding the preceding sentence, in the event Leasing
Company is unable to negotiate a buyout which includes all or part of the
outstanding Lessor Late Charges and Base Assurance Charges, the negotiated
buyout amount shall be applied to the Equipment Element and any agreed upon
residual amount, plus Rental Tax and Other Taxes. Any additional moneys received
as part of the buyout shall be applied to Lessor Late Charges and Base Assurance
Charges based on their delinquency level with the most delinquent charges paid
first.
In the event a Lease is delinquent and Leasing Company negotiates with
a Customer to bring the Lease current, Leasing Company will attempt to include
delinquent Lessor Late Charges and Base Assurance charges in addition to the
delinquent Equipment Element, Rental Tax and Other Taxes in the amount necessary
to bring the Lease current. In the event Leasing Company is unable to collect
all of the Lessor Late Charges and/or Base Assurance charges to cure a
delinquency, any moneys received from the Customer in excess of the amount
required to bring the Equipment Element, Rental Tax and Other Taxes current,
shall be applied to Lessor Late Charges and Base Assurance charges based on
their delinquency level with the most delinquent oldest fees paid first.
9. Lessee Charges. All charges to GIS customers other than lease
--------------
payments, contractual late payment charges and appropriate taxes must be
approved by GISI. It is understood that this clause specifically includes
charges for equipment insurance, assurance or risk fees. With respect to
documentation fees, each Lease Agreement will include a provision requiring the
Lessee to pay a documentation fee of at least [**]
Page 3
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions***]
and notwithstanding Leasing Company's ability to collect the documentation fee,
GISI shall receive [**]
10. Credit Authorizations & Transmission of Business Data. Leasing
-----------------------------------------------------
Company shall at all times maintain a toll free 800 telephone number for the
transmission of leasing customers applications for both voice applications and
facsimile applications. Such toll free telephone number shall be provided
without charge to GISI and/or GIS. In addition, Leasing Company shall provide
within 180 days of the execution of this agreement, at its expense, modem access
by GISI and GIS to Leasing Company for purposes of transmitting applications and
meter reading data. GISI & Leasing Company shall use their best efforts to
develop a expanded interface beyond that discussed above between GIS computer
systems and Leasing Company computer systems. Credit approval shall be made in
accordance with Leasing Company standard credit standards. Such credit standards
shall contain acceptable credit worthiness standards as well as appropriate
response time as required by GISI.
11. Lease Funding. Leasing Company shall promptly fund any amount due
-------------
GISI and/or GIS in accordance with mutually agreed upon standards and terms.
12. Warranty. GISI will represent and warrant as follows:
--------
a. For each lease, the Leasing company shall have received the sole
original copy of the lease and neither GIS or the GIS subsidiary has pledged,
assigned, sold, granted a security interest in or otherwise placed a lien on
such lease.
b. To the best of its knowledge all transactions will be validly
made for consideration and represent binding obligations of the person specified
as the lessee, debtor, co-maker or guarantor and the signatures tendered are
genuine and valid.
c. There will be no set-off or counter claim at law or equity that
could be effective against the transaction.
d. None of the transactions or signatures will be obtained by fraud
or fraudulent misrepresentation on the part of GISI, GIS or their employees.
e. No side documents related to contract or lease agreement which
would have a negative impact on the yield or enforceability of the agreement
have been issued by GISI, GIS or their authorized representatives.
f. GISI will be the sole and absolute owner of any document being
assigned and equipment will be free and clear of all liens and encumbrances.
g. GISI or GIS is aware of no circumstances or actions which would
affect the validity of the transaction.
h. All equipment is new or remanufactured and subject to warranty
unless specified otherwise.
i. Any breach of the aforementioned warranties and representations
will obligate GIS to cure the breach within 30 days of discovery by GISI or GIS
or notice
Page 4
<PAGE>
by Leasing Company or if unable to cure the breach, purchase back the
transaction for the Net Book Value at the time the transaction is purchased
back.
13. Guaranty. In order to induce the Leasing Company to accept
--------
representations and warranties by GISI on behalf of GIS, GISI hereby
unconditionally guarantees to Leasing Company and its successors and assigns:
(a) the due and punctual payment to TFS when due of all payment obligations of
GIS under this Agreement, (b) the full prompt and unconditional performance of
every obligation to be performed by GIS under this Agreement and (c) all
expenses of obtaining or endeavoring to obtain payment or performance thereof or
of enforcing this Guaranty, including attorneys' fees and other legal expenses.
14. Trade Secrets. GISI, as a part of GISI and at the request of GISI, is
-------------
consenting to allow Leasing Company to write leases for GIS customers for GIS
equipment sales. GISI will allow Leasing Company to access some or all of the
following information which the parties agree are trade the secrets of GISI,
GISI and GIS: GIS subsidiary list; GISI and GIS customer lists; GISI financing
programs; GISI and GIS pricing information; GISI and GIS statistical and
information records derived from GIS customer records; GISI and GIS customer
credit information including information derived therefrom; GISI and GIS
prospective customer lists; GISI and GIS employee lists; GIS office locations;
list of GIS suppliers; copies of GISI and GIS leases and related agreements;
and, GISI and GIS policies and procedures.
The parties acknowledge that the above items and the information
contained therein constitute a valuable asset of GISI, GISI and GIS. In order
for Leasing Company to supply its lease financing services to GIS and GISI, GISI
will disclose such information to Leasing Company. Since such information
constitutes trade secrets of GISI, GISI and GIS, Leasing Company agrees to
preserve in confidence any such information so disclosed, and to obtain from
each of its employees and agents designated to have access, a similar agreement
and further agrees not to use, disclose or reproduce any such information
without the specific written approval of GISI.
Leasing Company agrees to use such information for no purpose other
than to currently service the GIS generated leases for the term of such leases.
The use of such information for anything other than the current collection of
lease payments would be a breach of the confidence entrusted to Leasing Company
and would constitute the unauthorized use of GISI's and GIS's trade secrets.
Upon termination of this Agreement, Leasing Company agrees to return
promptly all copies of any material received under this agreement except for the
documents required by it to continue collecting on its existing leases.
This Agreement shall not apply to information in the public domain at
the time of disclosure or to information lawfully obtained from third parties
who did not derive the information from Leasing Company. This Agreement shall
remain in full effect during the term of this Agreement and continue to be in
full effect for a period of five years after the termination of this Agreement.
Page 5
<PAGE>
15. Books and Records. Leasing Company shall allow GISI access to all
-----------------
Leasing Company records related to GIS customer leases and such GIS customers.
Leasing Company shall give responses and analytical reports to GISI as mutually
agreed to by the parties.
16. Assignment. GISI may assign some or all of its rights and benefits
----------
under this Agreement to benefit of GISI, GIS and/or any financial institution
for the purpose of financing. GISI shall notify Leasing Company in writing of
any such assignment and Leasing Company shall honor such assignment upon receipt
of notice thereof. Such assignment shall not relieve GISI of its
responsibilities under this Agreement.
17. Independent Contractor. The parties specifically agree and intend
----------------------
that Leasing Company shall be an independent contractor and that Leasing Company
will not at any time represent orally or in writing to anyone that it has any
right, power or authority not expressly granted by this Agreement. Leasing
Company shall not use the GISI name or any name related thereto without specific
written authorization from GISI.
18. Termination. Either party may terminate this Agreement on 30 days
-----------
written notice. Upon termination, all rights and obligations incurred up to the
expiration of the termination notice shall remain in full force and effect until
such time as all transactions accepted by Leasing Company shall have been
completed.
The obligations incurred under Paragraphs 2, 6, 7, 9, 11 and 12 shall
remain in full force and effect for a period of five years form the date of the
termination.
19. Severability. If any provision of this Agreement is declared invalid
------------
by any tribunal, then such provision shall be deemed automatically adjusted to
the minimum extent necessary to conform to the requirements for validity as
declared at such time and, as so adjusted, shall be deemed a provision of this
Agreement as though originally included herein. In the event that the provision
invalidated is of such a nature that it cannot be so adjusted, the provision
shall be deemed deleted from this Agreement as though such provisions had never
been included herein. In either case, the remaining provisions of this Agreement
shall remain in effect.
20. Financial Statements. Beginning with the year ending December 31,
--------------------
1996, and for each fiscal year thereafter, GISI as soon as available, but not
later than 90 days after the close of each fiscal year, shall provide Leasing
company with a complete copy of GISI's balance sheet as of the close of such
year and GISI's statement of income and retained earnings and changes in
financial position for such year, prepared on a consolidated basis and certified
by a public accounting firm of recognized standard.
21. Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties hereto and supersedes all prior and contemporaneous
agreements. There are no other understandings, statements promises or
inducements, oral or otherwise, contrary to the terms of this Agreement. No
supplement, modification or amendment of any term, provision or condition of
this Agreement shall be binding or enforceable unless executed in writing by the
parties hereto. No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or shall constitute, a waiver of any other provision hereof,
whether or
Page 6
<PAGE>
not similar, nor shall such waiver constitute a continuing waiver, and no waiver
shall be binding unless executed in writing by the party making the waiver.
22. Arbitration. If any dispute or controversy between the parties hereto
-----------
arises out of or relating to this Agreement or any transaction contemplated
hereunder, such dispute or controversy shall be submitted to arbitration by a
panel of three (3) arbitrators under the Commerical Rules of Arbitration of the
American Arbitration Association in Tampa, Florida. The three (3) arbitrators
shall decide any such matter in accordance with then applicable rules of the
American Arbitration Association or any successor organization. The
determinations of the arbitrators shall be final and shall not be subject to
judicial review; provided, however, that any award or determination rendered by
the arbitrators may be entered in any court of competent jurisdiction in the
State of Florida for the Federal district court for the Middle District of
Florida and the parties hereto hereby consent to the jurisdiction of said courts
for the purpose set forth in this section.
23. Governing Law. This Agreement shall be subject to, governed by,
-------------
construed and enforced in accordance with the laws of the State of New York.
Leasing Company agrees that is any dispute arises that is not subject to the
arbitration provisions contained above, jurisdiction and venue of such action
shall be in Hillsborough County, State of Florida.
GLOBAL IMAGING SYSTEMS. INC.
BY: [SIGNATURE ILLEGIBLE]
------------------------------
LESSOR
BY: [SIGNATURE ILLEGIBLE]
------------------------------
Tokai Financial Services, Inc
Page 7
<PAGE>
GLOBAL IMAGING SYSTEMS INC.
LEASE AGREEMENT MODIFICATION
As discussed our dealers are adamantly against the lease renewal verbiage, of
the Lease Agreement, that states that the agreement will renew for additional
terms of 12 months each.
Therefore, we suggest that the following modification be made to Section 5 of
the Lease Agreement, on an exception basis when needed:
- CROSS OUT THE VERBIAGE - "FOR ADDITIONAL TERMS OF TWELVE(12) MONTHS
EACH".
- INSERT THE VERBIAGE. "ON A MONTH TO MONTH BASIS"
The sales rep and the customer will each initial the modification on the
document.
The Conway dealer group will use this verbiage as a rule and not as an
exception.
We signify our acceptance of this modification by our signatures below:
/s/ Mike Mueller 9/24/96 /s/ Curt Friefelder 9/26/96
- ----------------------------- ---------------------------------------
Mike Mueller Date Curt Friefelder Date
Global Imaging Systems Inc. Tokai Financial Services
<PAGE>
EXHIBIT 10.17
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
COPY SERVICE & SUPPLY, INC.,
OFFICE FURNITURE CONCEPTS, INC.,
CSS LEASING, L.L.C.
AND
TERRY K. SMITH
and
CRYSTAL E. SMITH
DATED JUNE 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions.............................................................. 1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase........................................... 5
2.2 Purchase Price........................................................... 5
2.3 Payment of Purchase Price................................................ 5
2.4 Closing.................................................................. 5
2.5 Purchase Price Adjustments............................................... 5
2.6 Closing Audit............................................................ 5
2.7 Post-Closing Purchase Price Adjustment................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANIES AND SELLER
3.1 Capitalization........................................................... 6
3.2 No Liens on Shares....................................................... 6
3.3 Other Rights to Acquire Capital Stock or Membership Interests............ 7
3.4 Due Organization......................................................... 7
3.5 No Subsidiaries.......................................................... 7
3.6 Due Authorization........................................................ 7
3.7 Financial Statements..................................................... 7
3.8 Certain Actions.......................................................... 8
3.9 Properties............................................................... 9
3.10 Licenses and Permits..................................................... 9
3.11 Intellectual Property.................................................... 10
3.12 Compliance with Laws..................................................... 10
3.13 Insurance................................................................ 10
3.14 Employee Benefit Plans................................................... 11
(a) Employee Welfare Benefit Plans...................................... 11
(b) Employee Pension Benefit Plans...................................... 11
(c) Employment and Non-Tax Qualified Deferred Compensation Arrangements. 11
3.15 Contracts and Agreements................................................. 11
3.16 Claims and Proceedings................................................... 12
3.17 Taxes.................................................................... 12
3.18 Personnel................................................................ 13
3.19 Business Relations....................................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.20 Accounts Receivable........................................................ 14
3.21 Bank Accounts.............................................................. 14
3.22 Warranties................................................................. 14
3.23 Brokers.................................................................... 14
3.24 Interest in Competitors, Suppliers, Customers, Etc......................... 14
3.25 Indebtedness To and From Officers, Directors, Shareholders, and Employees.. 14
3.26 Undisclosed Liabilities.................................................... 15
3.27 Information Furnished...................................................... 15
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization........................................................... 15
4.2 Due Authorization.......................................................... 15
4.3 No Brokers................................................................. 16
ARTICLE V
COVENANTS OF THE COMPANIES AND SELLER
5.1 Consents of Others......................................................... 16
5.2 Seller's Efforts........................................................... 16
5.3 Powers of Attorney......................................................... 16
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General.................................................................... 16
6.2 Transition................................................................. 17
6.3 Confidentiality............................................................ 17
6.4 Covenant Not to Compete.................................................... 17
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations......................................... 18
(a) Covenants, Representations and Warranties............................. 18
(b) Consents.............................................................. 18
(c) Leases................................................................ 18
(d) Discharge of Indebtedness and Liens................................... 18
(e) Material Adverse Change............................................... 19
(f) Transfer Taxes........................................................ 19
(g) Financial Condition................................................... 19
(h) Documents to be Delivered by Sellers and the Companies................ 19
(i) Opinion of Sellers' Counsel...................................... 19
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
(ii) Certificates............................................................. 19
(iii) Release.................................................................. 19
(iv) Employment Agreement..................................................... 19
(v) Office Lease............................................................. 19
(vi) Stock Certificates....................................................... 20
7.2 Conditions to Sellers and the Companies' Obligations................................... 20
(a) Covenants, Representations and Warranties......................................... 20
(b) Consents.......................................................................... 20
(c) Documents to be Delivered by Global............................................... 20
(i) Opinion of Global's Counsel.............................................. 20
(ii) Certificates............................................................. 20
(iii) Employment Agreement..................................................... 20
(iv) Office Lease............................................................. 21
(v) Purchase Price........................................................... 21
(d) .................................................................................. 21
Right of Reinvestment............................................................. 21
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global.............................................................. 21
8.2 Defense of Claims...................................................................... 21
8.3 Tax Audits, Etc........................................................................ 22
8.4 Indemnification of Seller.............................................................. 22
8.5 General Right of Offset................................................................ 22
8.6 Limits on Indemnification.............................................................. 22
ARTICLE IX
MISCELLANEOUS
9.1 Modifications.......................................................................... 23
9.2 Notices................................................................................ 23
9.3 Counterparts........................................................................... 24
9.4 Expenses............................................................................... 24
9.5 Binding Effect; Assignment............................................................. 24
9.6 Entire and Sole Agreement.............................................................. 24
9.7 Governing Law.......................................................................... 25
9.8 Survival of Representations, Warranties and Covenants.................................. 25
9.9 Invalid Provisions..................................................................... 25
9.10 Public Announcements................................................................... 25
9.11 Remedies Cumulative.................................................................... 25
9.12 Waiver................................................................................. 25
9.13 DISPUTE RESOLUTION..................................................................... 25
</TABLE>
-4-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Seller Note
Exhibit B [RESERVED]
Exhibit C-1 Form of Office Leases
Exhibit C-2 Form of OFC Office Lease
Exhibit D Opinion of Sellers' Counsel
Exhibit E Sellers' Certificates
Exhibit F Release
Exhibit G Terry K. Smith Executive Agreement
Exhibit H Global Certificates
Exhibit I Opinion of Global's Counsel
LIST OF SCHEDULES
Schedule 2.3 Sellers' Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
-5-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
June 27, 1996, and effective as of June 1, 1996, by and among GLOBAL IMAGING
SYSTEMS INC., a Delaware corporation ("GLOBAL"), COPY SERVICE & SUPPLY, INC., a
North Carolina corporation ("COPY SERVICE"); OFFICE FURNITURE CONCEPTS, INC., a
North Carolina corporation ("OFC"); and CSS LEASING, L.L.C., a North Carolina
limited liability company ("CSS"), (Copy Service, OFC and CSS are sometimes
referred to collectively as the "COMPANIES") and TERRY K. SMITH and CRYSTAL E.
SMITH (each individually a "SELLER" and collectively "SELLERS").
W I T N E S S E T H:
WHEREAS, the Companies are engaged in the office equipment dealer and
service industry in the State of North Carolina (the "BUSINESS"); and
WHEREAS, Sellers own an aggregate of (i) 10,000 shares of the
outstanding Common Stock, par value $1.00 per share, of Copy Service, (ii) 1,000
shares of the outstanding Common Stock, no par value per share, of OFC; and
(iii) all of the outstanding membership interests of CSS consisting of 1,000
units (collectively, the "SHARES"), which Shares constitute all of the issued
and outstanding capital stock or membership interests of the Companies; and
WHEREAS, Global desires to purchase from Sellers and Sellers desire to
sell to Global hereby all of the Shares owned by Sellers, all on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
<PAGE>
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.6.
- -----------
"BUILDINGS" shall mean the Companies' office buildings and
warehouses located in Statesville, Salisbury, Charlotte, Hickory, and
Wilkesboro, North Carolina.
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Sellers to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANIES" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Companies including, without limitation, the identity,
lists or descriptions of any customers, referral sources or organizations;
financial statements, cost reports or other financial information; contract
proposals, or bidding information; business plans and training and operations
methods and manuals; personnel records; fee structure; and management systems,
policies or procedures, including related forms and manuals. Confidential
Information shall not include any information (i) which is disclosed pursuant to
subpoena or other legal process, (ii) which has been publicly disclosed, (iii)
which subsequently becomes known to a third party not subject to a
confidentiality agreement with Global or the Companies, or (iv) which is
subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Terry K. Smith to be entered into at Closing in the form of Exhibit G.
---------
-2-
<PAGE>
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of such Person
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of such Person; (iii) obligations of such Person to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business; (iv)
indebtedness of others guaranteed by such Person or secured by an Encumbrance on
such Person's property; or (v) extended credit terms from manufacturers provided
to such Person.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.6.
- ---
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
"IRS" means the Internal Revenue Service.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business or the
operations, liabilities, or conditions (financial or otherwise) of the
Companies.
-3-
<PAGE>
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value of or
materially the existing use of the property affected by such lien or
imperfection and (d) such statement of facts shown on any title insurance
policies delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Companies'
best estimate of the Companies' balance sheet as of the Closing Date. The
Preliminary Closing Balance Sheet shall be delivered to Global not less than two
(2) nor more than seven (7) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SELLER" or "SELLERS" have the meanings set forth in the first
paragraph of this Agreement.
"SELLER NOTE" has the meaning specified in Section 2.3(c).
--------------
"SHARES" means all of the issued and outstanding shares of the
capital stock or membership interests of the Companies.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty,
-4-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the
Companies' current assets and its current liabilities as calculated in
accordance with GAAP, and as adjusted pursuant to the terms of this Agreement.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Sellers agree to sell the Shares to
Global and Global agrees to purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
--------------
"PURCHASE PRICE") shall be equal to [**] and as otherwise adjusted pursuant to
Section 2.5 below.
- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by Global at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price will be paid in cash by wire
transfer of funds or by cashier's checks to the Sellers' accounts specified in
Schedule 2.3 (including the payment of [**] for the covenant not to compete
- ------------
provided in Section 6.4);
------------
(B) [**] of the Purchase Price will be paid in cash by wire
transfer of funds to the Companies' lenders;
(C) [**] of the Purchase Price shall be paid in the form of a
seller note (the "SELLER NOTE") in the form of Exhibit A hereto, which bears
interest at the rate of 8% per annum for a period of one year; and
(D) [**] of the Purchase Price shall be paid in the form of [**]
shares of Global's Class A Common Stock and [**] shares of Global's Class B
Common Stock in exchange for all of the outstanding capital stock of OFC.
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 11:00 a.m., North Carolina
time, at the offices of Albert E.
-5-
<PAGE>
Walser, 150 East Sharpe Street, Statesville, North Carolina, on July 3, 1996, or
at such other date and time as the parties shall agree (the "CLOSING DATE").
2.5 PURCHASE PRICE ADJUSTMENTS. The Purchase Price will be reduced
--------------------------
by a sum equal to the amount, if any, by which the adjusted Working Capital as
reflected on the Preliminary Closing Balance Sheet is less than $440,000 (the
amount which is $25,000 less than the average Working Capital balances of the
Companies at the end of each of the six months ending December 31, 1995).
2.6 CLOSING AUDIT. Within ninety (90) days following the Closing
-------------
Date, there shall be delivered to Global and to Sellers an audit of the
Preliminary Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the
Companies at and as of the Closing Date. The Preliminary Closing Balance Sheet
shall be audited by Ernst & Young in accordance with GAAP. The cost of the
Audited Closing Balance Sheet shall be paid by Global. In the event that
Sellers dispute any items on such Audited Closing Balance Sheet within ten days
after Sellers' receipt thereof, the parties shall jointly select and retain an
independent "Big Six" accounting firm (the "INDEPENDENT ACCOUNTANTS") to review
the disputed item(s) on the Audited Closing Balance Sheet. The final
determination of such disputed item(s) by the Independent Accountants shall be
reflected on the Audited Closing Balance Sheet. The cost of retaining the
Independent Accountants shall be borne equally by Sellers and Global.
2.7 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
$440,000, then the Purchase Price will be adjusted downward, on a dollar-for-
dollar basis, to reflect the lesser of (i) the decrease, if any, in the total
Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount by which the Working Capital reflected on the Audited Closing
Balance Sheet is less than $440,000. Conversely, the Purchase Price will be
adjusted upward, on a dollar-for dollar basis, to reflect the increase if any,
in the total Working Capital as reflected on the Audited Closing Balance Sheet
from the amount of Working Capital reflected on the Preliminary Closing Balance
Sheet, provided, however, that in no event shall such adjustment exceed the
total amount of any adjustment to the Purchase Price made pursuant to Section
-------
2.5 above. The post-closing adjustment to the Purchase Price, if any, shall be
- ---
paid by Sellers to Global or by Global to Sellers, as the case may be, in
immediately available funds within ten (10) days of delivery of the Audited
Closing Balance Sheet.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANIES AND SELLERS
The Companies and Sellers, jointly and severally, represent and
warrant to Global that:
3.1 CAPITALIZATION. The authorized capital stock of (i) Copy Service
--------------
consists of 100,000 shares of Common Stock, $1.00 par value, 10,000 of which are
issued and outstanding and (ii) OFC consists of 1,000 shares of Common Stock, no
par value, 1,000 of which are issued and outstanding. All of the Shares are
duly authorized, validly issued, fully paid, and nonassessable. All of the
Shares are owned of record and beneficially by Sellers in the amounts specified
in Schedule 3.1 hereto. None of the Shares was issued or will be transferred
------------
under this Agreement in violation of any preemptive or preferential rights of
any Person. The Sellers own all of the issued and outstanding capital stock of
Copy Service and OFC and all of the membership interests of CSS.
3.2 NO LIENS ON SHARES. Sellers collectively own the Shares, free
------------------
and clear of any Encumbrances other than the rights and obligations arising
under this Agreement, and none of the Shares is subject to any outstanding
option, warrant, call, or similar right of any other Person to acquire the same,
and none of the Shares is subject to any restriction on transfer thereof except
for restrictions imposed by applicable federal and state securities laws.
Sellers have full power and authority to convey good and marketable title to the
Shares, free and clear of any Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK OR MEMBERSHIP INTERESTS.
-------------------------------------------------------------
Except as set forth in this Agreement, there are no authorized or outstanding
warrants, options, or rights of any kind to acquire from the Companies any
equity or debt securities of the Companies, or securities convertible into or
exchangeable for equity or debt securities of the Companies, and there are no
shares of capital stock or membership interests of the Companies reserved for
issuance for any purpose nor any contracts, commitments, understandings or
arrangements which require the Companies to issue, sell or deliver any
additional shares of its capital stock.
3.4 DUE ORGANIZATION. Copy Service and OFC are each a corporation
----------------
duly organized, validly existing and in good standing, under the laws of the
State of North Carolina and CSS is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of North
Carolina and each has full corporate or company power and authority to carry on
the Business as now conducted and as proposed to be conducted through Closing.
Complete and correct copies of the Certificate of Incorporation and Bylaws of
the Companies, and all amendments thereto, have been heretofore delivered to
Global and are attached hereto as Schedule 3.4. The Companies are duly
------------
qualified to do business in each jurisdiction in which the nature of the
Business or the ownership of its properties requires such
-7-
<PAGE>
qualification except where the failure to be so qualified does not and would not
have a Material Adverse Effect.
3.5 NO SUBSIDIARIES. The Companies do not directly or indirectly
---------------
have any subsidiaries or any direct or indirect ownership interests in any
Person. The Sellers do not own any other Person engaged in the Business.
3.6 DUE AUTHORIZATION. The Companies and the Sellers each has full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Companies.
This Agreement has been duly and validly executed and delivered by the Companies
and Sellers and constitutes the valid and binding obligations of the Companies
and Sellers, enforceable in accordance with its terms. The execution, delivery,
and performance of this Agreement (as well as all other instruments, agreements,
certificates, or other documents contemplated hereby) by the Companies and
Sellers, do not (a) violate any Requirements of Laws or any Court Order of any
Governmental Body applicable to the Companies or Sellers, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any agreement to which the Companies or Sellers are
a party, or by which any of them or any of their respective property is bound,
(c) permit the acceleration of the maturity of any indebtedness of, or
indebtedness secured by the property of, the Companies or Sellers, or (d)
violate or conflict with any provision of the charter, certificate of formation,
operating agreement or bylaws of the Companies.
3.7 FINANCIAL STATEMENTS. The following Financial Statements (herein
--------------------
so called) of the Companies have been delivered to Global by Sellers and the
Companies:
balance sheets of the Companies as of December 31, 1993, December
31, 1994, December 31, 1995, and May 31, 1996, and
statements of income of the Companies for the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995 and for the
five month period ending May 31, 1996.
Except as disclosed on Schedule 3.7, the Financial Statements have been prepared
------------
in accordance with GAAP throughout the periods indicated and fairly present the
financial position, results of operations and changes in financial position of
the Companies as of the indicated dates and for the indicated periods, subject
(in the case of the five month Financial Statements) to year end accruals made
in the ordinary course of the Business which are not adversely material and
which are consistent with past practices. Except to the extent reflected or
provided for in the Financial Statements or the notes thereto and except as
disclosed in Schedule 3.7, the Companies have no liabilities, nor any
------------
obligations (whether absolute, contingent, or otherwise) which are (individually
or in the aggregate) material (in amount or to the conduct of the Business); and
neither the Companies nor Sellers have knowledge of any basis for the assertion
of any such
-8-
<PAGE>
liability or obligation. Since December 31, 1995, there has been no Material
Adverse Change, and neither the Companies nor Seller have any reason to believe
there has been any Material Adverse Change in the prospects of the Companies.
3.8 CERTAIN ACTIONS. Since December 31, 1995, the Companies have
---------------
not, except as disclosed on Schedule 3.8A hereto: (a) discharged or satisfied
-------------
any Encumbrance or paid any obligation or liability, absolute or contingent,
other than current liabilities incurred and paid in the ordinary course of the
Business; (b) paid or declared any dividends or distributions, or purchased,
redeemed, acquired, or retired any stock or indebtedness from any stockholder or
member other than (i) the personal vehicles listed on Schedule 3.8A hereto and
-------------
(ii) the office furniture listed on Schedule 3.8A hereto, each as agreed to by
-------------
Global; (c) made or agreed to make any loans or advances or guaranteed or agreed
to guarantee any loans or advances to any party whatsoever; (d) suffered or
permitted any Encumbrance to arise or be granted or created against or upon any
of its assets, real or personal, tangible or intangible; (e) cancelled, waived,
or released or agreed to cancel, waive, or release any of its debts, rights, or
claims against third parties in excess of $10,000 individually or $50,000 in the
aggregate; (f) sold, assigned, pledged, mortgaged, or otherwise transferred, or
suffered any damage, destruction, or loss (whether or not covered by insurance)
to, any assets (except in the ordinary course of the Business); (g) amended its
charter or bylaws; (h) paid or made a commitment to pay any severance or
termination payment to any employee or consultant; (i) made any change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (k) made any investment or commitment therefor in any Person;
(l) made any payment or contracted for the payment of any bonus, gratuity, or
other compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, members or shareholders of the Companies; (m) made,
amended, or entered into any written employment contract or created or made any
material change in any bonus, stock option, pension, retirement, profit sharing
or other employee benefit plan or arrangement; (n) amended or experienced a
termination of any material contract, agreement, lease, franchise or license to
which the Companies are a party, except in the ordinary course of the Business;
or (o) entered into any other material transactions except in the ordinary
course of the Business. Since December 31, 1995, except as disclosed on
Schedule 3.8B hereto, there has not been (a) any Material Adverse Change
- -------------
including, but not limited to, the loss of any material customers or suppliers
of the Companies, or in any material assets of the Companies, (b) any
extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Companies, or (d) any shutdown, material
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Companies, nor have the Companies agreed to do any of the
foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of all interests in real property (including, without limitation,
leasehold interests) and
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personal property utilized by the Companies in the conduct of the Business
having a book value in excess of $10,000 as of the date hereof. Except as
expressly set forth on Schedule 3.9, such real and personal properties are free
------------
and clear of Encumbrances. Sellers and the Companies have delivered to Global a
central UCC lien search of all of the Companies' real and personal property in
the State of North Carolina from the State of North Carolina. All of the
properties and assets necessary in the Business as currently conducted
(including, without limitation, all books, records, computers and computer
software and data processing systems) are owned, leased or licensed by the
Companies and are suitable for the purposes for which they are currently being
used. With the exception of used equipment and inventory valued at no more than
$1.00 on the Companies' Financial Statements, the physical properties of the
Companies, including the real properties leased by the Companies, are in good
operating condition and repair, normal wear and tear excepted, and are free from
any defects of a material nature. Except as otherwise set forth on Schedule 3.9,
------------
the Companies have full and unrestricted legal and equitable title to all such
properties and assets. The operation of the properties and Business of the
Companies in the manner in which they are now and have been operated does not
violate any zoning ordinances, municipal regulations, or other Requirements of
Laws, except for any such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 3.9,
------------
no covenants, easements, rights-of-way, or regulations of record impair the uses
of the properties of the Companies for the purposes for which they are now
operated. All leases of real or personal property by the Companies are legal,
valid, binding, enforceable and in full force and effect and will remain legal,
valid, binding, enforceable and in full force and effect on identical terms
immediately following the Closing. All facilities owned or leased by the
Companies have received all approvals of any Governmental Body (including
Governmental Permits) required in connection with the operation thereof and have
been operated and maintained in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a list
-------------------- -------------
of all licenses, certificates, privileges, immunities, approvals, franchises,
authorizations and permits held or applied for by the Companies from any
Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which to the best knowledge of Sellers could have a Material Adverse
Effect. The Companies have complied in all material respects with the terms and
conditions of all such Governmental Permits, and no violation of any such
Governmental Permit or the Requirements of Laws governing the issuance or
continued validity thereof has occurred other than violations (if any) which
would not individually or in the aggregate have a Material Adverse Effect. No
additional Government Permit is required from any Governmental Body thereof in
connection with the conduct of the Business which Governmental Permit, if not
obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software),
trade secrets, or applications therefor owned by or registered in the name of
the Companies or in which the Companies have any rights, licenses, or immunities
(collectively, the "INTELLECTUAL PROPERTY"). The Companies have furnished
Global with copies of all license agreements to which the Companies are a party,
either as licensor or
-10-
<PAGE>
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Companies have good and marketable title to or the
- -------------
right to use such Intellectual Property and all inventions, processes, designs,
formulae, trade secrets and know-how necessary for the conduct of their
Business, in their Business as presently conducted without the payment of any
royalty or similar payment, and the Companies are not infringing on any patent
right, tradename, copyright or trademark right or other Intellectual Property
right of others, and neither the Companies nor Sellers are aware of any
infringement by others of any such rights owned by the Companies.
3.12 COMPLIANCE WITH LAWS. The Companies have (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and have filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Companies or any of its
employees (because of their activities on behalf of the Companies) are subject
and (ii) conducted the Business and are in compliance in all material respects
with all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply would not, in the aggregate, have a
Material Adverse Effect. No claim has been made by any Governmental Body (and,
to the best knowledge of the Companies and Sellers, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental Obligation
or that a Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
policies of fire, liability, or other forms of insurance and all fidelity bonds
held by or applicable to the Companies, which Schedule sets forth in respect of
each such policy the policy name, policy number, carrier, term, type of
coverage, deductible amount or self-insured retention amount, limits of coverage
and annual premium. Copies of all such insurance policies have been delivered
to Global. No event relating to the Companies have occurred which will result
in (i) cancellation of any such insurance policies; (ii) a retroactive upward
adjustment of premiums under any such insurance policies; or (iii) any
prospective upward adjustment in such premiums. All of such insurance policies
will remain in full force and effect following the Closing.
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<PAGE>
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Companies do not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Companies do not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Companies do not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Companies and any current or former officer, consultant, director or
employee of the Companies that is not intended to be a tax qualified arrangement
under Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is a
------------------------ -------------
list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of
-12-
<PAGE>
indebtedness, guarantees, agreements with distributors, suppliers, dealers,
franchisors and customers, and service agreements) to which the Companies are a
party or by which the Companies or its properties are bound pursuant to which
the obligations thereunder of either party thereto are, or are contemplated as
being, $25,000 or greater (collectively, the "CONTRACTS"). The Companies are not
and, to the best knowledge of Sellers and the Companies, no other party thereto
is in default (and no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default) under any of the
Contracts, and the Companies have not waived any right under any of the
Contracts. All of the Contracts to which the Companies are a party are legal,
valid, binding, enforceable and in full force and effect and will remain legal,
valid, binding, enforceable and in full force and effect on identical terms
immediately after the Closing. Except as set forth in Schedule 3.15, the
-------------
Companies have not guaranteed any obligations of any other Person.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or threatened against or affecting the Companies or any
of their properties or assets, at law or in equity, or before or by any court,
municipality or other Governmental Body. Except as set forth on Schedule 3.16,
-------------
none of such claims, actions, suits, proceedings, or investigations will result
in any liability or loss to the Companies. The Companies have not been and the
Companies are not now, subject to any Court Order, stipulation, or consent of or
with any court or Governmental Body. No inquiry, action or proceeding has been
asserted, threatened or instituted to restrain or prohibit the carrying out of
the transactions contemplated by this Agreement or to challenge the validity of
such transactions or any part thereof or seeking damages on account thereof. To
the best knowledge of the Companies and Sellers, except as set forth on Schedule
--------
3.16, there is no basis for any such valid claim or action.
- ----
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding, and
other Taxes and all Tax Returns which are required to be filed by the Companies
or Sellers on or before the date hereof have been filed within the time and in
the manner provided by law, and all such Tax Returns are true and correct and
accurately reflect the Tax liabilities of the Companies. Except for the 1995 Tax
Return of Sellers, no Tax Returns of the Companies or any of the Sellers are
presently subject to an extension of the time to file. All Taxes, assessments,
penalties, and interest of the Companies which have become due pursuant to such
Tax Returns or any assessments received have been paid or adequately accrued on
the Companies' Financial Statements. The provisions for Taxes reflected on the
balance sheets contained in the Financial Statements are adequate to cover all
of the Companies' Tax liabilities for the respective periods then ended and all
prior periods. The Companies have not executed any presently effective waiver or
extension of any statute of limitations against assessments and collection of
Taxes, and there are no pending or threatened claims, assessments, notices,
proposals to assess, deficiencies, or audits with respect to any such Taxes. For
Governmental Bodies with respect to which the Companies do not file Tax Returns,
no such government body has claimed that any of the
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<PAGE>
Companies are or may be subject to taxation by that government body. The
Companies have withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, shareholder,
creditor, independent contractor or other party. There are no tax liens on any
of the property or assets of the Companies.
(B) Neither the Companies nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Companies or
any assets held by the Companies. The Companies have not made any payments, is
not obligated to make any payments, and is not a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Sec. 280G. The Companies have not been a United States
real property holding corporation within the meaning of Code Sec. 897(c)(2)
during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The
Companies are not a party to any Tax allocation or sharing agreement. The
Companies have not and have never been (nor does the Companies have any
liability for unpaid Taxes because it once was) a member of an affiliated group
during any part of which return year any corporation other than the Companies
also was a member of the affiliated group. Except for OFC, which has made an
election to be taxed under subchapter S of the Code (which election is valid and
in full force and effect), none the Companies have never made an election to be
taxed under subchapter S of the Code.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
--------- -------------
names and annual rates of compensation of the directors and executive officers
of the Companies, and of the employees of the Companies whose annual rates of
compensation during the fiscal year ended December 31, 1995 (including base
salary, bonus and incentive pay) exceed (or by December 31, 1996 are expected to
exceed) $50,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, member and
employees during the Companies' fiscal year ended December 31, 1995 and to the
date hereof. Schedule 3.18 also contains a brief description of all material
-------------
terms of employment agreements to which the Companies are a party and all
severance benefits which any director, officer or employee of the Companies are
or may be entitled to receive. The employee relations of the Companies are good
and there is no pending or, to the best knowledge of Sellers or the Companies,
threatened labor dispute or union organization campaign. None of the employees
of the Companies are represented by any labor union or organization. The
Companies are in compliance in all material respects with all Requirements of
Laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and are not engaged in any unfair labor
practices. Neither the Companies or Sellers have been advised, or has any
reason to believe, that any of the persons whose names are set forth on Schedule
--------
3.18 or any other employee will not agree to remain employed by the Companies
- ----
after the consummation of the
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<PAGE>
transactions contemplated hereby. There is no unfair labor practice claim
against the Companies before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or, to the best knowledge of the
Companies and Sellers, threatened against or involving the Companies, and none
has occurred.
3.19 BUSINESS RELATIONS. Neither the Companies nor Sellers knows or
------------------
has any reason to believe that any customer or supplier of the Companies will
cease to do business with the Companies after the consummation of the
transactions contemplated hereby in the same manner and at the same levels as
previously conducted with the Companies except for any reductions which do not
result in a Material Adverse Change. Neither Sellers or the Companies have
received any notice of any material disruption (including delayed deliveries or
allocations by suppliers) in the availability of any material portion of the
materials used by the Companies nor are the Companies or Sellers aware of any
facts which could lead them to believe that the Business will be subject to any
such material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Companies are bona fide
and represent amounts validly due for goods sold or services rendered and all
such amounts (net of any allowance for doubtful accounts) will be collected in
full within 180 days following the Closing Date. Except as disclosed on
Schedule 3.20 hereto (a) all of such accounts, notes, and loans receivable are
- -------------
free and clear of any Encumbrances; (b) none of such accounts, notes, or loans
receivable is subject to any offsets or claims of offset; and (c) none of the
obligors of such accounts, notes, or loans receivable has given notice that it
will or may refuse to pay the full amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of all
------------- -------------
banks or other financial institutions with which the Companies have an account
or maintain a safe deposit box, showing the type and account number of each such
account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except as set forth on Schedule 3.22 and except for
---------- -------------
warranty claims that are typical and in the ordinary course of the Business, no
claim for breach of product or service warranty to any customer has been made
against the Companies since January 1, 1996. To the best knowledge of Sellers
and the Companies, no state of facts exists, and no event has occurred, which
may form the basis of any present claim against the Companies for liability on
account of any express or implied warranty to any third party in connection with
products sold or services rendered by the Companies.
3.23 BROKERS. Neither the Companies nor Sellers have engaged, or
-------
caused to be incurred any liability to any finder, broker, or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the transactions contemplated hereby.
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<PAGE>
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No officer,
--------------------------------------------------
director, or shareholder of the Companies or any affiliate of any such officer,
director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Companies (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description of
- --------- -------------
the payment terms of all indebtedness of the Companies to officers, directors,
shareholders, members and employees of the Companies and all indebtedness of
officers, directors, shareholders, and employees of the Companies to the
Companies, excluding indebtedness for travel advances or similar advances for
expenses incurred on behalf of and in the ordinary course of the Business,
consistent with past practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in Schedule 3.26
----------------------- -------------
and the other Schedules hereto, the Companies do not have any material
liabilities (whether absolute, accrued, contingent or otherwise), of a nature
required by GAAP to be reflected on a corporate balance sheet or disclosed in
the notes thereto, except such liabilities which are accrued or reserved against
in the Financial Statements or disclosed in the notes thereto, including without
limitation any accounts payable or service liabilities of the Companies incurred
prior to the Closing Date.
3.27 INFORMATION FURNISHED. The Companies and Sellers have made
---------------------
available to Global true and correct copies of all material corporate records of
the Companies and all agreements, documents, and other items listed on the
Schedules to this Agreement or referred to in Section 2 of this Agreement and
---------
except as disclosed in Schedule 3.27 hereto, neither this Agreement, the
-------------
Schedules hereto, nor any information, instrument, or document delivered to
Global pursuant to this Agreement contains any untrue statement of a material
fact or omits any material fact necessary to make the statements herein or
therein, as the case may be, not misleading.
In making the representations and warranties set forth above, the term
"material" shall be deemed to mean an amount of money greater than $10,000, the
terms "material adverse change," "material adverse trend," "material adverse
effect," or any other term of like import shall mean the occurrence of any
single event, or any series of related events, or set of related circumstances,
which proximately causes an actual, direct economic loss to the Companies, taken
as a whole, in excess of $10,000 per occurrence or $15,000 in the aggregate.
The term "knowledge" shall mean actual knowledge after reasonable investigation.
-16-
<PAGE>
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Sellers as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to enter into and perform this
Agreement.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global, and the Agreement has been duly and validly executed and delivered by
Global and constitutes the valid and binding obligation of Global, enforceable
in accordance with its terms. The execution, delivery, and performance of this
Agreement (as well as all other instruments, agreements, certificates or other
documents contemplated hereby) by Global, shall not (a) violate any Requirements
of Laws or Court Order of any Governmental Body applicable to Global or its
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under any agreement to which Global is a party or by which
it or its property is bound, (c) permit the acceleration of the maturity of any
indebtedness of, or any indebtedness secured by the property of, Global, or (d)
violate or conflict with any provision of the charter or bylaws of Global.
4.3 NO BROKERS. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 INVESTMENT. Global will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
ARTICLE V
COVENANTS OF THE COMPANIES AND SELLERS
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Companies and
------------------
Sellers shall use their best efforts to obtain and to cause the Companies to
obtain all authorizations, consents and permits required of the Companies and
Sellers to permit them to consummate the transactions contemplated by this
Agreement.
5.2 SELLER'S EFFORTS. The Companies and Sellers shall use all
----------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Companies and Sellers shall cause the
------------------
Companies to terminate at or prior to Closing all powers of attorney granted by
the Companies, other than those relating to service of process, qualification or
pursuant to governmental
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
regulatory or licensing agreements, or representation before the IRS or other
government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable to carry out the purposes of
this Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Article VIII below). The Sellers acknowledge and agree that from and after the
Closing Global will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Companies, which
shall be maintained at the chief executive office of the Companies; provided,
--------
however, that Sellers shall be entitled to reasonable access to and to make
- -------
copies of such books and records at their sole cost and expense and Global will
maintain the books, records and material financial data relating to the
Companies for a period of at least three (3) years. After such date, the
Companies will offer such documentation to Sellers before disposal thereof.
6.2 TRANSITION. For a period of three (3) years following Closing,
----------
the Sellers will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Companies from maintaining the same business
relations with the Companies after the Closing as it maintained with the
Companies prior to the Closing. For a period of three (3) years following
Closing, the Sellers will refer all customer inquiries relating to the Business
to the Companies or Global.
6.3 CONFIDENTIALITY. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement for a period of three (3) years from
the Closing, and deliver promptly to Global or destroy, at the request and
option of Global, all tangible embodiments (and all copies) of the Confidential
Information which are in its possession except as otherwise permitted herein.
In the event that any Seller is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that Seller will notify Global promptly of the request
or requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by Global, Sellers
each covenant and agree, for a period of three years from and after the Closing
Date, that they will not, individually or jointly, directly or indirectly, nor
with any member of their immediate family, without the prior written consent of
Global, for or on behalf of any entity:
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<PAGE>
(A) become interested or engaged in any manner, directly or
indirectly, or become a shareholder, bondholder, creditor, officer, director,
partner, agent, contractor with, employer or representative of, or in any manner
associated with, or give financial, technical or other assistance to, any
Person, firm or corporation for the purpose of engaging in the copier/ office
equipment dealer or service business within the greater of (i) a 100 mile radius
of the Companies' existing office facilities in North Carolina or (ii) in any
geographic area in which the Companies and/or its subsidiaries currently conduct
business; provided, however, that no owner of less than 1% of the outstanding
-------- -------
stock of any publicly-traded corporation (other than Global) shall be deemed to
be so engaged solely by reason thereof in the copier/office equipment dealer or
service business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Companies for the purpose of providing
office equipment sales or service to such customers or to cause them to reduce
or end their business with the Companies; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Companies for the purpose of
causing them to leave the employment of the Companies.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S OBLIGATIONS. The obligation of Global
----------------------------------
under this Agreement to consummate the closing is subject to the conditions
that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Companies
-----------------------------------------
and Seller shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Companies and
Sellers set forth in this Agreement shall be accurate in all material respects
at and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true as of such specified
date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Companies and Sellers of the transactions contemplated by
this Agreement shall have been fulfilled and all authorizations, consents and
approvals, including those of all federal, state, local and foreign governmental
agencies and regulatory authorities required to be obtained in order to permit
the consummation of the transactions contemplated hereby shall have been
obtained in
-19-
<PAGE>
form and substance reasonably satisfactory to Global unless such failure shall
not have a Material Adverse Effect. All approvals of the Board of Directors and
shareholders of the Companies necessary for the consummation of this Agreement
and the transactions contemplated hereby shall have been obtained.
(C) LEASES. The Companies and Terry K. Smith shall have entered
------
into (i) a three-year lease of the Buildings on lease terms acceptable to Global
in the form of Exhibit C-1 hereto and (ii) a one-year lease of the OFC building
-----------
at current market rates in the form of Exhibit C-2 hereto. All other leases of
-----------
buildings and equipment by the Companies shall be on terms reasonably acceptable
to Global and shall remain valid and in full force and effect without the
occurrence of any event of default following the Closing.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Sellers and the
-----------------------------------
Companies shall have provided for the payment in full of all Funded Indebtedness
of the Companies and all extended credit from vendors at the Closing (other than
customary accounts payable of the Companies in accordance with past practices).
Such Funded Indebtedness as of May 31, 1996, is listed on Schedule 7.1(d)
---------------
hereto. Sellers shall have also provided for the termination of all
Encumbrances of record on the properties of the Companies, except for Permitted
Encumbrances. Also, prior to the Closing, Terry K. Smith shall take title to
the Mercedes, the John Deere Tractor, the Toyota Camary and the Chevrolet
Suburban, and Terry K. Smith shall assume all vehicle loans totaling
approximately $22,000, for which he will pay Copy Service $9,000. In addition,
the following indebtedness shall be paid at closing, and all security interests
thereon shall be released as of the Closing:
(i) the $355,000 shareholder note of Terry K. Smith; and
(ii) the $83,000 note owed by Terry K. Smith in connection
with the transfer to him of the Danka stock.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change.
(F) TRANSFER TAXES. Sellers shall be responsible for and shall
--------------
have paid or set aside sufficient funds to pay all stock transfer or gains taxes
incurred in connection with this Agreement.
(G) FINANCIAL CONDITION. The Companies' total adjusted Net
-------------------
Worth as projected at the Closing shall be greater than $580,000 and the
Companies shall continue to have sufficient cash on hand (included in Working
Capital) at the Closing (in an amount not less than $100,000 excluding any
repayment of the shareholder debt and the repayment of the Danka stock note
referred in Section 7.1(d) above), to continue to operate the Business in the
--------------
ordinary course.
-20-
<PAGE>
(H) DOCUMENTS TO BE DELIVERED BY SELLERS AND THE COMPANIES. The
------------------------------------------------------
following documents shall be delivered at the Closing by Sellers and the
Companies:
(I) OPINION OF SELLERS' COUNSEL. Global shall have
---------------------------
received an opinion of Albert F. Walser, Esq. counsel to Sellers,
dated the Closing Date, in substantially the same form as the form of
opinion that is Exhibit D hereto.
---------
(II) CERTIFICATES. Global shall have received an officer's
------------
certificate and a secretary's certificate of the Companies executed by
officers of the Companies, dated the Closing Date, in substantially
the same forms as the forms of certificates that are Exhibit E hereto.
---------
(III) RELEASE. Sellers shall have furnished the Companies
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit F hereto.
---------
(IV) EMPLOYMENT AGREEMENT. Terry K. Smith shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit G hereto, pursuant to which he will be
---------
employed by the Companies following the Closing.
(V) OFFICE LEASE. The Companies and Terry K. Smith shall
------------
have entered into (i) a three-year lease of the Buildings on lease
terms acceptable to Global in the form of Exhibit C-1 hereto and (ii)
-----------
a one-year lease of the OFC building at current market rates in the
form of Exhibit C-2 hereto.
-----------
(VI) STOCK CERTIFICATES. Sellers shall have delivered the
------------------
Shares accompanied by duly executed stock powers, together with any
stock transfer stamps or receipts for any transfer taxes required to
be paid thereon.
7.2 CONDITIONS TO SELLERS AND THE COMPANIES' OBLIGATIONS. The
----------------------------------------------------
obligation of Sellers and the Companies under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Global prior to or at the Closing and the
representations and warranties of Global set forth in Article IV hereof shall be
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of the Business and
except to the extent that such representations and warranties
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
are expressly made as of another specified date and, as to such representations,
the same shall be true as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Global of the transactions contemplated hereby shall have been
obtained unless such failure shall not have a material adverse effect on the
Business. Global shall have used its reasonable best efforts to have obtained
the release of the Seller from all personal guarantees with respect to the
Companies.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL. The following
-----------------------------------
documents shall be delivered at the Closing by Global:
(I) OPINION OF GLOBAL'S COUNSEL. Sellers shall have
---------------------------
received an opinion of Davis, Graham & Stubbs, L.L.C., counsel to
Global, dated the Closing Date, in substantially the same form as the
form of opinion that is Exhibit H hereto.
---------
(II) CERTIFICATES. Sellers shall have received an
------------
officers' certificate and a secretary's certificate executed by
officers of Global, dated the Closing Date, in substantially the same
forms as the forms of certificates that are Exhibit I hereto.
---------
(III) EMPLOYMENT AGREEMENT. Global shall have caused the
--------------------
Companies to duly execute and deliver the Employment Agreement with
Terry K. Smith in substantially the same form attached as Exhibit G
---------
hereto, pursuant to which he will be employed by the Companies
following the Closing.
(IV) OFFICE LEASE. Global shall have caused the Companies
------------
to duly execute and deliver to Terry K. Smith the lease for the
Buildings in substantially the same forms attached as Exhibit C-1 and
-----------
C-2 hereto.
---
(V) PURCHASE PRICE. Sellers shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. Bruce Cook shall have been offered
---------------------
the right to invest up to [**] in cash in the capital stock of Global on the
same terms provided to other outside investors in Global.
-22-
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Sellers agree to jointly and
-------------------------
severally indemnify and hold harmless Global and each officer, director, and
affiliate of Global, including without limitation the Companies or any successor
of the Companies (collectively, the "INDEMNIFIED PARTIES") from and against any
and all damages, losses, claims, liabilities, demands, charges, suits,
penalties, costs and expenses (including court costs and reasonable attorneys'
fees and expenses incurred in investigating and preparing for any litigation or
proceeding) (collectively, the "INDEMNIFIABLE COSTS"), which any of the
Indemnified Parties may sustain, or to which any of the Indemnified Parties may
be subjected, arising out of (A) any misrepresentation, breach or default by
Sellers or the Companies of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; (B) the assertion and final determination of
any claim or liability against the Companies or any of the Indemnified Parties
by any Person based upon the facts which form the alleged basis for any
litigation to the extent it should have been, but was not, reserved for in the
Financial Statements in accordance with GAAP; and (C) the Companies' tortious
acts or omissions to act prior to Closing for which the Companies did not carry
liability insurance for themselves as the insured party, whether or not such
acts or omissions to act result in a breach or violation of any representation
or warranty.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Sellers may be liable hereunder, such Indemnified Party shall give prompt
written notice thereof to Sellers and, except as otherwise provided in Section
-------
8.3 below, Sellers shall have the right to defend, or cause the Companies or its
- ---
successors to defend, any litigation, action, suit, demand, or claim for which
it may seek indemnification unless, in the reasonable judgment of Global, such
litigation, action, suit, demand, or claim, or the resolution thereof, would
have an ongoing effect on Global, the Companies or its successors, and such
Indemnified Party shall extend reasonable cooperation in connection with such
defense, which shall be at Sellers' expense. In the event Sellers fail or
refuse to defend the same within a reasonable length of time, the Indemnified
Parties shall be entitled to assume the defense thereof, and Sellers shall be
jointly and severally liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including reasonable
attorneys' fees and settlement payments) if it is determined that such request
for indemnification was proper. If Sellers shall not have the right to assume
the defense of any litigation, action, suit, demand, or claim in accordance with
either of the two preceding sentences, the Indemnified Parties shall have the
absolute right to control the defense of and to settle, in their sole discretion
and without the consent of Sellers, such litigation, action, suit, demand, or
claim, but Sellers shall be entitled, at their own expense, to participate in
such litigation, action, suit, demand, or claim.
8.3 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Companies with respect to which an Indemnified Party might be entitled to
indemnification
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<PAGE>
pursuant to this Article VIII, Global shall have the right to control any and
all such audits which may result in the assessment of additional Taxes against
the Companies and any and all subsequent proceedings in connection therewith,
including appeals (subject to the prior written consent of Sellers, which shall
not unreasonably be withheld and subject to the right of Sellers to have their
accountant consult with Global on such audits or procedures at Sellers'
expense). Sellers shall cooperate fully in all matters relating to any such
audit or other Tax proceeding (including according access to all records
pertaining thereto), and will execute and file any and all consents, powers of
attorney, and other documents as shall be reasonably necessary in connection
therewith. If additional Taxes are payable by the Companies as a result of any
such audit or other proceeding, Seller shall be responsible for and shall
promptly pay all Taxes, interest, and penalties to which any of the Indemnified
Parties shall be entitled to indemnification.
8.4 INDEMNIFICATION OF SELLERS. Global agrees to indemnify and hold
--------------------------
harmless Sellers and the Companies and each officer, director, stockholder or
affiliate of the Companies, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global of or under
any of the covenants, agreements or other provisions of this Agreement or any
agreement or document executed in connection herewith and (B) any tortious acts
or omissions by Global or the Companies after the Closing. In addition, the
Companies and Global shall indemnify the Sellers for any payment or satisfaction
of any guarantees by Sellers of the Companies' obligations occurring after the
Closing Date.
8.5 GENERAL RIGHT OF OFFSET. In lieu of receiving a cash payment
-----------------------
from the Sellers, Global, in good faith, may elect to offset against payments
under the Seller Note, the amount of any Indemnifiable Costs or any other
payments to which Global may become entitled to by reason of the provisions of
this Agreement. In the event that Global offsets more than the amount of any
Indemnifiable Costs (as finally determined), Global shall be responsible to
Sellers for such sums which should not have been subject to an offset, together
with interest at the rate of 8% per annum.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by any
-------------------------
party hereunder shall be net of any insurance proceeds received by such Person
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations and warranties of the Sellers under Sections 3.1, 3.2, 3.3 or
-------------------------
3.17 hereof (the indemnification for which shall expire on the expiration of the
- ----
applicable statute of limitations), the indemnification provided under this
Article VIII shall expire on the third anniversary of the Closing Date. The
Sellers shall not be obligated to pay any amounts for indemnification under this
Article VIII until the aggregate indemnification obligation hereunder exceeds
$10,000, whereupon Sellers shall be liable for all amounts for which
indemnification may be sought. Notwithstanding the foregoing, in no event shall
the aggregate liability of Sellers to Global exceed the Purchase Price (except
for claims made for any breach of the representations and warranties of Sellers
under Sections 3.1, 3.2, 3.3, or 3.17 hereof). However nothing in this Article
---------------------- ----
VIII shall limit Global in any way in exercising or securing any remedies
provided by applicable common law with respect to the
-24-
<PAGE>
conduct of Sellers in connection with this Agreement or in the amount of damages
that it can recover from the Sellers in the event that Global successfully
proves intentional fraud or intentional fraudulent conduct in connection with
this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Global:
------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Davis, Graham & Stubbs, L.L.C.
Suite 1200
1225 New York Avenue, N.W.
Washington, D.C. 20005-3919
Attention: Christopher J. Hagan
Fax No.: (202) 293-4794
Tel No.: (202) 822-8660
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<PAGE>
The Companies or Sellers:
------------------------
Copy Service & Supply, Inc.
730 Salisbury Road
Statesville, North Carolina 28687-5129
Attention: Terry K. Smith, President
Fax No.: (704) 872-1227
Tel No.: (704) 873-5281
With a copy to:
Law Offices of Albert F. Walser
150 East Sharpe Street
Statesville, North Carolina 28677
Attention: Albert Walser, Esq.
Fax No.: (704) 873-1753
Tel No.: (704) 873-1751
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Sellers shall bear all costs and expenses of (i) any broker involved in
this transaction and (ii) all legal expenses of Sellers or the Companies with
respect to this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Companies, Global and Sellers, their heirs,
representatives, successors, and permitted assigns, in accordance with the
terms hereof. This Agreement shall not be assignable by the Companies or
Sellers without the prior written consent of Global. This Agreement shall be
assignable by Global to a wholly-owned subsidiary of Global without the prior
written consent of Sellers.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information,
-26-
<PAGE>
arrangements and understandings, whether oral or written, express or implied,
with respect to the subject matter hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of North Carolina.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of three
years, provided (a) the representations and warranties contained in Section 3.17
------------
of this Agreement, and the related indemnities, shall survive the Closing until
the expiration of the applicable statutes of limitations for determining or
contesting Tax liabilities and (b) the representations and warranties contained
in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related indemnities,
-------------------------
shall survive the Closing indefinitely.
9.9 INVALID PROVISIONS. If any provision of this Agreement is deemed
------------------
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLERS AND GLOBAL WITH
------------------
RESPECT TO ANY PROVISION OF THIS AGREEMENT OR
-27-
<PAGE>
THE RIGHTS AND OBLIGATIONS OF SELLERS AND GLOBAL HEREUNDER (OTHER THAN DISPUTES
INVOLVING ALLEGATIONS OF INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL
AGREEMENT, WILL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES
OF THE AMERICAN ARBITRATION ASSOCIATION IN THE STATE OF NORTH CAROLINA OR BY ANY
OTHER MEANS OF ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE
PARTIES.
* * * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
---------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANIES:
-------------
COPY SERVICE & SUPPLY, INC.
Attest:
/s/ Crystal E. Smith By: /s/ Terry K. Smith
- ---------------------- ---------------------
Secretary Title: President
---------------------
OFFICE FURNITURE CONCEPTS, INC.
Attest:
/s/ Terry K. Smith By: /s/ Crystal E. Smith
- ---------------------- ---------------------
Secretary Title: President
---------------------
CSS LEASING, L.L.C.
/s/ Terry K. Smith By: /s/ Crystal E. Smith
- ---------------------- ---------------------
Member Manager Title: Member-Manager
---------------------
SELLERS:
-------
/s/ Terry K. Smith
------------------
TERRY K. SMITH
/s/ Crystal E. Smith
--------------------
CRYSTAL E. SMITH
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<PAGE>
EXHIBIT 10.18
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
By and Among
GLOBAL IMAGING SYSTEMS INC.,
SOUTHERN BUSINESS COMMUNICATIONS, INC.
and
MARK M. LLOYD
and
ARTHUR E. KREPS
Dated November 13, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions................................................................. 1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase.............................................. 5
2.2 Purchase Price.............................................................. 6
2.3 Payment of Purchase Price................................................... 6
2.4 Closing..................................................................... 6
2.5 Escrow Arrangements......................................................... 6
2.6 Purchase Price Adjustments.................................................. 7
2.7 Closing Audit............................................................... 7
2.8 Post-Closing Purchase Price Adjustment...................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
3.1 Capitalization.............................................................. 8
3.2 No Liens on Shares.......................................................... 8
3.3 Other Rights to Acquire Capital Stock....................................... 8
3.4 Due Organization............................................................ 8
3.5 No Subsidiaries............................................................. 8
3.6 Due Authorization........................................................... 9
3.7 Financial Statements........................................................ 9
3.8 Certain Actions............................................................. 9
3.9 Properties.................................................................. 10
3.10 Licenses and Permits........................................................ 11
3.11 Intellectual Property....................................................... 11
3.12 Compliance with Laws........................................................ 12
3.13 Insurance................................................................... 12
3.14 Employee Benefit Plans...................................................... 12
(a) Employee Welfare Benefit Plans......................................... 12
(b) Employee Pension Benefit Plans......................................... 12
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements........................................................... 13
3.15 Contracts and Agreements.................................................... 13
3.16 Claims and Proceedings...................................................... 13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
3.17 Taxes....................................................................... 14
3.18 Personnel................................................................... 15
3.19 Business Relations.......................................................... 15
3.20 Accounts Receivable......................................................... 15
3.21 Bank Accounts............................................................... 16
3.22 Warranties.................................................................. 16
3.23 Brokers..................................................................... 16
3.24 Interest in Competitors, Suppliers, Customers, Etc.......................... 16
3.25 Indebtedness To and From Officers, Directors, Shareholders, and Employees... 16
3.26 Undisclosed Liabilities..................................................... 16
3.27 Information Furnished....................................................... 17
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization............................................................ 17
4.2 Due Authorization........................................................... 17
4.3 No Brokers.................................................................. 17
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 Consents of Others.......................................................... 18
5.2 Seller's Efforts............................................................ 18
5.3 Powers of Attorney.......................................................... 18
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General..................................................................... 18
6.2 Transition.................................................................. 18
6.3 Confidentiality............................................................. 19
6.4 Covenant Not to Compete..................................................... 19
6.5 Section 338(h)(10) Election................................................. 19
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations.......................................... 20
(a) Covenants, Representations and Warranties.............................. 20
(b) Consents............................................................... 20
(c) Lease.................................................................. 21
(d) Discharge of Indebtedness and Liens.................................... 21
(e) Material Adverse Change................................................ 21
(f) Transfer Taxes......................................................... 21
(g) Financial Conditions................................................... 21
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(h) Documents to be Delivered by Sellers and the Company................... 21
(i) Opinion of Seller's Counsel................................... 21
(ii) Certificates.................................................. 21
(iii) Release....................................................... 21
(iv) Escrow Agreement.............................................. 22
(v) Employment Agreements......................................... 22
(vi) Consulting Agreement.......................................... 22
(vii) Office Lease.................................................. 22
(viii) Stock Certificates............................................ 22
7.2 Conditions to Sellers and the Company's Obligations......................... 22
(a) Covenants, Representations and Warranties.............................. 22
(b) Consents............................................................... 22
(c) Documents to be Delivered by Global.................................... 23
(i) Opinion of Global's Counsel................................... 23
(ii) Certificates.................................................. 23
(iii) Escrow Agreement.............................................. 23
(iv) Employment Agreements......................................... 23
(v) Consulting Agreement.......................................... 23
(vi) Office Lease.................................................. 23
(vii) Purchase Price................................................ 23
(d) Right of Reinvestment.................................................. 23
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global................................................... 24
8.2 Defense of Claims........................................................... 24
8.3 Escrow Claim................................................................ 25
8.4 Tax Audits, Etc............................................................. 25
8.5 Indemnification of Seller................................................... 25
8.6 Limits on Indemnification................................................... 25
ARTICLE IX
MISCELLANEOUS
9.1 Modifications............................................................... 26
9.2 Notices..................................................................... 27
9.3 Counterparts................................................................ 28
9.4 Expenses.................................................................... 28
9.5 Binding Effect; Assignment.................................................. 28
9.6 Entire and Sole Agreement................................................... 28
9.7 Governing Law............................................................... 28
9.8 Survival of Representations, Warranties and Covenants....................... 28
9.9 Invalid Provisions.......................................................... 29
9.10 Public Announcements........................................................ 29
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
9.11 Remedies Cumulative......................................................... 29
9.12 Waiver...................................................................... 29
9.13 DISPUTE RESOLUTION.......................................................... 29
</TABLE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Office Lease
Exhibit C Opinion of Sellers' Counsel
Exhibit D Sellers' Certificates
Exhibit E Release
Exhibit F Mark M. Lloyd Executive Agreement
Exhibit G Executive Agreement for other Executives
Exhibit H Arthur E. Kreps Consulting Agreement
Exhibit I Global Certificates
Exhibit J Opinion of Global's Counsel
LIST OF SCHEDULES
Schedule 2.3 Sellers' Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these exhibits
and schedules upon the request of the Securities and Exchange Commission.
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
November 13, 1996 but effective as of September 30, 1996, by and among GLOBAL
IMAGING SYSTEMS INC., a Delaware corporation ("GLOBAL"), SOUTHERN BUSINESS
COMMUNICATIONS, INC., a Georgia corporation (the "COMPANY") and MARK M. LLOYD
and ARTHUR E. KREPS (each individually a "SELLER" and collectively "SELLERS").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the electronic presentation, image
processing, and network services industry in Atlanta, Georgia, Nashville,
Tennessee, Knoxville, Tennessee and the State of Florida (the "BUSINESS"); and
WHEREAS, Sellers own an aggregate of 99,999 shares of the outstanding
Common Stock, par value $1.00 per share, of the Company (the "SHARES"), which
Shares constitute all of the issued and outstanding capital stock of the
Company; and
WHEREAS, Global desires to purchase from Sellers and Sellers desire to
sell to Global hereby all of the Shares owned by Sellers, all on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"ATS" means ATS-Atlanta One, L.L.C., a Georgia limited liability
company.
<PAGE>
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
"BUILDING" shall mean the Company's office building and warehouse
located at 3175 Corners North Court, Norcross, Georgia.
"BUSINESS" has the meaning specified in the first recital of the
Agreement.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Sellers to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"COMPANIES" shall mean collectively, the Company, SBCDC and ATS.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals. Confidential Information shall
not include any information (i) which is disclosed pursuant to subpoena or other
legal process, (ii) which has been publicly disclosed, (iii) which subsequently
becomes known to a third party not subject to a confidentiality agreement with
Global or the Company, or (iv) which is subsequently disclosed by any third
party not in breach of a confidentiality agreement.
"CONSULTING AGREEMENT" shall mean that certain Consulting
Agreement in the form of Exhibit H to be entered into between the Company and
---------
Arthur E. Kreps.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EMPLOYMENT AGREEMENTS" shall mean collectively the executive
agreements of the Company with Mark M. Lloyd in the form of Exhibit F and with
---------
John
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<PAGE>
Boyette, Allan Small, Scott Lloyd and Kevin Godwin to be entered into at Closing
in the form of Exhibit G.
---------
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means _______________________________.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Sellers, Global and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"EXECUTIVES" shall mean collectively John Boyette, Allan Small,
Kevin Godwin and Scott Lloyd.
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of such Person
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of such Person; (iii) obligations of such Person to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business; or (iv)
indebtedness of other guaranteed by such Person or secured by an Encumbrance on
such Person's property.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GLOBAL STOCK" means the 6,370 shares of Global's Class A Common
Stock and 1,129.552 shares of Global's Class B Common Stock to be issued to the
Sellers, Executives and Dewey Suddeth at the Closing.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
-3-
<PAGE>
"GOVERNMENTAL PERMITS" has the meaning specified in Section 3.10.
------------
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"IRS" means the Internal Revenue Service.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business or the
operations, liabilities, or conditions (financial or otherwise) of the Company.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value of or
materially the existing use of the property affected by such lien or
imperfection, (d) such statement of facts shown on any customary title insurance
policies delivered to Global and (e) purchase money security interest liens in
favor of Canon U.S.A., Inc..
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Companies' balance sheet as of the Closing Date or October 31,
1996, at the option of the Sellers, that consists of (i) combining the Adjusted
Balance Sheets (as hereinafter defined) of the Company and SBCDC, plus (ii) the
assets acquired, and liabilities assumed, by an Affiliate of Global from ATS
pursuant to the ATS Asset Purchase Agreement of even date herewith between such
Affiliate, ATS and the members of ATS. As used herein, the term "Adjusted
Balance Sheets" means the estimated balance sheets of the Company and SBCDC as
of the Closing Date or October 31, 1996, as the case may be, excluding, in each
case, from the liability side of such balance sheet, all of such entity's Funded
Indebtedness. The Preliminary Closing Balance Sheet shall have been delivered
prior to the date of this Agreement.
"PURCHASE AGREEMENTS" shall mean collectively, this Agreement and
each of the other stock or asset purchase agreements of even date herewith
whereby Global shall acquire all of the capital stock or assets of the
Companies.
-4-
<PAGE>
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. (S)
(S) 6901 et seq., and any successor statue, and any regulations promulgated
-- ---
thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local
laws, statues, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SBCDC" means Southern Business Communications of D.C., Inc., a
Georgia corporation.
"SELLER" or "SELLERS" have the meanings set forth in the first
paragraph of this Agreement.
"SHARES" means all of the issued and outstanding shares of the capital
stock of the Company.
"TAX" or "TAXES" means any federal, state local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Body.
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Companies'
current assets and their current liabilities as calculated in accordance with
GAAP, and as adjusted pursuant to the terms of this Agreement.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the representations
------------------------------
and warranties, for the consideration, and subject to the terms and conditions
set forth in this Agreement, Sellers agree to sell the Shares to Global and
Global agrees to purchase the Shares from Sellers.
-5-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
2.2 PURCHASE PRICE. The total purchase price for the Company (the
--------------
"PURCHASE PRICE") shall be equal to [**] (of which [**] shall represent the
purchase price for the Shares and [**] shall represent the purchase price for
certain phantom stock interests in the Company) and as otherwise adjusted
pursuant to Section 2.6 below.
-----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable by
-------------------------
Global at the Closing (hereinafter defined) as follows:
(A) [**] will be paid in cash by wire transfer of funds or by
cashier's checks to the Sellers' accounts specified in Schedule 2.3 (including
------------
the payment of [**] for the covenant not to compete provided in Section 6.4);
-----------
and
(B) [**] will be paid in cash by wire transfer of funds to the
Escrow Agent to be held in escrow for satisfaction of Sellers' indemnification
obligations specified in Section 8.1 and Sellers' obligations specified in
-----------
Section 2.8 in accordance with the terms of Section 2.5 below. Sellers shall
- ----------- -----------
have the right to contribute all of their shares of Global Stock as part of such
escrow fund in lieu of cash; and
(C) [**] will be paid in cash by check to the those certain
Persons in the amounts listed on Schedule 2.3(c) in order to satisfy certain
------------
phantom stock equity interests of such persons in the Companies.
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at the offices of Rowe, Foltz, &
Martin, P.C. in Atlanta, Georgia. For purposes of this Agreement and the
transactions contemplated hereby, the Closing shall be deemed to take place on
September 30, 1996 (the "CLOSING DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Sellers, Global and Escrow Agent, [**] of the Purchase Price
shall be delivered to the Escrow Agent at Closing. Such monies (which, together
with all interest accrued thereon, is hereinafter referred to as the "ESCROW
SUM") shall be held pursuant to the terms of the Escrow Agreement for payment
from such Escrow Sum of amounts, if any, owing by Sellers to Global in
accordance with Article VIII or Section 2.8 below. At the conclusion of the
------------ -----------
period ending on September 30, 1997 (such period being referred to herein as the
"ESCROW PERIOD"), such remaining portion of the Escrow Sum not theretofore
claimed by or paid to Global in accordance with the terms of the Escrow
Agreement and this Agreement shall be disbursed to Sellers in such manner as to
cause the aggregate value of the monies and Global Stock distributed to each to
be in the same relative proportions as the payment under Section 2.3(a) above;
--------------
provided, however, that shares of Global Stock held as part of the Escrow Sum
shall be distributed one-half to Mark M. Lloyd and one-half to Arthur E. Kreps.
Sellers and Global agree that each will execute and deliver such instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
-6-
<PAGE>
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be reduced by the total amount of Funded Indebtedness assumed (except for
capital lease payables of $6,460, a note payable for a voicemail system of up to
$13,921 and the lease for a new phone system) or paid in cash by wire transfer
of funds to the accounts of the holders of Funded Indebtedness listed on
Schedule 2.6 hereto to satisfy the Company's Funded Indebtedness with such
- ------------
institutions.
(B) The Purchase Price will be reduced by a sum equal to the
amount, if any, by which adjusted Working Capital as reflected on the
Preliminary Closing Balance Sheet is than $2,500,000.
2.7 CLOSING AUDIT. Within ninety (90) days following the date hereof,
-------------
there shall be delivered to Global and to Sellers an audit of the Preliminary
Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Companies at
and as of the Closing Date or as of October 31, 1996 at the option of the
Sellers. The Preliminary Closing Balance Sheet shall be audited by Ernst &
Young in accordance with GAPP. The cost of the Audited Closing Balance Sheet
shall be paid by Global. In the event that Sellers dispute any items on such
Audited Closing Balance Sheet within ten days after Sellers' receipt thereof,
the parties shall jointly select and retain an independent "Big Six" accounting
firm (the "INDEPENDENT ACCOUNTANTS") to review the disputed items(s) on the
Audited Closing Balance Sheet. The final determination of such disputed item(s)
by the Independent Accountants shall be reflected on the Audited Closing
Balance Sheet. The cost of retaining the Independent Accountants shall be borne
by Sellers; provided, however, that Global shall reimburse Sellers for the cost
of the Independent Accountants in the event that such review results in an
increase of more than $25,000 in the Companies' Working Capital as reflected on
the Audited Closing Balance prepared by Ernst & Young.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
$2,500,000, then the Purchase Price will be adjusted downward, on a
dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any, in
the total Working Capital as reflected on the Audited Closing Balance Sheet from
the amount of Working Capital reflected on the Preliminary Closing Balance Sheet
or (ii) the amount by which the Working Capital reflected on the Audited Closing
Balance Sheet is less than $2,500,000. Conversely, the Purchase Price will be
adjusted upward, on a dollar-for dollar basis, to reflect the increase if any,
in the total Working Capital as reflected on the Audited Closing Balance Sheet
from the amount of Working Capital reflected on the Preliminary Closing Balance
Sheet, provided, however, that in no event shall such adjustment exceed the
total amount of any adjustment to the Purchase Price made pursuant to Section
-------
2.6(b) above. The post-closing adjustment to the Purchase Price, if any, shall
- -----
be paid by Sellers to Global or by Global to Sellers, as the case may be, in
immediately available funds within ten (10) days of delivery of the Audited
Closing Balance Sheet. Sellers may pay any post-Closing Purchase Price
adjustment under this Section 2.8 from the Escrow Sum in accordance with Section
----------- -------
2.5 hereof.
- ---
-7-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, jointly and severally, represent and warrant
to Global that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 1,000,000 shares of Common Stock, $1.00 par value, 99,999 of which
are issued and outstanding. All of the Shares are duly authorized, validly
issued, fully paid, and nonassessable. All of the Shares are owned of record and
beneficially by Sellers in the amounts specified in Schedule 3.1 hereto. None of
------------
the Shares was issued or will be transferred under this Agreement in violation
of any preemptive or preferential rights of any Person. The Sellers own all of
the issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Sellers collectively own the Shares, free and
------------------
clear of any Encumbrances other than the rights and obligations arising under
this Agreement, and none of the Shares is subject to any outstanding option,
warrant, call, or similar right of any other Person to acquire the same, and
none of the Shares is subject to any restriction on transfer thereof except for
restrictions imposed by applicable federal and state securities laws. Sellers
have full power and authority to convey good and marketable title to the Shares,
free and clear of any Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity to debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Georgia
and has full corporate power and authority to carry on the Business as now
conducted and as proposed to be conducted through the date hereof. Complete and
correct copies of the Certificate of Incorporation and Bylaws of the Company,
and all amendments thereto, have been heretofore delivered to Global and are
attached hereto as Schedule 3.4. The Company is qualified to do business in
------------
Tennessee, Florida and in each other jurisdiction in which the nature of the
Business or the ownership of its properties requires such qualification except
where the failure to be so qualified does not and would not have a Material
Adverse Effect.
3.5 NO SUBSIDIARIES. The Company does not directly or indirectly have
---------------
any subsidiaries or any direct or indirect ownership interests in any Person.
Except for SBCDC and ATS, the Sellers do not own any other Person engaged in the
Business.
-8-
<PAGE>
3.6 DUE AUTHORIZATION. The Company and the Sellers each has full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Sellers and constitutes the valid and binding obligations of the Company and
Sellers, enforceable in accordance with its terms. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates, or other documents contemplated hereby) by the Company and
Sellers, do not (a) violate any Requirements of Laws or any Court Order of any
Governmental Body applicable to the Company or Sellers, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any agreement to which the Company or Sellers are a
party, or by which any of them or any of their respective property is bound, (c)
permit the acceleration of the maturity of any indebtedness of, or indebtedness
secured by the property of, the Company or Sellers, or (d) violate or conflict
with any provision of the charter or bylaws of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements (herein
--------------------
so called) of the Company have been delivered to Global by Sellers and the
Company:
Reviewed balance sheets of the Company as of December 31, 1993,
December 31, 1994 and December 31, 1995 and internally prepared
monthly balance sheets for each month end from August 31, 1995 to
August 31, 1996, and
Reviewed statements of income of the Company for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995 and
internally prepared income statements for month and year-to-date for
each month commencing August 31, 1995 through the month ending August
31, 1996.
Except as disclosed in Schedule 3.7, the Financial Statements have been prepared
------------
in accordance with GAAP throughout the periods indicated and fairly present the
financial position, results of operations and changes in financial position of
the Company as of the indicated dates and for the indicated periods, subject (in
the case of the monthly internally prepared Financial Statements) to year end
accruals made in the ordinary course of the Business which are not adversely
material and which are consistent with past practices. Except to the extent
reflected or provided for in the Financial Statements or the notes thereto and
except as disclosed in Schedule 3.7, the Company has no liabilities, nor any
------------
obligations (whether absolute, contingent, or otherwise) which are (individually
or in the aggregate) material (in amount or to the conduct of the Business); and
neither the Company nor Sellers have knowledge of any basis for the assertion of
any such liability or obligation. Since August 31, 1996, there has been no
Material Adverse Change, and neither the Company nor Seller have any reason to
believe there has been any Material Adverse Change in the prospects of the
Company.
3.8 CERTAIN ACTIONS. Since August 31, 1996, the Company has not,
---------------
expect as disclosed on Schedule 3.8A hereto: (a) discharged or satisfied any
-------------
Encumbrance or paid any obligation or liability, absolute or contingent, other
than current liabilities incurred and paid in
-9-
<PAGE>
the ordinary course of the Business; (b) paid or declared any dividends or
distributions, or purchased, redeemed, acquired, or retired any stock or
indebtedness from any stockholder other than (i) the personal vehicles listed on
Schedule 3.8A hereto and (ii) the office furniture listed on Schedule 3.8A
- ------------- -------------
hereto, each as agreed to by Global; (c) made or agreed to make any loans or
advances or guaranteed or agreed to guarantee any loans or advances to any party
whatsoever; (d) suffered or permitted any Encumbrance to arise or be granted or
created against or upon any of its assets, real or personal, tangible or
intangible; (e) cancelled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$10,000 individually or $50,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or otherwise transferred, or suffered any damage, destruction, or
loss (whether or not covered by insurance) to, any assets (except in the
ordinary course of the Business); (g) amended its charter or bylaws; (h) paid or
made a commitment to pay any severance or termination payment to any employee or
consultant; (i) made any change in its method of management or operation or
method of accounting; (j) made any capital expenditures, including, without
limitation, replacements of equipment in the ordinary course of the Business, or
entered into commitments therefor, except for capital expenditures or
commitments therefor which do not, in the aggregate, exceed $50,000; (k) made
any investment or commitment therefor in any Person; (l) made any payment or
contracted for the payment of any bonus, gratuity, or other compensation or
personal expenses, other than (A) wages and salaries and business expenses paid
in the ordinary course of the Business, and (B) wage and salary adjustments made
in the ordinary course of the Business for employees who are not officers,
directors, or shareholders of the Company; (m) made, amended, or entered into
any written employment contract or created or made any material change in any
bonus, stock option, pension, retirement, profit sharing or other employee
benefit plan or arrangement; (n) amended or experienced a termination of any
material contract, agreement, lease, franchise or license to which the Company
is a party, except in the ordinary course of the Business; or (o) entered into
any other material transactions except in the ordinary course of the Business.
Since August 31, 1996, except as disclosed on Schedule 3.8B hereto, there has
-------------
not been (a) any Material Adverse Change including, but not limited to, the loss
of any customer of the Company who paid the Company in excess of $50,000 during
the twelve months ended August 31, 1996, or the loss of any supplier of the
Company to whom the Company paid more than $40,000 during the twelve months
ended August 31, 1996, or in any material assets of the Company, (b) any
extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company, or (d) any shutdown, material
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Company, nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of all interests in real property (including, without limitation,
leasehold interests) and personal property utilized by the Company in the
conduct of the Business having a book value in excess of $15,000 as of the date
hereof. Except as expressly set forth on Schedule 3.9, such real and personal
------------
properties are free and clear of Encumbrances. Sellers and the Company have
delivered to Global a lien search of all of the Company's real and personal
property in the State of Georgia, Tennessee and Florida. All of the properties
and assets necessary in the Business as currently conducted (including, without
limitation, all books, records, computers and computer software and data
processing systems) are owned, leased or licensed by the Company
-10-
<PAGE>
and are suitable for the purposes for which they are currently being used. With
the exception of used equipment and inventory valued at no more than $1.00 on
the Company's Financial Statements, the physical properties of the Company,
including the real properties leased by the Company, are in good operating
condition and repair, normal wear and tear excepted, and are free from any
defects of a material nature. Except as otherwise set forth on Schedule 3.9, the
------------
Company has full and unrestricted legal and equitable title to all such
properties and assets. The operation of the properties and Business of the
Company in the manner in which they are now and have been operated does not
violate any zoning ordinances, municipal regulations, or other Requirements of
Laws, except for any such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 3.9,
------------
no covenants, easements, right-of-way, or regulations of record impair the uses
of the properties of the Company for the purposes for which they are now
operated. All leases of real or personal property by the Company are legal,
valid, binding, enforceable and in full force and effect and will remain legal,
valid, binding, enforceable and in full force and effect on identical terms
immediately following the date hereof. All facilities owned or leased by the
Company have received all approvals of any Governmental Body (including
Governmental Permits) required in connection with the operation thereof and have
operated and maintained in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a list
-------------------- -------------
of all licenses, certificates, privileges, immunities, approvals, franchises,
authorizations and permits held or applied for by the Company from any
Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which to the best knowledge of Sellers could have a Material Adverse
Effect. The Company has complied in all material respects with the terms and
conditions of all such Governmental Permits, and no violation of any such
Governmental Permit or the Requirements of Laws governing the issuance or
continued validity thereof has occurred other than violations (if any) which
would not individually or in the aggregate have a Material Adverse Effect. No
additional Government Permit is required from any Governmental Body thereof in
connection with the conduct of the Business which Governmental Permit, if not
obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software),
trade secrets, or applications therefor owned by or registered in the name of
the Company or in which the Company has any rights, licenses, or immunities
(collectively, the "INTELLECTUAL PROPERTY"). The Company has furnished Global
with copies of all license agreements to which the Company is a party, either as
licensor or licensee, with respect to any Intellectual Property. Except as
described on Schedule 3.11 hereto, the Company has good and marketable title to
-------------
or the right to use such Intellectual Property and all inventions, processes,
designs, formulae, trade secrets and know-how necessary for the conduct of their
Business, in their Business as presently conducted without the payment of any
royalty or similar payment, and the Company is not infringing on any patent
right, tradename, copyright or trademark right or other Intellectual Property
right of others, and neither the Company nor Sellers are aware of any
infringement by others of any such rights owned by the Company.
-11-
<PAGE>
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws. Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign governmental and regulatory requirements, except where any such
failure to comply would not, in the aggregate, have a Material Adverse Effect.
No claim has been made by any Governmental Body (and, to the best knowledge of
the Company and Sellers, no such claim is anticipated) to the effect that the
Business fails to comply, in any respect, with any Requirements of Laws,
Governmental Permit or Environmental Obligation or that a Governmental Permit or
Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
policies of fire, or other forms of insurance and all fidelity bonds held by or
applicable to the Company, which Schedule sets forth in respect of each such
policy the policy name, policy number, carrier, term, type of coverage,
deductible amount or self-insured retention amount, limits of coverage and
annual premium. Copies of all such insurance policies have been delivered to
Global. To the best of Sellers' and the Company's knowledge, no event relating
to the Company has occurred which will result in (i) cancellation of any such
insurance policies; (ii) a retroactive upward adjustment of premiums under any
such insurance policies; or (iii) any prospective upward adjustment in such
premiums. To the best of Sellers' and the Company's knowledge after due inquiry,
all of such insurance policies will remain in full force and effect following
the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the
-12-
<PAGE>
Code, and any trust through which the plan is funded meets the requirements to
be exempt from federal income tax under Section 501(a) of the Code; (ii) the
plan is in material compliance with ERISA; (iii) the plan has been administered
in accordance with its governing documents as modified by applicable law; (iv)
the plan has not suffered an "accumulated funding deficiency" as defined in
Section 412(a) of the Code; (v) the plan has not engaged in, nor has any
fiduciary with respect to the plan engaged in, any "prohibited transaction" as
defined in Section 406 of ERISA or Section 4975 of the Code other than a
transaction subject to statutory or administrative exemption; (vi) the plan has
not been subject to a "reportable event" (as defined in Section 4043(b) of
ERISA), the reporting of which has not been waived by regulation of the Pension
Benefit Guaranty Corporation; (vii) no termination or partial termination of the
plan has occurred within the meaning of Section 411(d)(3) of the Code; (viii)
all contributions required to be made to the plan or under any applicable
collective bargaining agreement have been made to or on behalf of the plan; (ix)
there is no material litigation, arbitration or disputed claim outstanding; and
(x) all applicable premiums due to the Pension Benefit Guaranty Corporation for
plan termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is a
------------------------ -------------
list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound which either (i) require performance by either party
exceeding one year; (ii) are contracts (other than vendor contracts) pursuant to
which the Company shall pay or receive more than $10,000 over the life of such
contract, or (iii) are vendor contracts pursuant to which the Company's sales of
products obtained pursuant to such contract exceeds $100,000 (collectively, the
"CONTRACTS"). The Company is not and, to the best knowledge of Sellers and the
Company, no other party thereto is in default (and no event has occurred which,
with the passage of time or the giving of notice, or both, would constitute a
default) under any of the Contracts, and the Company has not waived any right
under any of the Contracts. Except as set forth on Schedule 3.15, all of the
-------------
Contracts to which the Company is a party are legal, valid, binding and
enforceable against the Company and, to the best of the Company's and Sellers'
knowledge, against each other party thereto, and in full force and effect and
will remain legal, valid, binding and enforceable against the Company and, to
the best of the Company's and Sellers' knowledge, against each other party
thereto, and in full force and effect on identical terms immediately after the
Closing. Except as set forth in Schedule 3.15, the Company has not guaranteed
-------------
any obligations of any other Person.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to
-13-
<PAGE>
Sellers' and the Company's knowledge, threatened against or affecting the
Company or any of its properties or assets, at law or in equity, or before or
by any court, municipality or other Governmental Body. Except as set forth on
Schedule 3.16, none of such claims, actions, suits, proceedings, or
- -------------
investigations is presently expected by Sellers to result in any liability or
loss to the Company. The Company has not been and the Company is not now,
subject to any Court Order, stipulation, or consent of or with any court or
Governmental Body. No inquiry, action or proceeding has been asserted,
threatened or instituted to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof. To the
best knowledge of the Company and Sellers, except as set forth on Schedule 3.16,
-------------
there is no basis for any such valid claim or action.
3.17 TAXES
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding, and
other Taxes and all other Tax Returns which are required to be filed by the
Company on or before the date hereof have been filed within the time and in the
manner provided by law, and all such Tax Returns are true and correct and
accurately reflect the Tax liabilities of the Company. No Tax Returns of the
Company or any of the Sellers are presently subject to an extension of the time
to file. All Taxes, assessments, penalties, and interest of the Company which
have become due as shown on such Tax Returns or any assessments received have
been paid or adequately accrued on the Company's Financial Statements. The
provisions for Taxes reflected on the balance sheets contained in the Financial
Statements are adequate to cover all of the Company's Tax liabilities for the
respective periods then ended and all prior periods. The Company has not
executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes, and there are no
pending or threatened claims, assessments, notices, proposals to assess,
deficiencies, or audits with respect to any such Taxes. For Governmental Bodies
with respect to which the Company does not file Tax Returns, to Sellers' and the
Company's knowledge, no such government body has claimed that any of the Company
is or may be subject to taxation by that government body. The Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, shareholder, creditor,
independent contractor or other party. There are no tax liens on any of the
property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company
-14-
<PAGE>
also was a member of the affiliated group. The Company has made an election to
be taxed under subchapter S of the Code and such election is valid, binding and
in full force and effect.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
--------- -------------
names and annual rates of compensation of the directors and executive officers
of the Company, and of the employees of the Company whose annual rates of
compensation during the fiscal year ended December 31, 1995 (including base
salary, bonus and incentive pay) exceed (or by December 31, 1996 are expected to
exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended October 31, 1995 and to the date hereof.
Schedule 3.18 also contains a brief description of all material terms of
- -------------
employment agreements to which the Company is a party and all severance benefits
which any director, officer or employee of the Company is or may be entitled to
receive. The employee relations of the Company are good and there is no pending
or, to the best knowledge of Sellers or the Company, threatened labor dispute or
union organization campaign. None of the employees of the Company are
represented by any labor union or organization. The Company is in compliance in
all material respects with all Requirements of Laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours, and are not engaged in any unfair labor practices. Neither the Company or
Sellers have been advised, or has any reason to believe, that any of the persons
whose names are set forth on Schedule 3.18 or any other employee will not agree
-------------
to remain employed by the Company after the consummation of the transactions
contemplated hereby. There is no unfair labor practice claim against the Company
before the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the best knowledge of the Company and Sellers,
threatened against or involving the Company, and none has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Sellers knows or has
------------------
any reason to believe that any customer or supplier of the Company will cease to
do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same level as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Except for disruptions in deliveries from suppliers in
the ordinary course of business, neither Sellers or the Company have received
any notice of any notice of any material disruption (including delayed
deliveries or allocations by suppliers) in the availability of any material
portion of the materials used by the Company nor are the Company or Sellers
aware of any facts which could lead them to believe that the Business will be
subject to any such material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
--------------------
receivable that have been recorded on the books of the Company are bona fide
and represent amounts validly due for goods sold or services rendered. Except as
disclosed on Schedule 3.20 hereto (a) all of
-------------
-15-
<PAGE>
such accounts, notes, and loans receivable are free and clear of any
Encumbrances; (b) none of such accounts, notes, or loans receivable is subject
to any offsets or claims of offsets; and (c) none of the obligors of such
accounts, notes, or loans receivable has given notice that it will or may refuse
to pay the full amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of all
------------- -------------
banks or other financial institutions with which the Company have an account
or maintain a safe deposit box, showing the type and account number of each such
account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except as set forth on Schedule 3.22 and except for
---------- -------------
warranty claims that are typical and in the ordinary course of the Business, no
claim for breach of product or service warranty to any customer has been made
against the Company since January 1, 1996. To the best knowledge of Sellers and
the Company, no state of facts exists, and no event has occurred, which may form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Sellers have engaged, or caused
-------
to be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No officer,
--------------------------------------------------
director, or shareholder of the Company or any affiliate of any such officer,
director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description of
- --------- -------- ----
the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. As of August 31, 1996, except as
-----------------------
indicated in Schedule 3.26 and the other Schedules hereto, the Company did not
-------------
have any material liabilities (whether absolute, accrued, contingent or
otherwise), of a nature required by GAAP to be reflected on a corporate balance
sheet or disclosed in the notes thereto, except such liabilities which were
accrued or reserved against in the Company's financial statements as of such
date or disclosed in the notes thereto, including without limitation any
accounts payable or service liabilities of the Company incurred prior to August
31, 1996.
-16-
<PAGE>
3.27 INFORMATION FURNISHED. The Company and Sellers have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all agreements, documents, and other items listed on the
Schedules to this Agreement or referred to in Article III of this Agreement.
-----------
In making the representations and warranties set forth above, the term
"material" shall be deemed to mean an amount of money greater than $20,000, the
terms "material adverse change," "material adverse trend," "material adverse
effect," or any other term of like import shall mean the occurrence of any
single event, or any series of related events, or set of related circumstances,
which proximately causes an actual, direct economic loss to the Company, taken
as a whole, in excess $20,000 per occurrence or $35,000 in the aggregate. The
term "knowledge" shall mean actual knowledge after reasonable investigation.
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Sellers as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to enter into and perform this
Agreement.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global, and the Agreement, and all other agreements or instruments contemplated
hereby which have been or will be executed by Global, have been duly and validly
executed and delivered by Global and constitute the valid and binding obligation
of Global, enforceable in accordance with their respective terms. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates or other documents contemplated hereby) by Global, will
not (a) violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any indebtedness secured by the
property of, Global, or (d) violate or conflict with any provision of the
charter or bylaws of Global.
4.3 NO BROKERS. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 INVESTMENT. Global will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
4.5 GLOBAL STOCK. Upon receipt of the payment in cash therefor, and
------------
assuming the truth of the representations and warranties of the purchasers of
Global Stock set
-17-
<PAGE>
forth in the Equity Subscription Agreement of even date herewith between Global
and such purchasers, each of the shares of the Global Stock to be issued at the
Closing will be legally and validly issued, fully paid and non-assessable.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLERS
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and Sellers
------------------
shall use their best efforts to obtain and to cause the Company to obtain all
authorizations, consents and permits required of the Company and Sellers to
permit them to consummate the transactions contemplated by this Agreement.
5.2 SELLER'S EFFORTS. The Company and Sellers shall use all
----------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Sellers shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further action
-------
is legally necessary or reasonably desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Article VIII below). The Sellers acknowledge and agree that from and after the
- ------------
Closing Global will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Company, which shall
be maintained at the chief executive office of the Company; provided, however,
-------- -------
that Sellers shall be entitled to reasonable access to and to make copies of
such books and records at their sole cost and expense and Global will maintain
the books, records and material financial data relating to the Company for a
period of at least three (3) years. After such date, the Company will offer such
documentation to Sellers before disposal thereof.
6.2 TRANSITION. For a period of three (3) years following Closing,
----------
the Sellers will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of three (3) years following Closing, the
Sellers will refer all customer inquiries relating to the Business to the
Company or Global.
-18-
<PAGE>
[****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.]
6.3 Confidentiality. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement for a period of three (3) years from
the Closing, and deliver promptly to Global or destroy, at the request and
option of Global, all tangible embodiments (and all copies) of the Confidential
Information which are in its possession except as otherwise permitted herein. In
the event that any Seller is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, that Seller will notify Global promptly of the request or
requirement.
6.4 Covenant Not to Compete. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by Global,
Sellers each covenant and agree, for a period of three years from and after the
Closing Date, that they will not, individually or jointly, directly or
indirectly, nor with any member of their immediate family, without the prior
written consent of Global, for or on behalf of any entity:
(a) become interested or engaged in any manner, directly or
indirectly, or become a shareholder, bondholder, creditor, officer, director,
partner, agent, contractor with, employer or representative of, or in any manner
associated with, or give financial, technical or other assistance to, any
Person, firm or corporation for the purpose of engaging in the Business within
the greater of (i) a 100 mile radius of the Company's office facilities in
Norcross, Georgia, Nashville, Tennessee, Knoxville, Tennessee, and the State of
Florida or (ii) in any geographic area in which the Company and/or its
subsidiaries currently conduct business; provided, however, that no owner of
-------- -------
less than 1% of the outstanding stock of any publicly-traded corporation (other
than Global) shall be deemed to be so engaged solely by reason thereof in the
Business;
(b) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing
equipment sales, systems or service related to the Business to such customers or
to cause them to reduce or end their business with the Company; or
(c) enter into any agreement with, or solicit the employment
of employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company.
Notwithstanding the foregoing, nothing herein shall prevent Arthur E. Kreps from
fulfilling the terms of his Consulting Agreement or Mark M. Lloyd from
fulfilling the terms of his Executive Agreement.
6.5 Section 338(h)(10) Election. At Global's option, Sellers and
---------------------------
Global shall join in making a timely election (but in no event later than 150
days following the Closing) under Section 338(h)(10) of the Code (including the
prerequisite election under Section 338 of the Code) and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall provide to the other
all necessary information to permit such elections to be made. Global and
Sellers shall, as
-19-
<PAGE>
promptly as practicable following the Closing Date, take all actions necessary
and appropriate (including filing such forms, returns, schedules and other
documents as may be required) to effect and preserve timely elections. Sellers
shall be made whole by Global for any additional Taxes or other costs associated
with the Section 338(h)(10) elections. In connection with such elections, within
150 days following the Closing Date, Global and Sellers shall act together in
good faith to determine and agree upon the "deemed sales price" to be allocated
to each asset of the Company in accordance with Treasury Regulation Section
1.338(h)(10)-1(f) and the other regulations of Section 338 of the Code. Both
Global and Sellers shall report the tax consequences of the transactions
contemplated by this Agreement consistently with such allocations and shall not
take any position inconsistent with such allocations in any Tax Return or
otherwise. In the event that Global and Sellers are unable to agree as to such
allocation, Global's reasonable positions with respect to such allocations shall
control. Sellers shall be liable for, and shall indemnify and hold Global and
the Company harmless against, any Taxes or other costs attributable to a failure
on the part of Sellers to take all actions required of them under this Section
-------
6.5.
- ---
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations. The obligation of
----------------------------------
Global under this Agreement to consummate the closing is subject to the
conditions that:
(a) Covenants, Representations and Warranties. The
-----------------------------------------
Company and Seller have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date or the date hereof.
(b) Consents. All statutory requirements for the valid
--------
consummation by the Company and Sellers of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including those of all federal, state, local and foreign governmental
agencies and regulatory authorities required to be obtained in order to permit
the consummation of the transactions contemplated hereby shall have been
obtained in form and substance reasonably satisfactory to Global unless such
failure shall not have a Material Adverse Effect. All approvals of the Board of
Directors and shareholders of the Company necessary for the consummation of this
Agreement and the transactions contemplated hereby shall have been obtained.
(c) Lease. The Company and Arthur E. Kreps (or an entity
-----
controlled by Arthur E. Kreps) shall have entered into a three-year lease of the
Building on lease terms acceptable to Global in the form of Exhibit B hereto.
---------
(d) Discharge of Indebtedness and Liens. Sellers and the
-----------------------------------
Company shall have provided for the payment in full of all Funded Indebtedness
of the Company and all extended credit from vendors at the Closing (other than
customary accounts payable of the Company in accordance with past practices, up
to $13,921 in a note payable for a voicemail
-20-
<PAGE>
system, up to $6,460 in capital leases and for a lease for a new phone system)
or such indebtedness shall be assumed by Global and the Purchase Price shall be
reduced in accordance with Section 2.6(a) hereof. Such Funded Indebtedness as of
--------------
September 30, 1996, is listed on Schedule 7.1(d) hereto. Sellers shall have also
---------------
provided for the termination of all Encumbrances of record on the properties of
the Company, except for Permitted Encumbrances (other than a modification of the
Canon UCC filing as required by Global).
(3) Material Adverse Change. There has been no Material
-----------------------
Adverse Change.
(f) Transfer Taxes. Sellers shall be responsible for
--------------
and shall have paid or set aside sufficient funds to pay all stock transfer
taxes incurred in connection with this Agreement.
(g) Financial Condition. The Company's total adjusted
-------------------
Working Capital as projected at the Closing shall be greater than $2,200,000 and
the Company shall continue to have sufficient cash on hand (included in Working
Capital) at the Closing (in an amount not less than $150,000).
(h) Documents to be Delivered by Sellers and the
--------------------------------------------
Company. the following documents shall be delivered at the Closing by Sellers
- -------
and the Company;
(i) Opinion of Seller's Counsel. Global shall
---------------------------
have received an opinion of Rowe, Foltz & Martin. P.C., counsel to
Sellers, dated the date hereof, in substantially the same form as the
form of opinion that is Exhibit C hereto.
---------
(ii) Certificates. Global shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated as of the date hereof, in
substantially the same forms as the forms of certificates that are
Exhibit D hereto.
---------
(iii) Release. Sellers shall have furnished the
-------
Company with a general release of liabilities, excluding compensation
and employee benefits as well as obligations pursuant to this
Agreement, in form attached as Exhibit E hereto.
---------
(iv) Escrow Agreement. Sellers shall have
----------------
delivered to Global at the Closing the duly executed Escrow Agreement
required pursuant to Section 2.5 hereof.
-----------
(v) Employment Agreements. Mark M. Lloyd and
---------------------
each of the Executives shall have duly executed and delivered the
Employment Agreements, pursuant to which each of them will be
employed by the Company following the Closing.
-21-
<PAGE>
(vi) Consulting Agreement. Arthur E. Kreps shall have duly
--------------------
executed and delivered the Consulting Agreement, pursuant to which he
will be a consultant to the Company following the Closing.
(vii) Office Lease. Arthur E. Kreps (or an entity controlled
------------
by Arthur E. Kreps) shall have duly executed and delivered to the
Company a lease for the Building (with a rental rate $38,000), in
substantially the same form attached as Exhibit B hereto, pursuant to
---------
which the Company shall be provided with a three year lease for the
Building with the right to renew such lease on terms mutually agreeable
to the Company and Arthur E. Kreps.
(viii) Stock Certificates. Sellers shall have delivered the
------------------
Shares accompanied by duly executed stock powers, together with any
stock transfer stamps or receipts for any transfer taxes required to be
paid thereon.
7.2 Conditions to Sellers and the Company's Obligations. The obligation
--------------------------------------------------
of Sellers and the Company under this Agreement to consummate the Closing is
subject to the conditions that:
(a) Covenants, Representations and Warranties. Global shall have
-----------------------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by Global prior to or at the Closing.
(b) Consents. All statutory requirements for the valid
--------
consummation by Global of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Global of the transactions contemplated hereby shall have been
obtained unless such failure shall not have a material adverse effect on the
Business. Global shall have used its reasonable best efforts to have obtained
the release of the Seller from all personal guarantees with respect to the
Company.
(c) Documents to be Delivered by Global. The following documents
-----------------------------------
shall be delivered at the Closing by Global:
(i) Opinion of Global's Counsel. Sellers shall have
---------------------------
received an opinion of Davis, Graham & Stubbs LLP, counsel to Global,
dated as of the date hereof, in substantially the same form as the form
of opinion that is Exhibit I hereto.
---------
(ii) Certificates. Sellers shall have received an officers'
------------
certificate and a secretary's certificate executed by officers of
Global, dated as of the date hereof, in substantially the same forms as
the forms of certificates that are Exhibit J hereto.
---------
-22-
<PAGE>
[****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.]
(iii) Escrow Agreement. Global shall have delivered to
----------------
Sellers at the Closing the duly executed Escrow Agreement required pursuant to
Section 2.5 hereof.
- -----------
(iv) Employment Agreements. Global shall have caused the
---------------------
Company to duly execute and deliver the Employment Agreements, pursuant to
which the Executives and Mark M. Lloyd will be employed by the Company following
the Closing.
(v) Consulting Agreement. Global shall have caused the
--------------------
Company to duly execute and deliver the Consulting Agreement, pursuant to which
Arthur E. Kreps will be a consultant to the Company following the Closing.
(vi) Office Lease. Global shall have caused the Company to
------------
duly execute and deliver to Arthur E. Kreps (or an entity controlled by Arthur
E. Kreps) a lease for the Building in substantially the same form attached as
Exhibit B hereto.
- ---------
(vii) Purchase Price. Sellers shall have received the
--------------
Purchase Price for the Shares.
(d) Right of Reinvestment. Sells and Executives and Dewey Suddeth
---------------------
shall have been offered the right collectively to invest up to [**] in cash in
the Global Stock on the same terms provided to other recent outside investors in
Global.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global. Sellers agree to jointly and severally
-------------------------
indemnify and hold harmless Global and each officer, director, and affiliate of
Global, including without limitation the Company or any successor of the Company
(collectively, the "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, demands, charges, suits penalties, costs and
expenses (including court costs and reasonable attorneys' fees and expenses
actually incurred in investigating and preparing for any litigation or
proceeding) (collectively, the "Indemnifiable Costs"), which any of the
Indemnified Parties may sustain, or to which any of the Indemnified Parties may
be subjected, arising out of (A) any misrepresentation, breach or default by
Sellers or the Company of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; (B) any misrepresentation, breach or default by
Sellers or the other Companies of or under any of the representations,
covenants, agreements or other provisions of any Purchase Agreement or any
agreement or document executed in connection therewith; (C) the assertion and
final determination of any claim or liability against the Companies or any of
the Indemnified Parties by any Person based upon the facts which form the
alleged basis for any litigation to the extent it should have been, but was not,
reserved for
-23-
<PAGE>
in the financial statements of such Company in accordance with GAAP; (D) the
Companies' tortious acts or omissions to act prior to Closing for which the
Companies did not carry liability insurance for themselves as the insured party,
whether or not such acts or omissions to act result in a breach or violation of
any representation or warranty; and (E) any litigation or claim disclosed on or
required to be disclosed on Schedule 3.16 hereto.
-------------
8.2 Defense of Claims. In any legal proceeding shall be instituted, or
-----------------
any claim or demand made, against any Indemnified Party in respect of which
Sellers may be liable hereunder, such Indemnified Party shall give prompt
written notice thereof to Sellers and, except as otherwise provided in Section
-------
8.4 below. Sellers shall have the right to defend, or cause the Companies or
- ---
other successors to defend, any litigation, action, suit, demand, or claim for
which it may seek indemnification unless, in the reasonable judgment of Global,
such litigation, action, suit, demand, or claim, or the resolution thereof,
would have an ongoing effect on Global, the Companies or their successors, and
such Indemnified Party shall extend reasonable cooperation in connection with
such defense, which shall be at Seller's expense. In the event Sellers fail or
refuse to defend the same within a reasonable length of time, the Indemnified
Parties shall be entitled to assume the defense thereof, the Sellers shall be
jointly and severally liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including reasonable
attorneys' fees and settlement payments) if it is determined that such request
for indemnification was proper. If Sellers shall not have the right to assume
the defense of any litigation, action, suit, demand, or claim in accordance with
either of the two preceding sentences, the Indemnified Parties shall have the
absolute right to control the defense of and to settle, in their sole discretion
and without the consent of Sellers, such litigation, action, suit, demand, or
claim but Sellers shall be entitled, at their own expense, to participate in
such litigation, action, suit, demand, or claim.
8.3 Escrow Claim. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party may apply to the Escrow Agent provided in
Section 2.5 of this Agreement for reimbursement of such claim in accordance with
- -----------
the provisions of the Escrow Agreement.
8.4 Tax Audits, Etc. In the event of an audit of a Tax Return of the
---------------
Companies with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
------------
control any and all such audits which may result in the assessment of additional
Taxes against the Companies and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Sellers,
which shall not unreasonably be withheld and subject to the right of Sellers to
have their accountant consult with Global on such audits or other Tax proceeding
(including according access to all records pertaining thereto), and will execute
and file any and all consents, powers of attorney, and other documents as shall
be reasonably necessary in connection therewith. If additional Taxes are payable
by the Companies as a result of any such audit or other proceeding. Sellers
shall be responsible for and shall promptly pay all Taxes, interest, and
penalties to which any of the Indemnified Parties shall be entitled to
indemnification.
-24-
<PAGE>
[****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.]
8.5 Indemnification of Sellers. Global agrees to indemnify and hold
--------------------------
harmless Sellers and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs which any of
the Sellers or the Company may sustain, or to which any of them may be subject,
arising out of (A) any material misrepresentation, breach or default by Global
of or under any of the covenants, agreements or other provisions of this
Agreement or any other Purchase Agreement or any agreement or document executed
in connection herewith or therewith and (B) any tortious acts or omissions by
Global or the Companies after the Closing. In addition, the Company and Global
shall indemnify the Sellers for any payment or satisfaction of any guarantees by
Sellers of the Companies' obligations occurring after the Closing Date.
8.6 Limits on Indemnification. All Indemnifiable Costs sought by any
-------------------------
party hereunder shall be net of any insurance proceeds received by such Person
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations and warranties of the Sellers under (i) Sections 3.1, 3.2, 3.3,
------------ --- ---
3.14, or 3.17 hereof (the indemnification for which shall expire on the
- ---- ----
expiration of the applicable statute of limitations) or (ii) Section 3.26 hereof
------------
(the indemnification for which shall expire on June 30, 1998), the
indemnification provided under this Article VIII for breaches of representations
------------
and warranties contained in Article III hereof shall expire on the first
-----------
anniversary of the Closing Date. The Sellers shall not be obligated to pay any
amounts for indemnification under this Article VIII until the aggregate
------------
indemnification obligation hereunder exceeds $50,000, whereupon Sellers shall be
liable for all amounts in excess of such amount of which indemnification may be
sought. Notwithstanding the foregoing, in no event shall the aggregate liability
of Sellers to Global exceed [**] except for claims made for any breach of
representations and warranties of Sellers under Section 3.1, 3.2, 3.3, 3.14 or
----------- --- --- ----
3.17 hereof). However nothing in this Article VIII shall limit Global in any way
- ---- ------------
in exercising or securing any remedies provided by applicable common law with
respect to the conduct of Sellers in connection with this Agreement or in the
amount of damages that it can recover from the Sellers in the event that Global
successfully proves intentional fraud or intentional fraudulent conduct in
connection with this Agreement.
Notwithstanding anything to the contrary contained herein, the parties
hereto acknowledge and agree that the business engaged in by the Companies may
be adversely affected by numerous factors that are outside the control of
Sellers and the Companies including, but not limited to, the following:
(i) Product lines handled by the Companies could be made obsolete
by another manufacturer/vendor and the Companies may not have access to
the new technology.
(ii) A competitor in the Companies' markets may at any time
interrupt or take business from the Companies by offering lower costs,
different technology or better services than the Companies.
-25-
<PAGE>
(iii) The business equipment industry is sensitive to
changes in the economy and, as a result, could be adversely affected by
changes in general economics conditions.
(iv) A manufacturer/vendor can incur difficulties
delivering products which could adversely affect Companies' ability to
meet sales and profit objectives.
(v) Any customer of the Companies could be lost for
at least a 12-month period because the Companies are underbid in price
competitive situations.
(vi) Sales personnel could resign at any time and have
a negative effect on meeting sales and profit objectives.
The parties acknowledge and agree, further, that it is not their intent
for Global to be entitled to Indemnification for Indemnifiable Costs which arise
out of adverse effects on the Companies' business resulting from any such
factors. Notwithstanding the foregoing, Sellers have no knowledge that any of
the events listed above have occurred or will occur following the Closing which
could result in a Material Adverse Effect on the Company.
ARTICLE IX
MISCELLANEOUS
9.1 Modifications. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or
privilege hereunder (and no course of dealing between or among any of the
parties) shall operate as a waiver of any such right, power or privilege. No
waiver of any default on any one occasion shall constitute a waiver of any
subsequent or other default. No single or partial exercise of any such right,
power or privilege shall preclude the further or full exercise thereof.
9.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given when personally
delivered, or 72 hours after deposited in the United States mail, first-class,
postage prepaid, or 24 hours after transmission by facsimile addressed to the
respective parties hereto as follows:
-26-
<PAGE>
Global:
------
Global Imaging Systems, Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas S. Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Christopher J. Hagan
Fax No.: (202) 293-4794
Tel No.: (202) 822-8660
The Company or Sellers:
----------------------
c/o Southern Business Communications, Inc.
3175 Corners North Court
Norcross, Georgia 30071
Attention: Mark M. Lloyd
Arthur E. Kreps
Fax No.: (770) 449-0188
Tel No.: (770) 449-4088
With a copy to:
Rowe, Foltz & Martin, P.C.
Five Piedmont Center, Suite 750
Atlanta, Georgia 30305-1509
Attention: Paul Shlanta, Esq.
Fax No.: (404) 237-1659
Tel No.: (404) 231-9397
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original but all of which counterparts
collectively shall constitute one instrument, and in making proof of this
Agreement, it shall never be necessary to produce or account for more than one
such counterpart.
-27-
<PAGE>
9.4 Expenses. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Sellers shall bear all costs and expenses of any broker involved in this
transaction and the Company shall bear all legal expense of Sellers or the
Company with respect to this Agreement and the transactions contemplated hereby.
9.5 Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global and Sellers, their heirs,
representatives, successors, and permitted assigns, in accordance with the terms
hereof. This Agreement shall not be assignable by the Company or Sellers
without the prior written consent of Global. This Agreement shall be assignable
by Global to a wholly-owned subsidiary of Global without the prior written
consent of Sellers; provided, however, that Global may not assign its obligation
to issue shares of Global Stock to any other Person.
9.6 Entire and Sole Agreement. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written express or implied, with respect to the subject matter
hereof.
9.7 Governing Law. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Georgia.
9.8 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Regardless any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of one
year, provided (a) the representations and warranties contained in Sections 3.14
-------------
and 3.17 of this Agreement, and the related indemnities, shall survive the
----
Closing until the expiration of the applicable statutes of limitations for
determining or contesting Tax liabilities; (b) the representations and
warranties contained in Sections 3.1, 3.2, and 3.3 of this Agreement, and the
--------------------------
related indemnities, shall survive the Closing indefinitely; and (c) the
representations and warranties contained in Section 3.26 of the Agreement, and
------------
the related indemnities, shall survive the Closing until June 30, 1998.
9.9 Invalid Provisions. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of
-28-
<PAGE>
competent jurisdiction, such provision as so reformed or rewritten shall be
binding upon all parties hereto.
9.10 Public Announcements. Neither party shall make any public announcement
--------------------
of the transactions contemplated hereby without the prior written consent of the
other party, which consent shall not be unreasonably withheld.
9.11 Remedies Cumulative. The remedies of the parties under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which any party may
be lawfully entitled.
9.12 Waiver. No failure or delay on the part of any party in exercising any
------
right, power, or privilege hereunder or under any of the documents delivered in
connection with this Agreement shall operate as a waiver of such right, power,
or privilege: nor shall any single or partial exercise of any such right, power,
or privilege preclude any other or further exercise thereof or the exercise of
any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLERS AND GLOBAL WITH
------------------
RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLERS AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTERNATIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ATTACHED AS ANNEX A HERETO IN ATLANTA, GEORGIA OR BY ANY
-------
OTHER MEANS OF ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE
PARTIES.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-29-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Ray Schilling, Attorney-in-Fact
------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
-----------
SOUTHERN BUSINESS COMMUNICATIONS, INC.
By: /s/ Mark M. Lloyd
-------------------------------------
Title: President
-------------------------------
SELLERS:
-------
/s/ Mark M. Lloyd
----------------------------------------
Mark M. Lloyd
/s/ Arthur E. Kreps
----------------------------------------
Arthur E. Kreps
-30-
<PAGE>
EXHIBIT 10.19
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***
ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 13, 1996
BY AND AMONG
ATS-ATLANTA ONE, L.L.C.,
A GEORGIA LIMITED LIABILITY COMPANY,
ATS-ATLANTA ONE, INC.,
A DELAWARE CORPORATION,
AND
ATS-ATLANTA, INC.,
MARK M. LLOYD
AND
ARTHUR E. KREPS
COVERING THE PURCHASE OF CERTAIN ASSETS OF
ATS-ATLANTA ONE, L.L.C.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. GENERAL DEFINITIONS..................................................... 1
2. PURCHASE AND SALE OF THE ASSETS; CLOSING DATE........................... 2
2.1 Purchase and Sale.................................................. 2
2.2 Delivery of Assets and Transfer Documents.......................... 3
2.3 Closing; Closing Date.............................................. 3
3. PURCHASE PRICE.......................................................... 3
3.1 Price and Payment.................................................. 3
3.2 Excluded Assets.................................................... 3
3.3 Assumed Obligations................................................ 3
3.4 Excluded Liabilities and Obligations............................... 3
3.5 Transfer Taxes..................................................... 4
3.6 Allocation of Purchase Price....................................... 4
4. REPRESENTATIONS AND WARRANTIES OF SELLER................................ 4
4.1 Organization....................................................... 4
4.2 Ownership.......................................................... 4
4.3 Financial Statements............................................... 4
4.4 Events Since the Balance Sheet Date................................ 5
4.5 Competing Interests................................................ 6
4.6 Taxes and Governmental Returns..................................... 6
4.7 Employee Matters................................................... 7
4.8 Contracts and Agreements........................................... 7
4.9 Effect of Agreement................................................ 8
4.10 Properties, Assets and Leasehold Estates........................... 9
4.11 Intangible Property................................................ 9
4.12 Suits, Actions and Claims.......................................... 9
4.13 Licenses and Permits; Compliance with
Governmental Regulations........................................... 10
4.14 Authorization...................................................... 10
4.15 No Untrue Statements............................................... 10
4.16 Records............................................................ 10
4.17 Brokers and Finders................................................ 10
4.18 Deposits........................................................... 11
4.19 Telephone Numbers.................................................. 11
4.20 Customer List...................................................... 11
4.21 No Royalties....................................................... 11
4.22 Subsidiaries....................................................... 11
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER....................... 12
5.1 Incorporation................................................ 12
5.2 Authorization................................................ 12
5.3 Brokers and Finders.......................................... 12
6. PRE-CLOSING COVENANTS............................................. 12
6.1 General...................................................... 12
6.2 Notices and Consents......................................... 12
6.3 Operation of Business........................................ 13
6.4 Preservation of Business..................................... 13
6.5 Full Access.................................................. 13
6.6 Notice of Developments....................................... 13
6.7 Exclusivity.................................................. 13
7. CONDITIONS TO OBLIGATION TO CLOSE................................. 13
7.1 Conditions to Obligation of the Purchaser.................... 13
7.2 Conditions to Obligation of the Seller....................... 15
8. TERMINATION....................................................... 16
8.1 Termination of Agreement..................................... 16
8.2 Effect of Termination........................................ 16
9. NATURE OF STATEMENTS AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES OF SELLER.......................................... 16
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS........................ 16
10.1 Delivery of Funds and Other Assets Collected by Seller;
Power of Attorney............................................ 16
10.2 Change of Name of Seller..................................... 17
11. LEASE AGREEMENT................................................... 17
12. NON-COMPETITION AGREEMENTS........................................ 17
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION......................... 18
14. ASSIGNMENT OF CONTRACTS........................................... 18
15. SPECIAL PROVISIONS REGARDING EMPLOYEES OF SELLER.................. 19
15.1 New Employees of Purchaser................................... 19
15.2 Hiring of Employees.......................................... 19
15.2 Indemnity Concerning Accrued Benefits........................ 19
16. EXPENSES.......................................................... 19
17. FURTHER ACTIONS................................................... 19
</TABLE>
-ii-
<PAGE>
18. NOTICES............................................................. 19
19. GENERAL PROVISIONS.................................................. 20
19.1 GOVERNING LAW; INTERPRETATION; SECTION HEADINGS................ 20
19.2 Severability................................................... 21
19.3 Entire Agreement............................................... 21
19.5 Assignment..................................................... 21
19.6 Amendment; Waiver.............................................. 21
19.7 Gender; Numbers................................................ 22
19.8 Counterparts................................................... 22
19.9 Telecopy Execution and Delivery................................ 22
-iii-
<PAGE>
LIST OF SCHEDULES AND ATTACHMENTS
SCHEDULES
- ---------
Schedule 2.1 List of Assets
Schedule 3.3 Assumed Liabilities
Schedule 3.6 Allocation of Purchase Price
Schedule 4.2 Ownership of Seller
Schedule 4.3(A) Financial Statements
Schedule 4.3(B) Exceptions to GAAP on Financial Statements
Schedule 4.4 Events Since the Balance Sheet Date
Schedule 4.5 Competing Interests
Schedule 4.6 Tax Returns, Information Returns and Governmental Reports
Pending
Schedule 4.7(A) Employees
Schedule 4.7(B) Employee Benefit Plans
Schedule 4.8(A) Contracts and Agreements
Schedule 4.8(B) Non-Assignable Contracts and Agreement
Schedule 4.11 Intangible Property
Schedule 4.12 Suits, Actions and Claims
Schedule 4.13 Licenses and Permits
Schedule 4.20 Customer List
ATTACHMENTS
- -----------
Attachment 2.2 General Warranty, Bill of Sale
The Exhibits and Schedules to this Asset Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these exhibits
and schedules upon the request of the Securities and Exchange Commission.
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
this 13th day of November, 1996, by and among ATS-ATLANTA ONE, L.L.C., a Georgia
limited liability company ("SELLER"), ATS-ATLANTA ONE, INC., a Delaware
corporation ("PURCHASER"), and ATS-ATLANTA, INC., a Georgia corporation ("AAI"),
MARK M. LLOYD ("LLOYD") and ARTHUR E. KREPS ("KREPS;" collectively, AAI, Lloyd
and Kreps are referred to as the "MEMBERS").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Seller is the owner of all right, title and interest in and to the
assets described on Schedule 2.1 hereto (the "ASSETS"), with such assets being
------------
substantially all of the assets currently used in the network consulting and
management business operated by the Seller (the "BUSINESS");
WHEREAS, Seller desires to sell the Assets to Purchaser and Purchaser
desires to acquire the Assets from Seller, all pursuant to this Agreement as
hereinafter provided; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
execution and delivery of this Agreement, and to set forth certain additional
agreements related to the transactions contemplated hereby;
AGREEMENT
---------
NOW, THEREFORE, for and in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. GENERAL DEFINITIONS. For purposes of this Agreement, the following
-------------------
terms shall have the respective meanings set forth below:
1.1 GOVERNMENTAL AUTHORITY shall mean any and all foreign, federal,
----------------------
state or local governments, governmental institutions, public authorities and
governmental entities of any nature whatsoever, and any subdivisions or
instrumentalities thereof, including, but not limited to, departments, boards,
bureaus, commissions, agencies, courts, administrations and panels, and any
divisions or instrumentalities thereof, whether permanent or ad hoc and whether
now or hereafter constituted and/or existing.
<PAGE>
1.2 GOVERNMENTAL REQUIREMENT shall mean any and all laws (including,
------------------------
but not limited to, applicable common law principles), statutes, ordinances,
codes, rules, regulations, interpretations, guidelines, directions, orders,
judgments, writs, injunctions, decrees, decisions or similar items or
pronouncements, promulgated, issued, passed or set forth by any Governmental
Authority.
1.3 PERMITTED EXCEPTION means (a) liens for Taxes and other
-------------------
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value of or
materially the existing use of the property affected by such lien or
imperfection, (d) such statement of facts shown on any customary title insurance
policies delivered to Purchaser, (e) purchase money security interest liens in
favor of Canon U.S.A., Inc. and (f) those encumbrances identified on Exhibit A
---------
hereto.
1.4 PERSON shall mean any natural person, any Governmental Authority
------
and any entity the separate existence of which is recognized by any Governmental
Authority or Governmental Requirement, including, but not limited to,
corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
1.5 TAXES. "TAX" and "TAXES" shall mean any and all income, excise,
-----
franchise or other taxes and all other charges or fees imposed or collected by
any Governmental Authority or pursuant to any Governmental Requirement, and
shall also include any and all penalties, interest, deficiencies, assessments
and other charges with respect thereto.
1.6 AFFILIATE of any Person shall mean any Person Controlling,
---------
Controlled by or under common Control with such Person.
1.7 CONTROL and all derivations thereof shall mean the possession,
-------
direct or indirect, of either (i) the ownership of or ability to direct the
voting of, as the case may be, fifty percent (50%) or more of the equity
interests, value or voting power in any Person or (ii) the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
2. PURCHASE AND SALE OF THE ASSETS; CLOSING DATE.
---------------------------------------------
2.1 PURCHASE AND SALE. Seller hereby sells, assigns, transfers and
-----------------
delivers to Purchaser all right, title and interest in and to the Assets (as
more fully described on Schedule 2.1 hereto), free and clear of any liens or
------------
encumbrances of any nature whatsoever (except for Permitted Exceptions and any
liens, encumbrances or obligations, if any, expressly assumed by Purchaser
hereunder). Purchaser hereby purchases from Seller the Assets in consideration
for the Purchase Price (as hereinafter defined) payable as set forth in Section
-------
3 below.
- -
-2-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
2.2 DELIVERY OF ASSETS AND TRANSFER DOCUMENTS. At the Closing
-----------------------------------------
(hereinafter defined in Section 2.3), Seller shall have taken all steps
-----------
necessary to put Purchaser in possession of the Assets, free and clear of any
liens or encumbrances of any nature whatsoever (except for Permitted Exceptions
and liens, encumbrances or obligations, if any, expressly assumed by Purchaser
hereunder), and have delivered to Purchaser (i) a duly executed general warranty
bill of sale covering the Assets, in the form of and containing the same terms
and provisions as the General Warranty Bill of Sale attached hereto as
Attachment 2.2, (ii) duly executed assignments for all accounts receivable,
- --------------
patents, trademarks, trade names and similar intangible property included in the
Assets, in form and substance acceptable to Purchaser and in recordable form as
appropriate, and (iii) such other duly executed transfer and release documents
which Purchaser has reasonably requested to evidence the transfer of the Assets
to Purchaser free and clear of any liens or encumbrances of any nature
whatsoever (except for Permitted Exceptions and liens, encumbrances or
obligations, if any, expressly assumed by Purchaser hereunder).
2.3 CLOSING; CLOSING DATE. Subject to the terms and conditions herein
---------------------
contained, the consummation of the transactions referred to above shall take
place (the "CLOSING") at the offices of Rowe, Foltz & Martin in Atlanta,
Georgia, commencing at 9:00 a.m. local time on November __, 1996, or such other
date as the parties may mutually determine (the "CLOSING DATE").
3. PURCHASE PRICE.
--------------
3.1 PRICE AND PAYMENT. The aggregate consideration for the Assets and
-----------------
the Non-Competition Provisions (set forth in Section 12 below) shall be an
----------
amount equal to [**] payable by wire transfer or delivery of other immediately
available funds (the "PURCHASE PRICE"). At the Closing, the Purchaser shall
cause the Purchase Price to be paid as directed by the Seller.
3.2 EXCLUDED ASSETS. The Purchased Assets shall not include any of
---------------
the assets listed on Exhibit A-1 to Schedule 2.1 hereto (collectively, the
----------- ------------
"EXCLUDED ASSETS").
3.3 ASSUMED OBLIGATIONS. Purchaser hereby assumes the obligations of
-------------------
Seller that are listed and described on Schedule 3.3 hereto (the "ASSUMED
------------
LIABILITIES AND OBLIGATIONS"); provided that Purchaser specifically does not
assume any liabilities of Seller under such contracts or agreements with respect
to any breaches of such contracts or agreements occurring on or before the
Closing Date or any damages to third parties resulting from acts, events or
omissions occurring on or before the Closing Date or any liability for any
funded indebtedness of the Seller.
3.4 EXCLUDED LIABILITIES AND OBLIGATIONS.
------------------------------------
(A) Except as expressly set forth in Section 3.3 above, the
-----------
Purchase shall not assume and shall not be liable or responsible for any debt,
obligation or liability of the Business or the Seller, or any claim against any
of the foregoing parties, of any kind, whether known or unknown, contingent,
absolute or otherwise.
-3-
<PAGE>
(B) Except for the Assumed Liabilities and Obligations expressly
provided for in Section 3.4 hereof, the Seller and the Members shall jointly and
-----------
severally forever defend, indemnify and hold harmless the Purchaser from and
against any and all liabilities, obligations, losses, claims, damages (including
incidentals and consequential damages), costs and expenses (including court
costs and reasonable attorney's fees) related to or arising from the Business
prior to the Closing Date.
3.5 TRANSFER TAXES. Purchaser and Seller acknowledge and agree that
--------------
the consideration (including, without limitation, the Purchase Price and any
adjustments thereto) is deemed to have been paid for any sales, use, transfer or
other similar tax purposes by Purchaser to Seller, pursuant to this Agreement,
includes and is inclusive of any and all sales, use, transfer or other similar
tax imposed as a result of the consummation of the transactions contemplated by
this Agreement, and Seller and the Members hereby agree to pay and discharge,
and to indemnify Purchaser against, and protect, save and hold Purchaser
harmless, from, any liability, obligation, claim, assessment or deficiency
(whether or not ultimately successful) for any and all sales, use, transfer or
other similar taxes (and any and all interest, penalties, additions to tax and
fines thereon or related thereto) resulting or arising from or incurred in
connection with the consummation of the transactions contemplated by this
Agreement.
3.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
----------------------------
allocated as set forth in Schedule 3.6 attached hereto, and made a part hereof.
------------
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller and the Members,
----------------------------------------
jointly and severally, hereby represent and warrant to Purchaser as
follows:
4.1 ORGANIZATION. Seller is a limited liability company duly
------------
organized, validly existing and in good standing under the laws of the state of
Georgia, and is duly authorized, qualified and licensed under all applicable
Governmental Requirements to carry on its business in the places and in the
manner as now conducted. Seller is qualified to do business in every
jurisdiction in which the failure to so qualify might reasonably be excepted to
have a material adverse effect on the financial condition, operation results,
assets, or business prospects of Seller.
4.2 OWNERSHIP. The Members own, in the aggregate, all of the
---------
outstanding membership interests of Seller. Except as listed on Schedule 4.2
------------
hereto, there are no options, rights or other grants currently outstanding for
the acquisition or purchase of any membership interests of the Seller.
4.3 FINANCIAL STATEMENTS. Seller has delivered to Purchaser copies
--------------------
of the following financial statements for Seller, all of which financial
statements are included in Schedule 4.3(A) hereto:
---------------
(a) Reviewed Balance Sheet of Seller (the "REFERENCE BALANCE
SHEET") as of December 31, 1995 (the "BALANCE SHEET DATE") and Reviewed Income
Statements of Seller for the twelve-month period ended on the Balance Sheet
Date;
-4-
<PAGE>
(B) Reviewed Balance Sheet and Income Statement of Seller for
Seller's three (3) most recent fiscal years; and
(C) Unaudited Balance Sheet and Income Statement of Seller as of
and for the nine (9) months ended September 30, 1996.
All financial statements supplied to Purchaser by Seller, whether or not
included in Schedule 4.3(A) hereto, are true and accurate in all respects and,
---------------
except as set forth on Schedule 4.3(B) hereto, have been prepared in all
---------------
material respects in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated, and present
fairly the financial condition of Seller as of the dates and for the periods
indicated thereon. The Reference Balance Sheet reflects, as of the Balance
Sheet Date, all liabilities, debts and obligations of any nature of Seller,
whether accrued, absolute, contingent or otherwise, and whether due, or to
become due, including, but not limited to, liabilities, debts or obligations on
account of Taxes or other governmental charges, or penalties, interest or fines
thereon or in respect thereof, to the extent such items are required to be
reflected on such balance sheet under generally acceptable accounting
principles, consistently applied.
4.4 EVENTS SINCE THE BALANCE SHEET DATE. Except as set forth on
-----------------------------------
Schedule 4.4 hereto, since the Balance Sheet Date, there has not been:
- ------------
(A) any material change in the condition (financial or
otherwise) or in the properties, assets, liabilities, business or prospects of
the Business, except normal and usual changes in the ordinary course of
business, none of which has been adverse and all of which in the aggregate have
not been adverse;
(B) any labor trouble, strike or any other occurrence, event or
condition affecting the employees of Seller that adversely affects the condition
(financial or otherwise) of the Assets or the Business.
(C) any breach or default by Seller or, to the best knowledge
of Seller and the Members, by and other party, under any agreement or obligation
included in the Assets or by which any of the Assets are bound;
(D) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the Assets or the Business;
(E) any change in the types, nature, composition or quality of
the services of the Business, any material adverse change in the contributions
of any of the service lines of the Business to the revenues or net income of
such Business, or any material adverse change in the sales, revenue or net
income of the Business;
(F) any transaction related to or affecting the Assets or the
Business other the transactions in the ordinary course of business of Seller; or
-5-
<PAGE>
(g) any other occurrence, event or condition that has
materially and adversely affected (or can reasonably be expected to adversely
affect) the Assets or the Business.
4.5 COMPETING INTERESTS. Except as set forth on Schedule 4.5
------------------- ------------
hereto and except for interests in Southern Business Communications, Inc.
("SBC") and Southern Business Communications of D.C., Inc. and except for
interests in real estate and related improvements leased by Seller, neither
Seller nor the Members, nor, to the best knowledge of Seller and the Members,
any member, manager or officer of, or consultant to, Seller, and no Associate
(as hereinafter defined) of Seller:
(A) owns, directly or indirectly, any equity interests in,
or is a director, officer or employee of, or consultant to, any entity which is
a competitor, supplier or customer of the Business, or, to the best knowledge of
Seller and the Members, a competitor, supplier or customer of Purchaser or an
Associate of Purchaser (except for ownership, if any, of less than one percent
(1%) by value of the outstanding capital stock of any corporation the capital
stock of which is traded on a nationally recognized securities exchange); or,
(B) owns, directly or indirectly, in whole or in part, any
property, asset or right which is associated with the Assets or the Business,
or which Seller is presently operating or using in connection with or the use of
which is necessary for or material to the operation of the Business.
For purposes of this Agreement, the term "Associate" shall mean:
(i) with respect to an individual:
(A) the spouse of the individual and all
ancestors and lineal descendants of the individual and the
spouse,
(B) any trust in which the individual or any
person described in (i) above has an interest or any trustee
of such a trust, and
(C) any Person which is directly or indirectly
Controlled by any of the foregoing; and
(ii) with respect to a Person (other than an
individual), any Person Controlling, Controlled by or under
common Control with such Person, and any director or officer of
such Person and any Associate of any such Person.
4.6 TAXES AND GOVERNMENTAL RETURNS. Except as set forth on
------------------------------
Schedule 4.6 hereto, as of the date hereof, all Tax returns, information returns
- ------------
and governmental reports of every nature required by any Governmental Authority
or Governmental Requirement to be filed by Seller or which include or should
include Seller, including, but not limited to, those relating to Taxes of any
nature to which Seller, the Members or any of the Business is subject
("GOVERNMENTAL RETURNS"), have been filed for all periods ending on or before
the date hereof, and all Taxes shown to be due and payable on such Governmental
Returns or on any assessments
-6-
<PAGE>
related to such Governmental Returns have been paid. All such Governmental
Returns and reports and the information and data contained therein have been
properly and accurately compiled and completed, fairly present the information
purported to be shown therein, and reflect all Tax liabilities of Seller and
Members for the periods covered by such Governmental Returns. Except as
specifically disclosed in this Agreement or the Schedules hereto, Seller and/or
Members have no material unpaid liability for any Taxes of any nature whatsoever
for any period prior to the date hereof. The Governmental Returns of Seller or
that include Seller have not been audited, and are now under audit, by any
Governmental Authority. There are not agreements, waivers or other arrangements
providing for an extension of time with respect to the assessment of any Taxes
of any nature against Seller or Members or with respect to any Taxes filed
Seller or Members or that include Seller, or any suits or other actions,
proceedings, investigations or claims now pending or threatened against Seller
or Members with respect to any Taxes or any matters under discussion with any
Governmental Authority relating to any Taxes, or any claims for additional Taxes
asserted by any Governmental Authority.
4.7 EMPLOYEE MATTERS. Schedule 4.7(A) hereto set forth a true and
---------------- ---------------
complete list of the names of and current annual compensation paid by Seller to
each corporate or administrative (non-temporary) employee of Seller utilized in
connection with the operation of the Business. Except as specifically described
on Schedule 4.7(B) hereto, Seller has no employee benefit plans (including, but
---------------
not limited to, pension plans and health or welfare plans), arrangements or
understandings, whether formal or informal. Purchaser will have no liability
with respect to any such plans as a result of the transactions contemplated by
this Agreement. Seller does not now and has never contributed to a "multi-
employer plan" as defined in section 4001(a)(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Seller has complied in all
material respects with all applicable provisions of ERISA and all rules and
regulations promulgated thereunder and neither Seller nor any trustee,
administrator, fiduciary, agent or employee thereof has at any time been
involved in a transaction that would constitute a "prohibited transaction"
within the meaning of Section 406 of ERISA. Seller is not a party to any
collective bargaining or other union agreements. Seller has not, within the last
five (5) years, had or been threatened with any union activities, work stoppage
or other labor trouble with respect to its employees which had nor might have
had a material adverse effect on the Business. Other than wage increases in the
ordinary course of business, since the Balance Sheet Date, Seller has not made
any commitment or agreement to increase the wages or modify the conditions or
terms of employment of any of the corporate or administrative (non-temporary)
employees of Seller used in connection with the Business.
4.8 CONTRACTS AND AGREEMENTS. Schedule 4.8(A) hereto, sets forth a
------------------------ ---------------
true and complete list of and briefly describes (including termination date)
all of the "Contracts" (as such term is defined in Section 3.15 of that certain
Stock Purchase Agreement (the "SBC Agreement") among Global Imaging Systems
Inc., SBC and the stockholders of SBC) that relate to the Assets or the Business
(including all amendments, supplements and modifications thereto), together with
the following:
(A) all profit-sharing, pension, stock option, severance pay,
retirement, bonus, deferred compensation, group life and health insurance or
other employee benefit plans,
-7-
<PAGE>
agreements, arrangements or commitments of any nature whatsoever, whether or
not legally binding, and all agreements with any present or former officer,
member or manager of Seller;
(B) all loan or credit agreements, indentures, guarantees
(other than endorsements made for collection), mortgages, pledges, conditional
sales or other title retention agreements, and all equipment financing
obligations, lease and lease-purchase agreements relating to or affecting the
Assets or the Business;
(C) all leases related to the Assets or the Business, and
all other contracts, agreements or legally enforceable commitments relating to
or affecting the Assets or the Business;
(D) all performance bonds, surety bonds and the like, all
contracts and bids covered by such bonds, and all letters of credit and
guaranties; and
(E) all consent decrees and other judgments, decrees or
orders, settlement agreements and agreements relating to competitive activities,
requiring or prohibiting and future action.
All of such contracts, agreements, leases, licenses, plans, arrangements, and
commitments and all other such items included in the Assets, but not
specifically described above, (collectively, the "CONTRACTS") are valid, binding
and in full force and effect in accordance with their terms and conditions and
there is no existing default thereunder or breach thereof by Seller, or, to the
best knowledge of Seller and the Members, by any other party to the Contracts,
or any conditions which, with the passage of time or the giving of notice or
both, might constitute such a default by Seller, or, to the best knowledge of
Seller and the Members, by any other party to the Contracts, and, except as set
forth in Schedule 4.8(B), the Contracts will not be breached by or give any
---------------
other party a right of termination as a result of the transactions contemplated
by this Agreement. Seller is not aware of any reason why any of the Contracts
(i) will result in a material loss to Purchaser on completion by performance or
(ii) cannot readily be fulfilled or performed by Purchaser with the Assets on
time without undue or unusual expenditure of money or effort. Copies of all the
documents (or in the case of oral commitments, descriptions of the material
terms thereof) relevant to the Contracts listed in Schedule 4.8(A) hereto, have
---------------
been delivered by Seller to Purchaser, and such copies and descriptions are
true, complete and accurate and include all amendments, supplements or
modifications thereto. All of the Contracts, other than the Seller's operating
agreement, as amended, and Seller's loan agreements with SunTrust Bank and the
Small Business Administration, are and shall be included in the Assets. To the
best knowledge of Seller, no purchaser of services under any Contract will stop
or decrease its rate of buying services (on an annualized basis) from Seller
prior to the Closing Date, or under any Contract assigned to Purchaser by
Seller pursuant to the transactions contemplated by this Agreement, from
Purchaser after the Closing Date. Except as set forth on Schedule 4.8(B)
---------------
hereto, all of the Contracts may be assigned to Purchaser without the approval
or consent of any Person.
4.9 EFFECT OF AGREEMENT. Except as set forth on Schedule
------------------- --------
4.8(B), the execution and delivery of this Agreement and the consummation of the
- ------
transactions contemplated
-8-
<PAGE>
hereby will not (i) result in any breach of any of the terms or conditions of,
or constitute a default under, the Seller's certificate of limited liability
company or its operating agreement or other governing documents of Seller, or
any commitment, mortgage, note, bond, debenture, deed of trust, contract,
agreement, license or other instrument or obligation to which Seller is now a
party or by which Seller or any of its properties or assets may be bound or
affected; (ii) result in any violation of any Governmental Requirement; (iii)
cause Purchaser to lose the benefit of any right or privilege included in the
Assets; (iv) relieve any Person of any obligation (whether contractual or
otherwise) or enable any Person to terminate any such obligation or any right or
benefit enjoyed by Seller or to exercise any right under any agreement in
respect of the Assets or the Business; or (v) require notice to or the consent,
authorization, approval or order of any Person. To the best knowledge of Seller
and the Members, the business relationships of clients, customers and suppliers
of the Business will not be adversely affected by the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
4.10 PROPERTIES, ASSETS AND LEASEHOLD ESTATES. Seller has good
----------------------------------------
and marketable title to all the Assets, free and clear of all mortgages, liens,
pledges, conditional sales agreements, charges, easements, covenants,
assessments, options, restrictions and encumbrances of any nature whatsoever
other than Permitted Exceptions and liens, encumbrances or obligations expressly
assumed by Purchaser hereunder. All leases to which real property is leased in
connection with the Business are in good standing, valid and enforceable with
respect to their terms.
4.11 INTANGIBLE PROPERTY. Except as set forth on Schedule 4.11
------------------- -------------
hereto, the operation of the Business as now conducted by Seller does not
require the use of or consist of any rights under any patents, inventions,
trademarks, trade names, brand names or copyrights. Seller owns or licenses and
has the full and exclusive right to use in connection with the Business all of
the items listed on Schedule 4.11 hereto, which items are in full force and
-------------
effect. Except for Permitted Exceptions, Seller has not transferred, encumbered
or licensed to any Person any rights to own or use any portion of the items
listed on Schedule 4.11 hereto or any other intangible property included in the
-------------
Assets. None of (i) the items listed on Schedule 4.11, (ii) any other
-------------
intangible property included in the Assets, or (iii) the operation of the
Business as presently conducted, violates or infringes upon any patents,
inventions, trademarks, trade names, brand names or copyrights owned by others.
To the best knowledge of Seller and the Members, none of the items listed on
Schedule 4.11 hereto or any other intangible property included in the Assets is
- -------------
being infringed upon by any Person.
4.12 SUITS, ACTIONS AND CLAIMS. Except as set forth in Schedule
------------------------- --------
4.12 hereto, (i) there are no suits, actions, claims, inquires or investigations
- ----
by any Person, or any legal, administrative or arbitrative proceedings in which
Seller is engaged or which are pending or, to the best knowledge of Seller and
the Members, threatened against or affecting Seller or any of its properties,
assets or business, or to which Seller is or might become a party, or which
question the validity or legality of the transactions contemplated hereby, (ii)
to the best knowledge of Seller and the Members, no basis or grounds for any
such suit, action, claim, inquiry, investigation or proceeding exists, and (iii)
there is no outstanding order, writ, injunction or decree of any Governmental
Authority against or affecting Seller or its properties, assets or business.
-9-
<PAGE>
4.13 LICENSES AND PERMITS; COMPLIANCE WITH GOVERNMENTAL
--------------------------------------------------
REGULATIONS. Schedule 4.13 hereto, sets forth a true and complete list of all
- ----------- -------------
licenses and permits necessary for the conduct of the Business. Seller has all
such licenses and permits validly issued to it and in its name, and all such
licenses and permits are in full force and effect. True and correct copies of
all such licenses and permits are included in Schedule 4.13 hereto. No
-------------
violations are or have been recorded in respect of such licenses or permits and
no proceeding is pending or, to the best knowledge of Seller and the Members,
threatened seeking the revocation or limitation of any of such licenses or
permits. All such licenses and permits that are subject to transfer are included
in the Assets. Seller has complied with all Governmental Requirements applicable
to the Business, and all Governmental Requirements with respect to the
distribution and sale of products and services by it.
4.14 AUTHORIZATION. Seller has full legal right, power and
-------------
authority to enter into and deliver this Agreement and to consummate the
transactions set forth herein and to perform all the terms and conditions hereto
to be performed by it. The execution and delivery of this Agreement by Seller
and the performance by it of the transactions contemplated herein has been duly
and validly authorized by all requisite action of Seller, and this Agreement has
been duly and validly executed and delivered by Seller and is the legal, valid
and binding obligation of Seller, enforceable against it in accordance with its
terms, except as limited by applicable bankruptcy, moratorium, insolvency or
other similar laws affecting generally the rights of creditors or by principles
of equity.
4.15 NO UNTRUE STATEMENTS. There is no fact that is not
--------------------
disclosed to Purchaser in this Agreement or the Schedules hereto that materially
and adversely affects or, so far as Seller and the Members can now reasonably
foresee, could materially and adversely affect the condition (financial or
otherwise) of any of the Assets or the Business or the ability of Seller to
perform its obligations under the Agreement.
4.16 RECORDS. The books, records and minutes kept by Seller
-------
with respect to the Assets and the Business, including, but not limited to, all
customer files, service agreements quotations, correspondence and historic
revenue data of Seller since November 1, 1993, have been kept properly and
contain records of all matters required to be included therein by any
Governmental Requirement, and such books, records and minutes are true, accurate
and complete in all material respects and (except for corporate minute books and
stock records) are included in the Assets. Purchaser agrees to store for a
period of at least three (3) years from the Closing Date all of Seller's tax and
accounting records for the three (3) year period prior to the Closing Date. Such
records shall be made available for inspection and copying by Seller to Members
upon reasonable advance notice and during reasonable business hours. Purchaser
further agrees that if Purchaser intends to destroy any of such tax or
accounting records during the period ending six (6) years after the Closing
Date, Purchaser will fist notify Seller and Members and provide Seller and
Members with an opportunity to take possession of such records within a period
of not less than thirty (30) days following such notice.
4.17 BROKERS AND FINDERS. No broker or finder has acted for
-------------------
Seller or the Members in connection with this Agreement or the transactions
contemplated by this Agreement and no broker or finder is entitled to any
brokage or finder's fee or to any commission in
-10-
<PAGE>
respect thereof based in any way on agreements, arrangements or understandings
made by or on behalf of Seller or the Members.
4.18 DEPOSITS. Except as disclosed on Schedule 4.18, Seller does not
-------- -------------
now hold, nor does Seller expect to receive between the date hereof and the
Closing Date, any deposits or prepayments by third parties with respect to any
of the Assets or the Business which are not reflected as liabilities on August
31, 1996.
4.19 TELEPHONE NUMBERS. All telephone numbers used by Seller in
-----------------
connection with the Business are included in the Assets and are fully
transferable to Purchaser.
4.20 CUSTOMER LIST. Schedule 4.20 hereto sets forth a true, correct
------------- -------------
and complete list of the 20 largest customers of the Business to which the
Seller has sold products or provided services during the fiscal year ending
December 31, 1995. This list provides an accurate statement of the gross
revenues received from each such customer by the Business during fiscal year
ended December 31, 1995. To the Best Knowledge of Seller, no customer listed on
Schedule 4.20 hereto currently intends to stop or decrease its rate of buying
- -------------
products or services (on an annualized basis) from Seller prior to the Closing
Date, or to the extent any such customer becomes a customer of Purchaser
pursuant to the transactions contemplated by this Agreement, from Purchaser
after the Closing Date.
4.21 NO ROYALTIES. No royalty or similar item or amount is being paid
------------
or is owing by Seller, nor is any such item accruing, with respect to the
operation, ownership or use of the Business of the Assets.
4.22 SUBSIDIARIES. The Seller does not own any Subsidiaries. As used
------------
in this Agreement, the word "SUBSIDIARY" means any corporation or other
organization, whether incorporated or unincorporated, of which such party or any
other Subsidiary of such party is a general partner, or at least a majority of
the securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries. The Members
have good and marketable title to all of the membership interests of the Seller,
free and clear of all mortgages, liens, pledges, equity, security interests,
restrictions and charges of any nature whatsoever.
In making the representations and warranties set forth above, the term
"material" shall be deemed to mean an amount of money greater than $15,000, the
terms "material adverse change," "material adverse trend," "material adverse
effect," or any other term of like import, shall mean the occurrence of any
single event, or any series of related events, or set of related circumstances,
which proximately causes an actual, direct economic loss to the Company, taken
as a whole, in excess of $15,000 per occurrence or $20,000 in the aggregate. The
term "knowledge" shall mean actual knowledge after reasonable investigation.
-11-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
-------------------------------------------
warrants to Seller and the Members as follows:
5.1 INCORPORATION. Purchaser is a corporation duly organized, validly
-------------
existing and in good standing under the laws of the State of Delaware.
5.2 AUTHORIZATION. Purchaser has full legal right and corporate power
-------------
to enter into and deliver this Agreement and to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by it. This Agreement, and all of the agreements, documents and instruments
contemplated herby which have been or will be executed by Purchaser, have been
duly executed and delivered by Purchaser and constitute the legal, valid and
binding obligation of Purchaser enforceable in accordance with their respective
terms, except as limited by applicable bankruptcy, moratorium, insolvency, or
other laws affecting generally the rights of creditors or by principals of
equity. The execution and delivery of this Agreement by Purchaser and the
performance by Purchaser of the transactions contemplated herein have been duly
and validly authorized by all requisite corporate action of Purchaser. The
execution, delivery, and performance of this Agreement (as well as all other
instruments, agreements, certificates or other documents contemplated hereby) by
Purchaser, will not (a) violate any material requirements of laws or court order
of any Governmental Authority applicable to Purchaser or its property, (b)
violate or conflict with, or permit the cancellation of, or constitute a default
under any agreement to which Purchaser is a party or by which it or its property
is bound, (c) permit the acceleration of the maturity of any indebtedness of, or
any indebtedness secured by the property of, Purchaser, or (d) violate or
conflict with any provision of the charter or bylaws of Purchaser.
5.3 BROKERS AND FINDERS. No broker or finder has acted for Purchaser
-------------------
in connection with this Agreement or the transactions contemplated by this
Agreement and, no broker or finder is entitled to any brokerage or finder's
fee or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.
6. PRE-CLOSING COVENANTS. The parties agree as follows with respect to
----------------------
the period between the execution of this Agreement and the Closing.
6.1 GENERAL. Each of the parties will use its best efforts to take
-------
all action and to do all things necessary, proper, or advisable to consummate
and make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Section 7 below).
---------
6.2 NOTICES AND CONSENTS. The Seller will give any notices to third
--------------------
parties, and the Seller will use its best efforts to obtain any third party
consents that the Purchaser may request in connection with the matters
pertaining to the Seller disclosed or required to be disclosed by this
Agreement. Each of the parties will take any additional action that may be
necessary, proper or advisable in connection with any other notices to, filings
with, and
-12-
<PAGE>
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that it may be required to give, make or obtain.
6.3 OPERATION OF BUSINESS. The Seller will not engage in any practice,
---------------------
take any action, embark on any course of inaction, or enter into any transaction
outside the ordinary course of business. Without limiting the generality of the
foregoing, the Seller will not engage in any practice, take any action, embark
on any course of inaction, or enter into any transaction of the sort described
in Section 4.4 hereof.
-----------
6.4 PRESERVATION OF BUSINESS. The Seller will keep the business and
------------------------
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
6.5 FULL ACCESS. The Seller will permit representatives of the Purchaser
-----------
to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Seller, to all premises,
properties, books, records, contracts, tax records, and documents of or
pertaining to the Seller.
6.6 NOTICE OF DEVELOPMENTS. The Seller will give prompt written notice to
----------------------
the Purchaser of any material development affecting the assets, liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Seller taken as a whole. Each party will give prompt written
notice to the other of any material development affecting the ability of the
parties to consummate the transactions contemplated by this Agreement. No
disclosure by any party pursuant to this Section 6.6, however, shall be deemed
-----------
to amend or supplement the Schedules or Attachments hereto, or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
6.7 EXCLUSIVITY. The Seller and the Members will not (i) solicit,
-----------
initiate or encourage the submission of any proposal or offer from any person
relating to any (A) liquidation, dissolution, or recapitalization, (B) merger or
consolidation, (C) acquisition or purchase of securities or assets, or (D)
similar transaction or business combination involving Seller or SBC, or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Seller and the Members will notify the Purchaser immediately if
any person makes any proposal, offer, inquiry, or contact with respect to any of
the foregoing.
7. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------
7.1 CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligations of
-----------------------------------------
the Purchaser to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(A) the representations and warranties set forth in Section 4
---------
hereof shall be true and correct in all material respects at and as of the
Closing Date;
-13-
<PAGE>
(B) the Seller and Members shall have performed and complied
with all of their covenants hereunder in all material respects through the
Closing;
(C) the Seller shall have procured all of the third party
consents specified in Section 6 above;
---------
(D) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge would (i) prevent consummation
of any of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely the right of the Purchaser to own,
operate, or control the Assets (and no such judgment, order decree, stipulation,
injunction, or charge shall be in effect):
(E) the Seller shall have delivered to the Purchaser a
certificate (without qualification as to knowledge or materiality or otherwise
except for Section 7.1(d) above) to the effect that each of the conditions
--------------
specified above in Sections 7.1 (a), (b) and (d) is satisfied in all respects;
---------------- --- ---
(F) the Purchaser shall have received all other authorizations,
consents, and approvals of governments and governmental agencies set forth in
this Agreement;
(G) the Purchaser shall have received from Dewey Suddeth an
executed Employment Agreement in substantially the form and substance attached
hereto as Attachment 7.1(g);
-----------------
(H) all actions and approvals to be taken by the Seller or
Members in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form and
substance to the Purchaser;
(I) the Purchaser shall have received from Rowe, Foltz & Martin,
P.C., counsel for the Seller, an opinion addressed to Purchaser dated the date
of the Closing, and in form and substance attached hereto as Attachment 7.1(i);
-----------------
(J) the Purchaser shall have obtained the approval of its Board
of Directors and lenders for the transactions contemplated by this Agreement;
(K) the Purchaser shall have obtained a satisfactory three-year
lease for the Atlanta facility from the Seller on terms which would have no
adverse effect on the operations of the Purchaser or the current expense level
of the Business (such monthly rent to be initially equivalent to the monthly
depreciation rate on such facility);
(L) the Purchaser shall have received from the Seller its
reviewed financial statements (balance sheets and income statements for fiscal
years 1993, 1994 and 1995) and federal income tax returns for the same period
that have been prepared and/or filed; and
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
(M) the Purchaser shall have received evidence that the Seller will
change its name to one without the name "ATS-Atlanta One."
The Purchaser may waive any condition specified in this Section 7 if it
---------
executes a writing so stating at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the Seller
--------------------------------------
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(A) the representations and warranties set forth in Section 5 above
shall be true and correct in all material respects at and as of the Closing
Date;
(B) the Purchaser shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(C) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation, injunction, or
charge shall be in effect);
(D) the Purchaser shall have delivered to Seller a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified above in Section 7.2(a)-(c) is
------------------
satisfied in all respects;
(E) the Seller shall have received from Davis, Graham & Stubbs LLP,
an opinion addressed to Seller and dated as of the Closing Date in form and
substance attached hereto as Schedule 7.2(e);
---------------
(F) Dewey Suddeth shall have been given the option to invest up to
[**] on substantially the same terms provided to other recent outside investors
in Global; and
(G) the Purchaser shall have delivered to Dewey Suddeth an executed
Employment Agreement in substantially the form and substance attached hereto as
Attachment 7.1(g).
- -----------------
The Seller may waive any condition specified in this Section 7 if it
---------
executes a writing so stating at or prior to the Closing.
-15-
<PAGE>
8. TERMINATION.
-----------
8.1 TERMINATION OF AGREEMENT. Certain of the parties may terminate
------------------------
this Agreement as provided below:
(A) the Purchaser and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(B) the Purchaser may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event the Seller
are in breach.
(C) the Purchaser may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing if the Closing shall not
have occurred on or before November 30, 1996 by reason of the failure of any
condition precedent under Section 7 hereof (unless the failure results
---------
primarily from the Purchaser itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(D) the Seller may terminate this Agreement by giving written
notice to the Purchaser at any time prior to the Closing if the Closing shall
not have occurred on or before November 30, 1996 by reason of the failure of any
condition precedent under Section 7 hereof (unless the failure results primarily
---------
from the Seller or Members breaching any representation, warranty, or covenant
contained in this Agreement).
8.2 EFFECT OF TERMINATION. If any party terminates this Agreement
---------------------
pursuant to Section 8.1 above, all obligations of the parties hereunder shall
-----------
terminate without any liability of any party to any other party (except for any
liability of any party then in breach of this Agreement.
9. NATURE OF STATEMENTS AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF
----------------------------------------------------------------------
SELLER. All statements of fact contained in this Agreement or in any written
- ------
statement (including financial statements), certificate, schedule or other
document delivered by or on behalf of Seller pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties of Seller and/or the Members hereunder. Except
for the provisions of Sections 4.2, 4.6 and 4.7 which shall survive until the
statute of limitations, all representations and warranties made by Seller and/or
the Member hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing for a period of one year and one
day from the Closing Date, regardless of any investigation at any time made by
on or behalf of Purchaser.
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS.
------------------------------------------
10.1 DELIVERY OF FUNDS AND OTHER ASSETS COLLECTED BY SELLER: POWER OF
-----------------------------------------------------------------
ATTORNEY. To the extent Seller receives any funds or other assets in payment
- --------
of receivables or work-in-process incurred on or after the Closing Date, or in
connection with any other Assets being sold to Purchaser hereto, Seller shall
immediately deliver such funds and assets to SBC
-16-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
and take all steps necessary to vest title to such funds and assets in SBC.
Seller hereby designates SBC and its officers as Seller's true and lawful
attorney-in-fact, with full power of substitution, to execute or endorse for the
benefit of SBC any checks, notes or other documents received by SBC in payment
of or in substitution or exchange for any of the Assets. Seller hereby
acknowledges and agrees that the power of attorney set forth in the preceding
sentence is coupled with an interest, and further agrees to execute and deliver
to SBC from time to time any documents or instruments reasonably requested by
Purchaser to evidence such power of attorney.
10.2 CHANGE OF NAME OF SELLER. Immediately upon the occurrence of the
------------------------
Closing, Seller shall cease using the phrase "ATS-Atlanta One" and all
derivations thereof. Seller and the Members each covenant and each agree that
after the Closing it will not, directly or indirectly, use the name "ATS-Atlanta
One" or any derivations thereof in connection with any business enterprise.
11. LEASE AGREEMENT. Purchaser shall assume the leases for the office
---------------
space currently used by Seller in Atlanta, Georgia in connection with the
operation of the Business on the terms set forth in Section 7.1 (l) hereto.
---------------
Purchaser will, from and after Closing, hold harmless Seller and Members from
any liability thereunder accruing after Closing.
12. NON-COMPETITION AGREEMENT. As an inducement for Purchaser to enter
-------------------------
into this Agreement and in return for the payment of [**] as provided by Section
-------
3.1(a), the parties hereby agree to the provisions of this Section 12. For a
- ------ ----------
period commencing on the date hereof through the second anniversary of the
Closing Date, neither Seller nor any affiliate of Seller (including the Members
and Dewey Suddeth), shall (i) within the territorial boundaries of the
continental United States, where the Business of Seller is now conducted,
compete directly or indirectly with any business engaged in by Purchaser or its
Affiliates to the extent it is similar to any business engaged in by the Seller
as of the date hereof, (ii) solicit directly or indirectly any of the Accounts
(as hereinafter defined) of Seller or of Purchaser or its Affiliates, or (iii)
be employed by or otherwise render services to, or own any interest in, any
Person that directly or indirectly (a) competes with any business engaged in by
Purchaser or its Affiliates within the United States, to the extent it is
similar to any business engaged in by Seller as of the date hereof, or (b)
solicits directly or indirectly any of the Accounts of Seller or of Purchaser or
its Affiliates. For purposes of this Section 12, the term "ACCOUNTS" shall mean
----------
any Person located in the United States of America for which Seller has
performed services or Purchaser or its Affiliates does perform services during
the period beginning three (3) years prior to the date hereof and ending on the
second anniversary of the Closing Date. Seller and Members agree that the
limitations set forth herein on the rights of them and their Affiliates to
compete with Purchaser and its Affiliates are reasonable and necessary for the
protection of the Purchaser. In this regard, Seller and Members specifically
agree that the limitations as to period of time and geographic area, as well as
all other restrictions on its activities specified herein, are reasonable and
necessary for the protection of the Purchaser. Seller and Members further
recognize and agree that violation of any of the agreements contained in this
Section 12 will cause irreparable damage or injury to Purchaser, the exact
- ----------
amount of which may be impossible to ascertain, and that, for such reason,
among others, Purchaser and its Affiliates shall be
-17-
<PAGE>
entitled to an injunction, without the necessity of posting a bond, restraining
any further violation of such agreements. Such rights to any injunction shall
be in addition to, and not in limitation of, any other rights and remedies
Purchaser and its Affiliates may have against Seller, the Members or their
Affiliates, including, but not limited to, the recovery of damages. Further, it
is agreed by Seller and the Members that in the event the provisions of this
Agreement should ever be deemed to exceed the time or geographic limitations
permitted by applicable law, then such provisions shall be reformed to the
maximum time or geographic limitations permitted.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Seller and Members
-----------------------------------------
recognize and acknowledge that they have and will have access to certain
confidential information of Seller that is included in the Assets (including,
but not limited to, list of customers, and costs and financial information) that
after the consummation of the transactions contemplated hereby will be
valuable, special and unique property of Purchaser. Seller and Members each
agree that it will not disclose, and it will use its best efforts to prevent
disclosure by any other Person of, any such confidential information to any
Person, except to authorized representatives of Purchaser. Seller and Members
recognize and agree that violation of any of the agreements contained in this
Section 13 will cause irreparable damage or injury to Purchaser, the exact
- ----------
amount of which may be impossible to ascertain, and that, for such reason, among
others, Purchaser shall be entitled to an injunction, without the necessity of
posting bond, therefor, restraining any further violation of such agreements.
Such rights to any injunction shall be in addition to, and not in limitation of,
any other rights and remedies Purchaser may have against Seller or the Members.
14. ASSIGNMENTS OF CONTRACTS. Notwithstanding any other provision of this
------------------------
Agreement, nothing in this Agreement or any related document shall be construed
as an attempt to assign (i) any contract which, as a matter of law or by its
terms, is nonassignable without the consent of the other parties thereto unless
such consent has been given, or (ii) any contract or claims as to which all of
the remedies for the enforcement thereof enjoyed by Seller would not, as a
matter of law or by its terms, pass to Purchaser as an incident of the transfers
and assignments to be made under this Agreement. In order, however, that the
full value of every contract and claim of the character described in clauses (i)
and (ii) above and all claims and demands on such contracts may be realized for
the benefit of Purchaser, Seller, at the request and expense and under the
direction of Purchaser, shall take all such action and do or cause to be done
all such things as will, in the opinion of Purchaser, be necessary or proper in
order that the obligations of Seller under such contracts may be performed in
such manner that the value of such contract will be preserved and will inure to
the benefit of Purchaser, and for, and to facilitate, the collection of the
monies due and payable and to become due and payable thereunder to Purchaser in
and under every such contract and claim incurred after the Closing. Seller shall
promptly pay over to Purchaser all monies collected by or paid to it in respect
of every such contract, claim or demand to the extent such monies are earned by
the Purchaser on or after the Closing Date. Nothing in this Section 14 shall
----------
relieve Seller of its obligation to obtain any consents required for the
transfer of the Assets and all rights thereunder to Purchaser.
-18-
<PAGE>
15. SPECIAL PROVISIONS REGARDING EMPLOYEES OF SELLER.
------------------------------------------------
15.1 NEW EMPLOYEES OF PURCHASER. It is the intention of Purchaser to
--------------------------
hire all employees of seller, and Seller hereby acknowledges and agrees with
such position and that any employees of Seller that Purchaser hires will be new
employees of Purchaser as of the Closing Date or the date of hire, whichever is
later. Such new employees shall initially be entitled to the same compensation
and employee benefits as provided by Seller.
15.2 HIRING OF EMPLOYEES.
-------------------
(A) Purchaser through Mark M. Lloyd will use its reasonable
efforts to hire the existing employees of Seller in connection with its
purchase of the Assets: provided however, that Purchaser shall be entitled to
review employee records, conduct employee interviews and employee screening
procedures used by Purchaser in its business, and may refuse to offer employment
to any employee of Seller if such employee fails to meet the hiring criteria of
Purchaser as determined by Mark M. Lloyd in good faith.
(B) As a condition to their employment by Purchaser, all
existing key employees of Seller shall execute and deliver to Purchaser a
confidentiality and non-competition agreement in a form and substance
acceptable to Purchaser.
15.3 INDEMNITY CONCERNING ACCRUED BENEFITS. Seller and the Members
-------------------------------------
agree to indemnify and hold harmless Purchaser from and against any and all
accrued and outstanding employee benefits, salary, vacation pay, bonuses,
commissions and other emoluments of its employees and from any other employee
related matters or liabilities with respect to its employees but only to the
extent not reserved for in the Seller's financial statements delivered to
Purchaser hereunder or in the working capital adjustment made pursuant to the
SBC Agreement.
16. EXPENSES. Whether or not the transactions contemplated hereby are
--------
consummated, Seller will pay all of its costs and expenses and Purchaser will
pay all of its costs and expenses, incurred in connection with the preparation
of and execution of this Agreement and the consummation of the transactions
contemplated hereby.
17. FURTHER ACTIONS. From time to time, at the request of any party
---------------
hereto, the other parties hereto shall execute and deliver such instruments and
take such action as may be reasonably request to evidence the transactions
contemplated hereby.
18. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given hereunder shall be writing and shall be deemed
to have been duly given if delivered personally, given by prepaid telex or
telegram or by facsimile or other similar instantaneous electronic transmission
device or mailing first class, postage prepaid, certified United States mail,
return receipt requested, as follows:
-19-
<PAGE>
(A) If to Purchaser, at:
c/o Global Imaging Systems Inc.
14499 North Dale Mabry Highway, Suite 280
Tampa, Florida 33618
Attention: Mr. Thomas S. Johnson
Facsimile No.: (813) 264-7877
With a copy to:
Davis, Graham & Stubbs LLP
1314 Nineteenth Street
Washington, D.C. 20036
Attention: Christopher J. Hagan, Esq.
Facsimile No.: (202) 293-4794
(B) If to Seller, at:
Southern Business Communications, Inc.
3175 Corners North Court
Norcross, Georgia 30071
Attention: Mark M. Lloyd
Facsimile No.: (770) 449-0188
With a copy to
Paul Shlanta, Esq.
Rowe, Foltz & Martin
Five Piedmont Center, Suite 750
Atlanta, Georgia 30305
Facsimile No.: (404) 237-1659
provided that any party may change its address for notice by giving to the other
party written notice of such change. Any notice given under this Section 19
----------
shall be effective (i) if delivered personally, when delivered, (ii) if sent by
telex or telegram or by facsimile or other similar instantaneous electronic
transmission device, twenty-four (24) hours after sending, and (iii) if mailed,
seventy-two (72) hours after mailing.
19. GENERAL PROVISIONS
------------------
19.1 GOVERNING LAW: INTERPRETATION: SECTION HEADINGS. THIS AGREEMENT
-----------------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF GEORGIA, WITHOUT REGARD TO CONFLICT-OF-LAWS RULES AS APPLIED IN
GEORGIA. THE SECTION HEADINGS CONTAINED HEREIN ARE FOR PURPOSES OF
-20-
<PAGE>
CONVENIENCE ONLY, AND SHALL NOT BE DEEMED TO CONSTITUTE A PART OF THIS AGREEMENT
OR TO AFFECT THE MEANING OR INTERPRETATION OF THIS AGREEMENT IN ANY WAY.
19.2 SEVERABILITY. Should any provision of this Agreement be held
------------
unenforceable or invalid under the laws of the United States of America or the
State of Georgia, or under any other applicable laws of any other jurisdiction,
then the parties hereto agree that such provision shall be deemed modified for
purposes of performance of this Agreement in such jurisdiction to the extent
necessary to render it lawful and enforceable, or if such a modification is not
possible without materially altering the intention of the parties hereto, then
such provision shall be severed herefrom for purposes of performance of this
Agreement in such jurisdiction. The validity of the remaining provisions of this
Agreement shall not be affected by any such modification or severance, except
that if any severance materially alters the intentions of the parties hereto as
expressed herein (a modification being permitted only if there is no material
alteration), then the parties hereto shall use their best reasonable effort to
agree to appropriate equitable amendments to this Agreement in light of such
severance, and if no such agreement can be reached within a reasonable time, any
party hereto may initiate arbitration under the then current rules of the
American Arbitration Association to determine and effect such appropriate
equitable amendments.
19.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
----------------
and understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No representation, promise,
inducement or statement of intention has been made by any party hereto which is
not embodied in this Agreement, and no party hereto shall be bound by or liable
for any alleged representation, promise, inducement or statement of intention
not so set forth.
19.4 BINDING EFFECT. All the terms, provisions, covenants and
--------------
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
19.5 ASSIGNMENT. This Agreement and the rights and obligations of the
----------
parties hereto shall not be assigned or delegated by any party hereto without
the prior written consent of the other parties hereto.
19.6 AMENDMENT; WAIVER. This Agreement may be amended, modified,
-----------------
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants, or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provisions, representation, warranty or
covenant contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or
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<PAGE>
continuing waiver of any such condition or breach, or as a waiver of any other
condition or of the breach of any other term, provision, representation,
warranty or covenant.
19.7 GENDER; NUMBERS. All references on this Agreement to the
---------------
masculine, feminine or neuter genders shall, where appropriate, be deemed to
include all other genders. All plurals used in this Agreement shall, where
appropriate, be deemed to be singular, and vice versa.
19.8 COUNTERPARTS. This Agreement may be executed simultaneously in
-------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as
signatories.
19.9 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or other
-------------------------------
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereof.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"PURCHASER"
ATS-ATLANTA ONE, INC.
--------------------
ATTEST:
By: /s/ Ray Schilling
-----------------------
/s/ Christopher J. Hagan Name: Ray Schilling
- ------------------------
Secretary: Title: V.P., Secretary and
Treasurer
[Corporate Seal]
"SELLER"
ATS-ATLANTA ONE, L.L.C.
ATTEST:
By: /s/ Dewey M. Suddeth
-------------------------
/s/ Dewey M. Suddeth Name: Dewey M. Suddeth
- ------------------------
Secretary: Title:
[Corporate Seal]
"MEMBERS"
ATS ATLANTA, INC.
ATTEST:
By: /s/ Dewey M. Suddeth
-------------------------
/s/ Dewey M. Suddeth Name: Dewey M. Suddeth
- ------------------------
Secretary: Title:
[Corporate Seal]
/s/ Mark M. Lloyd
-----------------------------
MARK M. LLOYD
/s/ Arthur E. Kreps
-----------------------------
ARTHUR E. KREPS
-23-
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.20
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
ESI ACQUISITION CORPORATION,
ELECTRONIC SYSTEMS, INC.
AND
THE SHAREHOLDERS OF
ELECTRONIC SYSTEMS, INC.
DATED AUGUST 7, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions..................................................................... 1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase.................................................. 6
2.2 Purchase Price.................................................................. 6
2.3 Payment of Purchase Price....................................................... 6
2.4 Closing......................................................................... 6
2.5 Escrow Arrangements............................................................. 7
2.6 Purchase Price Adjustments...................................................... 7
2.7 Closing Audit................................................................... 7
2.8 Post-Closing Purchase Price Adjustment.......................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
3.1 Capitalization.................................................................. 8
3.2 No Liens on Shares.............................................................. 9
3.3 Other Rights to Acquire Capital Stock........................................... 9
3.4 Due Organization................................................................ 9
3.5 No Subsidiaries................................................................. 9
3.6 Due Authorization............................................................... 9
3.7 Financial Statements............................................................ 10
3.8 Certain Actions................................................................. 10
3.9 Properties...................................................................... 11
3.10 Licenses and Permits........................................................... 12
3.11 Intellectual Property.......................................................... 12
3.12 Compliance with Laws........................................................... 13
3.13 Insurance...................................................................... 13
3.14 Employee Benefit Plans......................................................... 13
(a) Employee Welfare Benefit Plans............................................. 13
(b) Employee Pension Benefit Plans............................................. 14
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements............................................................... 14
3.15 Contracts and Agreements....................................................... 14
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.16 Claims and Proceedings.............................................................. 15
3.17 Taxes............................................................................... 15
3.18 Personnel........................................................................... 16
3.19 Business Relations.................................................................. 17
3.20 Accounts Receivable................................................................. 17
3.21 Bank Accounts....................................................................... 17
3.22 Warranties.......................................................................... 17
3.23 Brokers............................................................................. 17
3.24 Interest in Competitors, Suppliers, Customers, Etc.................................. 18
3.25 Indebtedness To and From Officers, Directors, Shareholders,
and Employees....................................................................... 18
3.26 Undisclosed Liabilities............................................................. 18
3.27 Information Furnished............................................................... 18
ARTICLE IV
GLOBAL'S AND ESIAC'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization..................................................................... 19
4.2 Due Authorization.................................................................... 19
4.3 No Brokers........................................................................... 19
ARTICLE V
COVENANTS OF THE COMPANY AND SELLERS
5.1 Consents of Others................................................................... 20
5.2 Sellers' Efforts..................................................................... 20
5.3 Powers of Attorney................................................................... 20
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General.............................................................................. 20
6.2 Transition........................................................................... 20
6.3 Confidentiality...................................................................... 21
6.4 Covenant Not to Compete.............................................................. 21
6.5 Additional Matters................................................................... 22
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's and ESIAC's Obligations....................................... 23
(a) Covenants, Representations and Warranties....................................... 24
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(b) Consents....................................................................... 24
(c) Leases......................................................................... 24
(d) Discharge of Indebtedness and Liens............................................ 24
(e) Material Adverse Change........................................................ 24
(f) Transfer Taxes................................................................. 24
(g) Financial Condition............................................................ 25
(h) Relationship with ESR.......................................................... 25
(i) Documents to be Delivered by Sellers and the Company........................... 25
(i) Opinion of Sellers' Counsel............................................... 25
(ii) Certificates............................................................. 25
(iii) Release................................................................. 25
(iv) Escrow Agreement......................................................... 25
(v) Employment Agreement...................................................... 25
(vi) Office Lease............................................................. 25
(vii) Stock Certificates...................................................... 26
7.2 Conditions to Sellers and the Company's Obligations................................. 26
(a) Covenants, Representations and Warranties...................................... 26
(b) Consents....................................................................... 26
(c) Documents to be Delivered by Global and ESIAC.................................. 26
(i) Opinion of Global's and ESIAC's Counsel................................... 26
(ii) Certificates............................................................. 27
(iii) Escrow Agreement........................................................ 27
(iv) Employment Agreement..................................................... 27
(v) Lease..................................................................... 27
(vi) Purchase Price........................................................... 27
(d) Right of Reinvestment.......................................................... 27
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global........................................................... 28
8.2 Defense of Claims................................................................... 28
8.3 Escrow Claim........................................................................ 29
8.4 Tax Audits, Etc..................................................................... 29
8.5 Indemnification of Sellers.......................................................... 29
8.6 Limits on Indemnification........................................................... 29
ARTICLE IX
MISCELLANEOUS
9.1 Modifications....................................................................... 30
9.2 Notices............................................................................. 30
9.3 Counterparts........................................................................ 31
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
9.4 Expenses.......................................................................... 32
9.5 Binding Effect; Assignment........................................................ 32
9.6 Entire and Sole Agreement......................................................... 32
9.7 Governing Law..................................................................... 32
9.8 Survival of Representations, Warranties and Covenants............................. 32
9.9 Invalid Provisions................................................................ 33
9.10 Public Announcements............................................................. 33
9.11 Remedies Cumulative.............................................................. 33
9.12 Waiver........................................................................... 33
9.13 DISPUTE RESOLUTION............................................................... 33
9.14 Building Leases.................................................................. 33
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Sellers' Counsel
Exhibit D Sellers' Certificates
Exhibit E Release
Exhibit F Kamarek Executive Agreement
Exhibit G Opinion of Global's and ESIAC's Counsel
Exhibit H Global Certificate
Exhibit I Existing Building Lease
LIST OF SCHEDULES
Schedule 2.3 Sellers' Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
August 7, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware corporation
("GLOBAL"), ESI ACQUISITION CORPORATION, a Delaware corporation and wholly-owned
subsidiary of Global ("ESIAC"), ELECTRONIC SYSTEMS, INC., a Virginia corporation
(the "COMPANY") and THE SHAREHOLDERS OF ELECTRONIC SYSTEMS, INC. (each
individually, a "SELLER," and collectively, the "SELLERS").
W I T N E S S E T H:
WHEREAS, the Company is engaged in systems integration and the sales,
distribution and service of computer and networking equipment in the State of
Virginia (the "BUSINESS"); and
WHEREAS, Sellers collectively own 2,747 shares of the outstanding
Common Stock of the Company (the "SHARES"), which Shares constitute all of the
issued and outstanding capital stock of the Company; and
WHEREAS, ESIAC desires to purchase from Sellers and Sellers desire to
sell to ESIAC hereby all of the Shares owned by Sellers, all on the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, immediately subsequent to the purchase of the Shares by
ESIAC, Global will cause ESIAC to be merged with and into the Company, all in
accordance with Virginia and Delaware law, with the Company being the surviving
corporation.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
<PAGE>
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
"BUILDINGS" shall mean collectively (i) the Company's office,
showroom and warehouse facilities located at 361 Southport Circle, Virginia
Beach, Virginia (the "EXISTING BUILDING") and (ii) if and when built and
occupied by the Company, an additional building on property adjacent to the
Existing Building (the "NEW BUILDING").
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Sellers to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
-2-
<PAGE>
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Mr. Kamarek to be entered into at Closing in the form of Exhibit F.
---------
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind other
than Permitted Exceptions.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the Norfolk Virginia office of Signet Bank,
N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Sellers, Global and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"ESIAC" has the meaning specified in the first paragraph of this
Agreement.
"ESR" means Electronic Systems of Richmond, Inc., a Virginia
corporation that is owned in part by certain of the Sellers.
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business; (iv)
indebtedness of others guaranteed by the Company or secured by an Encumbrance on
the Company's property; or (v) indebtedness of the Company under extended credit
terms of more than 90 days from manufacturers provided to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
-3-
<PAGE>
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company, taken as a
whole. In determining whether a "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE
EFFECT" has occurred, the quantitative amounts set forth at the end of Article
-------
III shall be conclusive.
- ---
"MR. KAMAREK" means William G. Kamarek, the majority stockholder
of the company.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
-4-
<PAGE>
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of June 30, 1997 as adjusted upward
by the Company's earnings in July prior to the Effective Date. The Preliminary
Closing Balance Sheet shall be delivered to Global not less than one (1) nor
more than five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SELLERS" has the meaning set forth in the first paragraph of
this Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed thereon by an Governmental
Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities as calculated in accordance with
GAAP.
"WORKING CAPITAL ADJUSTMENT" means an amount equal to $80,548.
-5-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
"WORKING CAPITAL TARGET" means an amount equal to $3,325,000
minus the Working Capital Adjustment.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Sellers agree to sell the Shares to
ESIAC and ESIAC agrees to purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
--------------
"PURCHASE PRICE") shall be equal to [**], subject to any adjustment required to
be made pursuant to Section 2.6(a) or Section 2.8 below.
-------------- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by ESIAC at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price will be paid, at the direction of
each of the Sellers, in cash by wire transfer of funds as specified in Schedule
--------
2.3 (including the payment of [**] for the covenant not to compete provided in
- ---
Section 6.4); and
- -----------
(B) [**] of the Purchase Price will be paid in cash by wire
transfer of funds to the Escrow Agent to be held in escrow for satisfaction of
Sellers' indemnification obligations specified in Section 8.1 or payment to the
-----------
Sellers in accordance with the terms of Section 2.5 below.
-----------
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 11:00 a.m., Eastern time, at
the offices of Kaufman & Canoles in Norfolk, Virginia, on August 8, 1997, or at
such other date and time as the parties shall agree (the "CLOSING DATE"),
effective as of thirty-one (31) days prior to the Closing Date (the "EFFECTIVE
DATE"). If this Agreement is executed before Closing, all additional agreements
and instruments required for Closing shall be executed by the necessary parties
and placed in escrow with the Company's counsel, together with this Agreement,
pending receipt of the Purchase Price by Sellers, and Global shall immediately
take all actions necessary to cause the Purchase Price to be paid to Sellers on
the same day this Agreement is so executed (or, if funding on the same day such
execution occurs is impossible, prior to 2:00 pm on the second following
business day). Upon their receipt of the Purchase Price, Sellers shall cause
the Company's counsel to deliver executed documents to the appropriate parties.
Unless execution of this Agreement and payment of the Purchase Price occur
simultaneously, Global waives all conditions to their obligations to consummate
the Closing set forth in Section 7.1, except for the conditions set forth in
-----------
Section 7.1(i). Sellers shall have the absolute right to terminate this
- --------------
Agreement without any liability whatsoever to Global or ESIAC if the Purchase
Price is not paid
-6-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
to them in accordance with the provisions of this Section 2.4. If informed by
-----------
Mr. Kamarek that Sellers have terminated this Agreement pursuant to the
preceding sentence, the Company's counsel shall deliver to Mr. Kamarek all
documents being held in escrow by them pursuant to this Section 2.4, for
-----------
destruction or other disposal as Mr. Kamarek and the Sellers deem appropriate.
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Sellers, Global and the Escrow Agent, [**] of the Purchase
Price shall be delivered to the Escrow Agent at Closing. Such monies (which,
together with all interest accrued thereon, is hereinafter referred to as the
"ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement for
payment from such Escrow Sum of amounts, if any, owing by Sellers to Global
pursuant to Section 2.8 or Article VIII below. At the conclusion of the period
-----------
ending on the 365th day after the Closing Date (such period being referred to
herein as the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Global in accordance with the terms of the
Escrow Agreement and this Agreement shall be disbursed to Sellers. Sellers and
Global agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be reduced by the total amount of Funded Indebtedness, if any, assumed or
paid by Global in cash by wire transfer of funds to the accounts of the holders
of Funded Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's
------------
Funded Indebtedness with such institutions.
(B) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the adjusted Working Capital as
reflected on the Preliminary Closing Balance Sheet is less than the Working
Capital Target. Global shall notify Mr. Kamarek in writing at least two (2)
business days before Closing of all Funded Indebtedness, if any, Global will be
paying at Closing.
2.7 CLOSING AUDIT. Within 120 days following the Closing Date,
-------------
there shall be delivered to Global and to Sellers an audit of the Preliminary
Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Company at
and as of June 30, 1997. The Preliminary Closing Balance Sheet shall be audited
by Ernst & Young, LLP in accordance with GAAP. The cost of the Audited Closing
Balance Sheet shall be paid by Global. In the event that the majority of the
Sellers or Mr. Kamarek dispute any items on the Audited Closing Balance Sheet
within ten days after Sellers' receipt thereof, the parties shall jointly select
and retain an independent "Big Six" accounting firm (the "INDEPENDENT
ACCOUNTANTS") to review the disputed item(s) on the Audited Closing Balance
Sheet. The final determination of such disputed item(s) by the Independent
Accountants shall be reflected on the Audited Closing Balance Sheet. The cost
of retaining the Independent Accountants shall be borne by Sellers; provided,
however,
-7-
<PAGE>
that Global shall reimburse Sellers for the cost of the Independent Accountants
in the event that such review results in an increase of more than $125,000 in
the Company's Working Capital as reflected on the Audited Closing Balance Sheet
prepared by Ernst & Young, LLP.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(b) above. The post-closing adjustment to the
--------------
Purchase Price, if any, shall be paid by Sellers to Global from the Escrow Sum
or by Global to Sellers, as the case may be, in immediately available funds
within ten (10) business days of delivery of the Audited Closing Balance Sheet,
unless Sellers or Mr. Kamarek dispute any items on the Audited Closing Balance
Sheet, in which case it shall be paid within ten (10) business days after the
Independent Accountants finally determine the disputed item(s), and Global
delivers to Sellers an Audited Closing Balance Sheet modified to reflect such
determination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, jointly and severally, represent and warrant
to Global and ESIAC that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 5,000 shares of Common Stock, 2,747 of which are issued and
outstanding. All of the Shares are duly authorized, validly issued, fully paid,
and nonassessable. All of the Shares are owned of record and beneficially by
Sellers in the amounts set forth on Schedule 3.1 hereto. None of the Shares was
------------
issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any Person. The Sellers collectively own
all of the issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Sellers
------------------ ------------
collectively own the Shares, free and clear of any Encumbrances other than the
rights and obligations arising under this Agreement, and none of the Shares is
subject to any outstanding option, warrant, call, or similar right of any other
Person to acquire the same, and none of the Shares is subject to any restriction
on transfer thereof except for restrictions imposed by
-8-
<PAGE>
applicable federal and state securities laws. At Closing, Sellers will have full
power and authority to convey good and marketable title to the Shares, free and
clear of any Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Virginia
and has full corporate power and authority to carry on the Business as now
conducted and as proposed to be conducted through Closing. Complete and correct
copies of the Articles of Incorporation and Bylaws of the Company, and all
amendments thereto, have been heretofore delivered to Global and are attached
hereto as Schedule 3.4. The Company is qualified to do business in Virginia
------------
and in each jurisdiction in which the nature of the Business or the ownership of
its properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 NO SUBSIDIARIES. The Company does not directly or indirectly
---------------
have any subsidiaries or any direct or indirect ownership interests in any
Person. The Sellers do not own any other Person engaged in the Business, except
for certain of the Sellers' ownership interests in ESR, as described in Schedule
--------
3.5.
- ---
3.6 DUE AUTHORIZATION. The Company and the Sellers each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Sellers and constitutes the valid and binding obligations of the Company and
Sellers, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and Sellers, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or Sellers, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any material agreement to which the Company or
Sellers are a party, or by which any of them or any of their respective property
is bound, (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Sellers, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
-9-
<PAGE>
3.7 FINANCIAL STATEMENTS. The following Financial Statements
--------------------
(herein so called) of the Company have been delivered to Global by the Company:
balance sheets of the Company as of December 31, 1994, December 31, 1995,
December 31, 1996 and June 30, 1997, and statements of income of the Company for
the fiscal years ended December 31, 1994, December 31, 1995 and December 31,
1996 and for the 6 month period ending June 30, 1997.
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated (except for variations from GAAP acceptable to the
Company's independent accountants which do not, in the aggregate, cause any of
the Financial Statements to materially understate the value or performance of
the Company, taken as a whole) and fairly present the financial position,
results of operations and changes in financial position of the Company as of the
indicated dates and for the indicated periods, subject (in the case of the 6
month Financial Statements) to year end accruals made in the ordinary course of
the Business which are not materially adverse and which are consistent with past
practices. Except to the extent reflected or provided for in the Financial
Statements or the notes thereto and obligations and liabilities incurred in the
ordinary course of business since the date of the last of such Financial
Statements, the Company has no liabilities required by GAAP to be reflected on
the Company's balance sheet or notes thereto that are not so reflected, nor any
other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) material (in amount or to the conduct of the
Business); and neither the Company nor Sellers have knowledge of any basis for
the assertion of any such liability or obligation. Since December 31, 1996,
there has been no Material Adverse Change except as disclosed on Schedule 3.8B
-------------
or any of the Financial Statements or notes thereunder.
3.8 CERTAIN ACTIONS. Since December 31, 1996, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder; (c) made or agreed to make any loans
or advances or guaranteed or agreed to guarantee any loans or advances to any
party whatsoever; (d) suffered or permitted any Encumbrance to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) cancelled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$25,000 individually or $50,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any assets
(except in the ordinary course of the Business); (g) amended its charter or
bylaws; (h) paid or made a commitment to pay any severance or termination
payment to any employee or consultant; (i) made any material change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $100,000; (k) made any investment or commitment therefor in any
-10-
<PAGE>
Person; (l) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) materially amended or experienced a
termination of any material contract, agreement, lease, franchise or license to
which the Company is a party that would or could reasonably be expected to have
a Material Adverse Effect, except in the ordinary course of the Business; or (o)
entered into any other material transactions that would or could reasonably be
expected to have a Material Adverse Effect except in the ordinary course of the
Business. Since December 31, 1996, except as disclosed on Schedule 3.8B hereto
-------------
or any of the Financial Statements or notes thereto, there has not been (a) any
Material Adverse Change including, but not limited to, the loss of any material
customers or suppliers of the Company, or in any material assets of the Company,
(b) any extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company, or (d) any shutdown, material
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Company, nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list
---------- ------------
containing a description of each interest in real property (including, without
limitation, leasehold interests) and each item of personal property utilized by
the Company in the conduct of the Business having a book value in excess of
$25,000 as of the date hereof. Except for Permitted Exceptions or as expressly
set forth on Schedule 3.9, such real and personal properties are free and clear
------------
of Encumbrances other than Encumbrances (taken as a whole) which do not
materially detract from the value of such properties or materially interfere
with their intended use. Sellers and the Company have delivered to Global a
lien search obtained from the Virginia State Corporation Commission of all UCC
liens of record against the Company's personal property in the Commonwealth of
Virginia. All of the properties and assets necessary for continued operation of
the Business as currently conducted (including, without limitation, all books,
records, computers and computer software and data processing systems) are owned,
leased or licensed by the Company and are suitable for the purposes for which
they are currently being used. With the exception of used equipment and
inventory valued at no more than $10,000 on the Company's Financial Statements,
the physical properties of the Company, including the real properties leased by
the Company, are in good operating condition and repair, normal wear and tear
excepted, and are free from any defects of a material nature. Except for
Permitted Exceptions or as otherwise set forth on Schedule 3.9, the Company has
------------
full and unrestricted legal and equitable title to all such properties and
assets. The operation of the properties and Business of the Company in the
manner in which they are now and have been operated does not violate any zoning
ordinances, municipal regulations, or other Requirements of Laws, except for any
such violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Except for Permitted Exceptions or as set forth on
Schedule 3.9, no restrictive covenants, easements, rights-of-way, or regulations
- ------------
of record impair the uses of the properties of the
-11-
<PAGE>
Company for the purposes for which they are now operated. All leases of real or
personal property by the Company are legal, valid, binding, enforceable and in
full force and effect and will remain legal, valid, binding, enforceable and in
full force and effect on identical terms immediately following the Closing,
except to the extent that enforceability may be limited by laws affecting
creditors' rights and debtors' obligations generally, and legal limitations
relating to remedies of specific performance and injunctive and other forms of
equitable relief. All facilities owned or leased by the Company have received
all approvals of any Governmental Body (including Governmental Permits) required
in connection with the operation thereof and have been operated and maintained
in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a
-------------------- -------------
list of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received written notifications from any
Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof other
than violations (if any) which would not individually or in the aggregate have a
Material Adverse Effect. To the best knowledge of Sellers and the Company, no
additional Governmental Permit is required from any Governmental Body thereof in
connection with the conduct of the Business which Governmental Permit, if not
obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities, the loss of which
could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY"). The Company has furnished Global with copies of all license
agreements to which the Company is a party, either as licensor or licensee, with
respect to any Intellectual Property. Except as described on Schedule 3.11
-------------
hereto, the Company has good title to or the right to use such Intellectual
Property and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of their Business, in their Business as
presently conducted without the payment of any royalty or similar payment, and
the Company is not materially infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Sellers are aware of any infringement by others of any
such rights owned by the Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all
-12-
<PAGE>
federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. The Company has not received written
notification of any claim by any Governmental Body (and, to the best knowledge
of the Company and Sellers, no such claim is anticipated) to the effect that the
Business fails to comply, in any respect, with any Requirements of Laws,
Governmental Permit or Environmental Obligation or that a Governmental Permit or
Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Sellers' knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA
-13-
<PAGE>
or Section 4975 of the Code other than a transaction subject to statutory or
administrative exemption; (vi) the plan has not been subject to a "reportable
event" (as defined in Section 4043(b) of ERISA), the reporting of which has not
been waived by regulation of the Pension Benefit Guaranty Corporation; (vii) no
termination or partial termination of the plan has occurred within the meaning
of Section 411(d)(3) of the Code; (viii) all contributions required to be made
to the plan or under any applicable collective bargaining agreement have been
made to or on behalf of the plan; (ix) there is no material litigation,
arbitration or disputed claim outstanding; and (x) all applicable premiums due
to the Pension Benefit Guaranty Corporation for plan termination insurance have
been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is
------------------------ -------------
a list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $50,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Sellers and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts, except as
noted on Schedule 3.15. All of the Contracts to which the Company is a party
-------------
are legal, valid, binding, enforceable and in full force and effect and will
remain legal, valid, binding, enforceable and in full force and effect on
identical terms immediately after the Closing, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. Except as set
forth in Schedule 3.15, the Company has not guaranteed any obligations of any
-------------
other Person. To the best of Seller's and the Company's Knowledge, no material
manufacturer of office equipment sold by the Company will cease doing business
with the Company immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Sellers or
the Company, threatened against or directly affecting the Company or any of its
properties or assets, at law or in equity, or before or by any court,
municipality or other Governmental Body. Except as set forth on Schedule 3.16,
-------------
none of such claims, actions, suits, proceedings, or investigations, if
adversely determined, will result in any
-14-
<PAGE>
liability or loss which will have a Material Adverse Effect on the Company. The
Company has not been and the Company is not now, subject to any Court Order,
stipulation, or consent of or with any court or Governmental Body. No inquiry,
action or proceeding has been instituted or, to the best knowledge and belief of
the Sellers or the Company, threatened or asserted against the Sellers or the
Company to restrain or prohibit the carrying out of the transactions
contemplated by this Agreement or to challenge the validity of such transactions
or any part thereof or seeking damages on account thereof. To the best knowledge
of the Company and Sellers, except as set forth on Schedule 3.16, there is no
-------------
basis for any such valid claim or action.
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Sellers
are presently subject to an extension of the time to file, except for the
Company's 1996 income Tax Returns which are currently under extension. All
Taxes, assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Sellers or the Company are aware.
For Governmental Bodies with respect to which the Company does not file Tax
Returns, no such Governmental Body has given the Company written notification
that the Company is or may be subject to taxation by that Governmental Body.
The Company has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, shareholder,
creditor, independent contractor or other party. There are no Tax liens on any
of the property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the
-15-
<PAGE>
Company also was a member of the affiliated group. The Company has made an
election to be taxed under subchapter S of the Code. The Company's election to
be taxed under subchapter S of the Code is valid, legally binding and in full
force and effect.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
--------- -------------
names and annual rates of compensation of the directors and executive officers
of the Company, and of the employees of the Company whose annual rates of
compensation during the fiscal year ended December 31, 1996 (including base
salary, bonus and incentive pay) exceed (or by December 31, 1997 are expected to
exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended December 31, 1996 and to the date hereof.
Schedule 3.18 also contains a brief description of all material terms of
- -------------
employment agreements to which the Company is a party and all severance benefits
which any director, officer or employee of the Company is or may be entitled to
receive. The employee relations of the Company are generally good and there is
no pending or, to the best knowledge of Sellers or the Company, threatened labor
dispute or union organization campaign. None of the employees of the Company
are represented by any labor union or organization. The Company is in
compliance in all material respects with all Requirements of Laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and are not engaged in any unfair labor practices. Neither the
Company or Sellers have been advised, or has good reason to believe, that any of
the persons whose names are set forth on Schedule 3.18 or any other employee
-------------
will not agree to remain employed by the Company after the consummation of the
transactions contemplated hereby. There is no unfair labor practice claim
against the Company before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or, to the best knowledge of the Company
and Sellers, threatened against or involving the Company, and none has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Sellers knows or has
------------------
good reason to believe that any customer or supplier of the Company will cease
to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Sellers or the Company have received any
written notice of any material disruption (including delayed deliveries or
allocations by suppliers) in the availability of any material portion of the
materials used by the Company nor are the Company or Sellers aware of any facts
which could lead them to believe that the Business will be subject to any such
material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts
-16-
<PAGE>
validly due for goods sold or services rendered and except as disclosed on
Schedule 3.20 all such amounts (net of any allowance for doubtful accounts,
- -------------
plus an additional allowance of $25,000) will be collected in full within 180
days following the Closing Date. Except as disclosed on Schedule 3.20 hereto
-------------
(a) all of such accounts, notes, and loans receivable are free and clear of any
Encumbrances; (b) no claims of offset have been asserted in writing against any
of such accounts, notes, or loans receivable; and (c) none of the obligors of
such accounts, notes, or loans receivable has given written notice that it will
or may refuse to pay the full amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
------------- -------------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and in
----------
the ordinary course of the Business, no written claim for breach of product or
service warranty to any customer has been made against the Company since January
1, 1997. To the best knowledge of Sellers and the Company, no state of facts
exists, and no event has occurred, which could reasonably be expected to form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Sellers have engaged, or caused
-------
to be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. Except as
--------------------------------------------------
set forth in Schedule 3.5, no officer, director, or shareholder of the Company
------------
or any affiliate of any such officer, director, or shareholder, has any
ownership interest in any competitor, supplier, or customer of the Company
(other than ownership of securities of a publicly-held corporation of which such
Person owns, or has real or contingent rights to own, less than one percent of
any class of outstanding securities) or, except for the Existing Building, any
property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description
- --------- -------------
of the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
-17-
<PAGE>
3.26 UNDISCLOSED LIABILITIES. Except as indicated in the Schedules
-----------------------
hereto, the Company does not have any material liabilities (whether absolute,
accrued, contingent or otherwise), of a nature required by GAAP to be reflected
on a corporate balance sheet or disclosed in the notes thereto, except such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto, including without limitation any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date, other than liabilities incurred in the ordinary course of business since
the date of the latest of such Financial Statements.
3.27 INFORMATION FURNISHED. The Company and Sellers have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
---------
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global or ESIAC pursuant to this Agreement
contains any untrue statement of a material fact or omits any material fact
necessary to make the statements herein or therein, as the case may be, not
misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $50,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $25,000 per occurrence or $50,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
ARTICLE IV
GLOBAL'S AND ESIAC'S REPRESENTATIONS AND WARRANTIES
Global and ESIAC represent and warrant to Sellers as follows:
4.1 DUE ORGANIZATION. Each of Global and ESIAC is a corporation
----------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power and authority to execute, deliver
and perform this Agreement and to carry out the transactions contemplated
hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global and ESIAC, and the Agreement has been duly and validly executed and
delivered by Global and ESIAC and constitutes the valid and binding obligation
of Global and ESIAC, enforceable in accordance with its terms, except to the
extent that enforceability may be limited by laws affecting creditors' rights
and debtors' obligations generally, and legal limitations relating to remedies
of specific
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performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates or other documents contemplated hereby) by Global and
ESIAC, do not (a) violate any Requirements of Laws or Court Order of any
Governmental Body applicable to Global or its property or ESIAC or its property,
(b) violate or conflict with, or permit the cancellation of, or constitute a
default under any agreement to which Global or ESIAC is a party or by which it
or its property is bound, (c) permit the acceleration of the maturity of any
indebtedness of, or any indebtedness secured by the property of, Global or
ESIAC, or (d) violate or conflict with any provision of the charter or bylaws of
Global or ESIAC.
4.3 NO BROKERS. Neither Global nor ESIAC has engaged, or caused to
----------
be incurred any liability to any finder, broker or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
4.4 INVESTMENT. ESIAC will acquire the Shares for investment and for
----------
its own account and not with a view to the distribution thereof; provided,
however, that as sole stockholder of ESIAC, Global will cause ESIAC to merge
with and into the Company immediately subsequent to the Closing and Global will
hold the shares of the surviving corporation subsequent to such merger for
investment and for its own account and not with a view to the distribution
thereof.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLERS
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
------------------
Sellers shall use their best efforts to obtain and to cause the Company to
obtain all authorizations, consents and permits required of the Company and
Sellers to permit them to consummate the transactions contemplated by this
Agreement. Sellers shall have obtained the written consent of the lessors of
the Buildings to the transactions contemplated by the Agreement.
5.2 SELLERS' EFFORTS. The Company and Sellers shall use all
----------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Sellers shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
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ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Global and
Mr. Kamarek) to carry out the purposes of this Agreement, each of the parties
will take such further action (including the execution and delivery of such
further instruments and documents) as any other party reasonably may request,
all at the sole cost and expense of the requesting party (unless the requesting
party is entitled to indemnification therefor under Article VIII below). The
Sellers acknowledge and agree that from and after the Closing Global will be
entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating to the Company, which shall be maintained at
the chief executive office of the Company; provided, however, that each Seller
shall be entitled to reasonable access to and to make copies of such books and
records at his or her sole cost and expense and Global will maintain all of the
same for a period of at least three (3) years after Closing. Thereafter, the
Company will offer such documentation to Sellers before disposal thereof.
6.2 TRANSITION. For a period of four (4) years following Closing,
----------
the Sellers will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing, if such action could reasonably be expected to have a
Material Adverse Effect. For a period of four (4) years following Closing, the
Sellers will refer all customer inquiries relating to the Business to the
Company. The Company and certain of the Sellers shall continue to have a close
business relationship with ESR following the Closing, consistent with the
description of their relationship described in Schedule 3.5. It is expressly
------------
understood and agreed by the parties that certain of those relationships and
activities between the Company and ESR, and the relationships and activities
between ESR and those of the Sellers having ownership interests in ESR are not
at arms-length; provided, however, that the parties further agree that any new
relationships or activities among such parties after the Closing shall be
subject to Thomas S. Johnson's approval, provided that this provision shall not
be construed in any way to give Thomas S. Johnson any approval or other rights
with regard to any sale, transfer or other disposition of the stock or assets of
ESR.
6.3 CONFIDENTIALITY. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Global for a period of three (3) years from the Closing, and deliver
promptly to Global or destroy, at the written request and option of Global, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that any
Seller is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, that such Seller will notify Global promptly of the request or
requirement.
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separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by Global, each
Seller covenants and agrees, for a period of four (4) years from and after the
Closing Date, that he or she will not, directly or indirectly without the prior
written consent of Global (which shall not be unreasonably withheld), for or on
behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/ office equipment dealer or service
business, or the computer systems integration or computer equipment
manufacturing or distribution business in competition with the Company, within
the greater of (i) a 100 mile radius of the Company's office facilities in
Virginia Beach, Virginia and Newport News, Virginia (the "CURRENT TRADE AREA")
or (ii) in any geographic area in which the Company currently conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company or
to cause them to reduce or end their business with the Company; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that (i) no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof, and (ii) no relationship or activities of any of the Sellers
with ESR outside of the Current Trade Area, within the Richmond metropolitan
area or in any other area in which such Seller currently conducts business with
ESR that are consistent with the provisions of Section 6.2 above shall be deemed
-----------
to be in violation of these provisions.
6.5 ADDITIONAL MATTERS.
------------------
(A) The Sellers shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Sellers shall
cause Edmondson, Ledbetter & Ballard, CPA to prepare a short period tax return
for the Company covering the period January 1, 1997 through the Effective Date.
The cost of preparation of such short period tax return shall be paid for by
Sellers.
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
(B) Global and Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Global and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Global agrees to cause the Company to (A) use its best efforts
---------
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Sellers and their agents and
representatives at times and dates mutually acceptable to the parties, to
inspect, review and make copies of such records as such other party may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the other party's expense.
(C) SECTION 338(H)(10) ELECTION. The Sellers (as requested by
---------------------------
Global at Global's expense) and Global shall join in making a timely election
(but in no event later than 180 days following the Closing) under Section
338(h)(10) of the Code (including the prerequisite election under Section 338 of
the Code) and any similar state law provisions in all applicable states which
permit corporations to make such elections, with respect to the sale and
purchase of the Shares pursuant to this Agreement, and each party shall exert
reasonable effort to provide the others all necessary information to permit such
elections to be made. Global and the Sellers (as requested by Global at
Global's expense) shall, as promptly as practicable following the Closing Date,
take all reasonable actions necessary and appropriate (including filing such
forms, returns, schedules and other documents as may be required) to effect and
preserve timely elections; provided, however, that Global shall be the party
responsible for preparing and filing the forms, returns, schedules and other
documents necessary for making an effective and timely election. All additional
Taxes attributable to the elections made pursuant to this Section 6.5(c) shall
--------------
be the liability of Global which shall (upon written notification from Sellers)
promptly reimburse Sellers (on a grossed up basis) for all such taxes that are
incurred by them as a result of such election. In connection with such
elections, within sixty (60) days following the Closing Date, Global and the
Sellers shall act together in good faith to determine and agree upon the "deemed
sales price" to be allocated to each asset of the Company in accordance with
Treasury Regulation Section 1.338(h)(10)-1(f) and the other regulations under
Section 338 of the Code. Notwithstanding the generality of the immediately
preceding sentence, Global and the Sellers agree that the "deemed sales price"
shall be allocated to the monetary assets of the Company at their fair market
value as of the Closing Date as determined as part of the determination of the
Working Capital of the Company in accordance with Article II hereof, [**] shall
be allocated to the covenant not to compete contained in Section 6.4 hereof, and
-----------
the balance of the "deemed sales price" shall be allocated to the fixed assets,
good will and other intangible assets of the Company. Both Global and Sellers
shall report the tax consequences of the transactions contemplated by this
Agreement consistently with such allocations and shall not intentionally take
any position inconsistent with such allocations in any Tax Return or otherwise.
In the event that Global and the Sellers are unable to agree as to such
allocations, Global's reasonable positions with respect to such allocations
shall control.
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<PAGE>
(D) Global and ESIAC recognize and acknowledge that, in
connection with and as an integral part of, the sale to ESIAC of all of Seller's
Shares in the Company, prior to Closing, the Company will (i) transfer the
Existing Building (including the land on which it is situated) to Kamarek Group
I, LLC, and (ii) distribute, pro rata, to the Sellers 100% of the membership
interest in Kamarek Group I, LLC in partial redemption of the Sellers' Shares in
the Company (if necessary to achieve Sellers' desired tax result). Global and
ESIAC understand and agree that the Existing Building will not be an asset of
the Company at the time of the purchase by ESIAC of the Shares in the Company.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S AND ESIAC'S OBLIGATIONS. Subject to
----------------------------------------------
Section 2.4 above, the obligation of Global and ESIAC under this Agreement to
- -----------
consummate the Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company
-----------------------------------------
and Sellers shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The material representations and warranties of the Company
and Sellers set forth in this Agreement shall be accurate in all material
respects at and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date except for any changes resulting from
activities or transactions which may have taken place after the date hereof and
which are permitted or contemplated by the Agreement or which have been entered
into in the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Sellers of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation of the transactions contemplated hereby shall
have been obtained in form and substance reasonably satisfactory to Global
unless such failure could not reasonably be expected to have a Material Adverse
Effect. All approvals of the Board of Directors and shareholders of the Company
necessary for the consummation of this Agreement and the transactions
contemplated hereby shall have been obtained.
(C) LEASES. The lessors of the Buildings shall have provided
------
an Estoppel Certificate to Global's lenders in the form of Exhibit B hereto.
---------
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(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Sellers and the
-----------------------------------
Company shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company and all extended credit from vendors at the Closing
(other than customary accounts payable outstanding on 90 day or less payment
terms in accordance with past practices). Such Funded Indebtedness, if any, as
of August 1, 1997, is listed on Schedule 7.1(d) hereto. Sellers shall have also
---------------
provided for the termination of all Encumbrances of record on the properties of
the Company, except for those Encumbrances listed on Schedule 3.9 other than
------------
Signet Bank, N.A. and Permitted Exceptions. All liens or UCC filings of Signet
Bank, NA., shall have been terminated as of the Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material
-----------------------
Adverse Change with respect to the Company since June 30, 1997.
(F) TRANSFER TAXES. Sellers shall be responsible for all
--------------
stock transfer or gains taxes imposed on Sellers incurred in connection with
this Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
-------------------
Capital as projected at the Closing shall be greater than $3,000,000 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing (in an amount not less than $600,000 or, if less than $600,000, the
Purchase Price will be reduced further by the amount of such deficiency), to
continue to operate the Business in the ordinary course.
(H) [INTENTIONALLY OMITTED]
(I) DOCUMENTS TO BE DELIVERED BY SELLERS AND THE COMPANY. The
----------------------------------------------------
following documents shall be delivered at the Closing by Sellers and the
Company:
(I) OPINION OF SELLERS' COUNSEL. Global shall have
---------------------------
received an opinion of counsel to the Company and Mr. Kamarek, dated
the Closing Date, in substantially the same form as the form of
opinion that is Exhibit C hereto.
---------
(II) CERTIFICATES. Global shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in
substantially the same forms as the forms of certificates that are
Exhibit D hereto.
---------
(III) RELEASE. Sellers shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit E hereto.
---------
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(IV) ESCROW AGREEMENT. Sellers shall have delivered to
----------------
Global and ESIAC at the Closing the duly executed Escrow Agreement
required pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Mr. Kamarek shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
---------
employed by the Company following the Closing.
(VI) OFFICE LEASE. The lease of the Existing Building
------------
will be for a term of five (5) years following the Closing at the rate
of $11.95 per square foot, such lease shall have been executed and
delivered by the owner of the Existing Building, and Sellers shall
have delivered to Global an Estoppel Certificate of the Landlord of
the Existing Building to Global's lenders in the same form attached as
Exhibit B hereto.
---------
(VII) STOCK CERTIFICATES. Sellers shall have delivered
------------------
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
7.2 CONDITIONS TO SELLERS AND THE COMPANY'S OBLIGATIONS. The
---------------------------------------------------
obligation of Sellers and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global and
-----------------------------------------
ESIAC shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by Global or ESIAC prior to or
at the Closing and the representations and warranties of Global and ESIAC set
forth in Article IV hereof shall be accurate in all material respects, at and as
of the Closing Date, with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of the Business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representations, the same shall be true as of such specified
date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global and ESIAC of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation by Global and ESIAC of the transactions
contemplated hereby shall have been obtained unless such failure shall not have
a Material Adverse Effect on the Business. Global
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separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
shall have used its reasonable best efforts to have obtained the release of the
Sellers from all personal guarantees with respect to the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL AND ESIAC. The
---------------------------------------------
following documents shall be delivered at the Closing by Global and ESIAC:
(I) OPINION OF GLOBAL'S AND ESIAC'S COUNSEL. Sellers
---------------------------------------
shall have received an opinion of Davis, Graham & Stubbs LLP, counsel
to Global and ESIAC, dated the Closing Date, in substantially the same
form as the form of opinion that is Exhibit G hereto.
---------
(II) CERTIFICATES. Sellers shall have received an
------------
officers' certificate and a secretary's certificate executed by
officers of Global and ESIAC, dated the Closing Date, in substantially
the same forms as the forms of certificates that are Exhibit H hereto.
---------
(III) ESCROW AGREEMENT. Global and ESIAC shall have
----------------
delivered to Sellers at the Closing the duly executed Escrow Agreement
required pursuant to Section 2.5 hereof.
-----------
(IV) EMPLOYMENT AGREEMENT. Global shall have caused the
--------------------
Company to duly execute and deliver the Employment Agreement with Mr.
Kamarek in the same form attached as Exhibit F hereto, pursuant to
---------
which he will be employed by the Company following the Closing.
(V) LEASE. Global shall have caused the Company to duly
-----
execute and deliver the lease for the Existing Building appended
hereto as Exhibit I.
---------
(VI) PURCHASE PRICE. Sellers shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. The Persons designated by Mr.
---------------------
Kamarek including Sellers and others (not to exceed nine (9) Persons in addition
to the Sellers) shall have been offered the right to invest up to [**] in the
capital stock of Global on the same terms provided to other recent outside
investors in Global. The allocation of such capital stock shall be made by Mr.
Kamarek, subject to Global's prior written consent (not to be unreasonably
withheld).
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<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6,
------------------------- -----------
as Global's and ESIAC'S sole and exclusive remedy for any breach by the Sellers
hereunder, Sellers agree to jointly and severally indemnify and hold harmless
Global and ESIAC and each officer, director, and affiliate of Global and ESIAC,
including without limitation the Company or any successor of the Company
(collectively, the "INDEMNIFIED PARTIES") from and against any and all damages
(excluding consequential, incidental and indirect damages), losses (excluding
lost profits), claims, liabilities, demands, charges, suits, penalties, costs
and expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding)
(collectively, the "INDEMNIFIABLE COSTS"), which any of the Indemnified Parties
may sustain, or to which any of the Indemnified Parties may be subjected,
arising out of (A) any misrepresentation, breach or default by Sellers or the
Company prior to the Closing of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; (B) the assertion and final determination of
any claim or liability against the Company or any of the Indemnified Parties by
any Person based upon the facts which form the alleged basis for any litigation
to the extent it should have been, but was not, reserved for in the Financial
Statements in accordance with GAAP; (C) the Company's tortious acts or omissions
to act prior to Closing for which the Company did not carry liability insurance
for themselves as the insured party, whether or not such acts or omissions to
act result in a breach or violation of any representation or warranty; and (D)
any Taxes or other costs attributable solely to a failure on the part of the
Company to qualify, at or prior to the Closing, as an "S Corporation" for
federal and/or state income Tax purposes.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be
-----------------
instituted, or any claim or demand made, against any Indemnified Party in
respect of which Sellers may be liable hereunder, such Indemnified Party shall
give prompt written notice thereof to Sellers and, except as otherwise provided
in Section 8.4 below, Sellers shall have the right to defend, or cause the
-----------
Company or its successors to defend, any litigation, action, suit, demand, or
claim for which it may seek indemnification unless, in the reasonable judgment
of Global, such litigation, action, suit, demand, or claim, or the resolution
thereof, would have an ongoing effect on Global, ESIAC, the Company or its
successors, and such Indemnified Party shall extend reasonable cooperation in
connection with such defense, which shall be at Sellers' expense if it is
determined that indemnification for such legal proceeding is required hereunder.
In the event Sellers fail or refuse to defend the same within a reasonable
length of time, the Indemnified Parties shall be entitled to assume the defense
thereof, and Sellers shall be liable to repay the Indemnified Parties for all
expenses reasonably incurred in connection with said defense (including
reasonable attorneys' fees and settlement payments) if it is determined that
such request for indemnification was proper. If Sellers shall not have the
right to assume the defense of any litigation, action, suit, demand, or claim in
accordance with either of the two preceding sentences, the Indemnified Parties
shall have the absolute right to control the defense of and to settle, in their
sole discretion and without the consent of Sellers, such litigation, action,
suit,
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demand, or claim, but Sellers shall be entitled, at their own expense, to
participate in such litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return
---------------
of the Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Sellers,
which shall not unreasonably be withheld and subject to the right of Sellers to
have their accountants and attorneys consult with Global on such audits or
procedures at Sellers' expense). Sellers shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith; provided, however, that none of the Sellers
will be obligated to take any such action that would or could reasonably be
expected to result in incurrence of any liability by such Seller, except as
required by applicable Tax law (provided, however, that if such Tax law
specifies that more than one option may be made to comply with such law, nothing
contained herein shall require Sellers to make the option most adverse to them).
If additional Taxes are payable by the Company as a result of any such audit or
other proceeding, Sellers shall be responsible for and shall promptly pay all
Taxes, interest, and penalties to which any of the Indemnified Parties shall be
entitled to indemnification.
8.5 INDEMNIFICATION OF SELLERS. Global agrees to indemnify and
--------------------------
hold harmless Sellers and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global or ESIAC of
or under any of the covenants, agreements or other provisions of this Agreement
or any agreement or document executed in connection herewith, and (B) any
tortious acts or omissions by Global or ESIAC before or after or the Company
after, the Closing. In addition, the Company and Global shall indemnify the
Sellers for (A) any payment or satisfaction of any guarantees by Sellers of the
Company's obligations occurring after the Closing Date and (B) any additional
income taxes (on a grossed-up basis) incurred by the Sellers, if any, arising
out of any inclusion of the activities of the Company during the period from the
Effective Date through the Closing Date on Sellers' income tax returns.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Sellers under
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
Sections 3.1, 3.2, 3.3 or 3.17 hereof and except for the indemnification for
- ------------------------------
Taxes set forth in the last sentence of Section 8.5 hereof (the indemnification
-----------
for which shall expire on the expiration of the applicable statute of
limitations), the indemnification provided under this Article VIII shall expire
on the second anniversary of the Closing Date. The Sellers shall not be
obligated to pay any amounts for indemnification under this Article VIII until
the aggregate indemnification obligation hereunder exceeds $25,000, whereupon
Sellers shall be liable for all amounts in excess of $25,000 for which
indemnification may be sought. Notwithstanding the foregoing, in no event shall
the aggregate liability of Sellers to Global and ESIAC exceed [**] (except for
claims made for any breach of the representations and warranties of Sellers
under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which the limit of
---------------------- ----
indemnification hereunder shall be the Purchase Price); nor shall any of the
Sellers be liable under this Article VIII or any other provision of this
------------
Agreement (or any instrument, agreement, certificate or other document
contemplated by or entered into pursuant to this Agreement) for any amount in
excess of the portion of the Purchase Price paid to such Seller, reduced by all
income taxes paid or payable by such Seller; provided, however, that the
limitation of such Seller's indemnification obligation to such Seller's portion
of the Purchase Price (described above) shall not apply if such Seller
individually breaches Section 3.1 or 3.2 hereof (in which case, the breaching
----------- ---
Seller shall be liable to the fullest extent described in this Section). However
nothing in this Article VIII shall limit Global, ESIAC or Sellers in exercising
or securing any remedies provided by applicable common law with respect to the
conduct of Sellers or Global in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that Global
successfully proves intentional fraud or intentional fraudulent conduct in
connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
-29-
<PAGE>
Global or ESIAC:
---------------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Christopher J. Hagan
Fax No.: (202) 293-4794
Tel No.: (202) 822-1035
The Company or Sellers:
----------------------
c/o Electronic Systems, Inc.
361 Southport Circle
Virginia Beach, Virginia 23452
Attention: William G. Kamarek
Fax No.: (757) 497-2095
Tel No.: (757) 497-8000
With a copy to:
Kaufman & Canoles
One Commercial Place
Norfolk, Virginia 23514-3037
Attention: Robert E. Smartschan
Fax No.: (757) 624-3169
Tel No.: (757) 624-3221
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
-30-
<PAGE>
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Sellers shall bear all costs and expenses of (i) any broker involved in
this transaction and (ii) all legal expenses of Sellers or the Company with
respect to this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global, ESIAC and Sellers, their
heirs, representatives, successors, and permitted assigns, in accordance with
the terms hereof. This Agreement shall not be assignable by the Company or
Sellers without the prior written consent of Global. This Agreement shall be
assignable by Global to a wholly-owned subsidiary of Global without the prior
written consent of Sellers, but any such assignment shall not relieve Global or
ESIAC of its obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
Commonwealth of Virginia.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of two
(2) years, provided (a) the representations and warranties contained in Section
-------
3.17 of this Agreement, and the related indemnities, shall survive the Closing
- ----
until the expiration of the applicable statutes of limitations for determining
or contesting Tax liabilities and (b) the representations and warranties
contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related
-------------------------
indemnities, shall survive the Closing until expiration of the applicable
statute of limitations. Notwithstanding the foregoing, it is understood and
agreed that all representations and warranties made by the parties in this
Agreement are made as of the date of execution of this Agreement only.
9.9 INVALID PROVISIONS. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid
-31-
<PAGE>
or unenforceable provision and be legal, valid and enforceable. Further, should
any provision contained in this Agreement ever be reformed or rewritten by any
judicial body of competent jurisdiction, such provision as so reformed or
rewritten shall be binding upon all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLERS AND GLOBAL
------------------
WITH RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLERS AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN NORFOLK, VIRGINIA, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES.
9.14 BUILDING LEASES. The lease for the Existing Building
---------------
appended hereto as Exhibit I shall be executed and delivered at Closing. If and
---------
when the New Building is constructed, the Company shall lease such Building on
substantially the same terms as it leases the Existing Building at Closing,
except that the lease for the New Building shall be for seven (7) years at fair
market rental.
9.15 WORKING CAPITAL ADJUSTMENT. At the request of Global and
--------------------------
ESIAC, the Company has made an adjustment to Working Capital on the Preliminary
Closing Balance Sheet in the amount of $57,168 (the "WC ADJUSTMENT"). Global and
ESIAC agree, notwithstanding anything to the contrary in this Agreement or any
other agreement, document or instrument entered into or delivered under or in
connection with this Agreement, that (i) none of the Sellers or the Company will
be deemed or held to be in violation or breach of any covenant, representation
or warranty contained in this Agreement or any other such agreement, document or
instrument, due to any actions of the Company or Sellers solely with respect to,
or any direct or indirect consequence or effect of, the WC Adjustment; provided,
however, that if any of the Sellers violate or breach any covenant,
representation or warranty in this Agreement or any other
-32-
<PAGE>
agreement, document or instrument entered into or delivered under or in
connection with this Agreement for any reason other than the WC Adjustment, then
such Seller(s) will be liable for such violation or breach to the fullest extent
provided herein or therein and (ii) the WC Adjustment shall have no effect on
the Purchase Price otherwise payable to Sellers hereunder, and if necessary to
that end, shall be included in the Audited Closing Balance Sheet to the same
extent as it is included in the Preliminary Closing Balance Sheet.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-33-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-34-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
ESIAC:
-----
ESI ACQUISITION CORPORATION
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
President
THE COMPANY:
-----------
ELECTRONIC SYSTEMS, INC.
By: /s/ William G. Kamarek
--------------------------------------
Title: President
-----------------------------
SELLERS:
-------
/s/ William G. Kamarek
--------------------------------------------
William G. Kamarek
/s/ Steven Allosso
--------------------------------------------
Steven Allosso
-35-
<PAGE>
/s/ Benjamin E. Collier
--------------------------------------------
Benjamin E. Collier
/s/ Annette V. Wilkins
--------------------------------------------
Annette V. Wilkins
/s/ E. William Troiano
--------------------------------------------
E. William Troiano
/s/ N. Joyce Chapman
--------------------------------------------
N. Joyce Chapman
/s/ James R. Stroud
--------------------------------------------
James R. Stroud
-36-
<PAGE>
================================================================================
EXHIBIT 10.21
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR
OTHERWISE IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
CONWAY OFFICE PRODUCTS, INC.,
EASTERN COPY PRODUCTS, INC.
AND
MICHAEL E. KLEINHANS
DATED AUGUST 29, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I............................................................................... 1
1.1 Definitions....................................................................... 1
ARTICLE II.............................................................................. 6
2.1 Agreement to Sell and Purchase.................................................... 6
2.2 Purchase Price.................................................................... 6
2.3 Payment of Purchase Price......................................................... 6
2.4 Closing........................................................................... 7
2.5 Escrow Arrangements............................................................... 7
2.6 Purchase Price Adjustments........................................................ 7
2.7 Closing Audit..................................................................... 8
2.8 Post-Closing Purchase Price Adjustment............................................ 8
ARTICLE III............................................................................. 9
3.1 Capitalization.................................................................... 9
3.2 No Liens on Shares................................................................ 9
3.3 Other Rights to Acquire Capital Stock............................................. 9
3.4 Due Organization.................................................................. 9
3.5 Subsidiaries...................................................................... 9
3.6 Due Authorization................................................................. 10
3.7 Financial Statements.............................................................. 10
3.8 Certain Actions................................................................... 11
3.9 Properties........................................................................ 12
3.10 Licenses and Permits.............................................................. 12
3.11 Intellectual Property............................................................. 13
3.12 Compliance with Laws.............................................................. 13
3.13 Insurance......................................................................... 14
3.14 Employee Benefit Plans............................................................ 14
(a) Employee Welfare Benefit Plans............................................. 14
(b) Employee Pension Benefit Plans............................................. 14
(c) Employment and Non-Tax Qualified Deferred Compensation Arrangements........ 14
3.15 Contracts and Agreements.......................................................... 15
3.16 Claims and Proceedings............................................................ 15
3.17 Taxes............................................................................. 15
3.18 Personnel......................................................................... 16
3.19 Business Relations................................................................ 17
3.20 Accounts Receivable............................................................... 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.21 Bank Accounts.................................................................... 17
3.22 Warranties....................................................................... 18
3.23 Brokers.......................................................................... 18
3.24 Interest in Competitors, Suppliers, Customers, Etc............................... 18
3.25 Indebtedness To and From Officers, Directors, Shareholders, and Employees........ 18
3.26 Undisclosed Liabilities.......................................................... 18
3.27 Information Furnished............................................................ 19
ARTICLE IV............................................................................. 19
4.1 Due Organization................................................................. 19
4.2 Due Authorization................................................................ 19
4.3 No Brokers....................................................................... 20
ARTICLE V.............................................................................. 20
5.1 Consents of Others............................................................... 20
5.2 Seller's Efforts................................................................. 20
5.3 Powers of Attorney............................................................... 20
ARTICLE VI............................................................................. 21
6.1 General.......................................................................... 21
6.2 Transition....................................................................... 21
6.3 Confidentiality.................................................................. 21
6.4 Covenant Not to Compete.......................................................... 21
ARTICLE VII............................................................................ 23
7.1 Conditions to Global's and Conway's Obligations.................................. 23
(a) Covenants, Representations and Warranties................................. 23
(b) Consents.................................................................. 23
(c) Leases.................................................................... 23
(d) Discharge of Indebtedness and Liens....................................... 24
(e) Material Adverse Change................................................... 24
(f) Transfer Taxes............................................................ 24
(g) Financial Condition....................................................... 24
(h) Documents to be Delivered by Seller and the Company....................... 24
(i) Opinion of Seller's Counsel....................................... 24
(ii) Certificates...................................................... 24
(iii) Release........................................................... 24
(iv) Escrow Agreement.................................................. 24
(v) Employment Agreement.............................................. 25
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(vi) Building Leases................................. 25
(vii) Collateral Assignment of Rights................. 25
(viii) Stock Certificates.............................. 25
7.2 Conditions to Seller's and the Company's Obligations............ 25
(a) Covenants, Representations and Warranties................ 25
(b) Consents................................................. 26
(c) Documents to be Delivered by Global and Conway........... 26
(i) Opinion of Global's and Conway's Counsel........ 26
(ii) Certificates.................................... 26
(iii) Escrow Agreement................................ 26
(iv) Employment Agreement............................ 26
(v) Purchase Price.................................. 26
(d) Right of Reinvestment.................................... 26
ARTICLE VIII.......................................................... 27
8.1 Indemnification of Global....................................... 27
8.2 Defense of Claims............................................... 27
8.3 Escrow Claim.................................................... 28
8.4 Tax Audits, Etc................................................. 28
8.5 Indemnification of Seller....................................... 28
8.6 Limits on Indemnification....................................... 28
ARTICLE IX............................................................ 29
MISCELLANEOUS......................................................... 29
9.1 Modifications................................................... 29
9.2 Notices......................................................... 29
9.3 Counterparts.................................................... 30
9.4 Expenses........................................................ 30
9.5 Binding Effect; Assignment...................................... 31
9.6 Entire and Sole Agreement....................................... 31
9.7 Governing Law................................................... 31
9.8 Survival of Representations, Warranties and Covenants........... 31
9.9 Invalid Provisions.............................................. 31
9.10 Public Announcements............................................ 32
9.11 Remedies Cumulative............................................. 32
9.12 Waiver.......................................................... 32
9.13 DISPUTE RESOLUTION.............................................. 32
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Seller's Counsel
Exhibit D Seller's Certificates
Exhibit E Release
Exhibit F Kleinhans Executive Agreement
Exhibit G Opinion of Global's and Conway's Counsel
Exhibit H Global Certificate
Exhibit I Collateral Assignment of Rights
Exhibit J Syracuse Building Lease
LIST OF SCHEDULES
Schedule 2.3 Seller's Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these exhibits
and schedules upon the request of the Securities and Exchange Commission.
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
August 29, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), CONWAY OFFICE PRODUCTS, INC., a New Hampshire
corporation and wholly-owned subsidiary of Global ("CONWAY"), EASTERN COPY
PRODUCTS, INC., a New York corporation (the "COMPANY") and MICHAEL E. KLEINHANS
(the "SELLER").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the distribution, sale and services
of office equipment in 30 counties in the western part of the State of New York
and three counties in northern Pennsylvania (the "BUSINESS"); and
WHEREAS, Seller owns 90 shares of the outstanding Common Stock of the
Company (the "SHARES"), which Shares, together with the Konica Shares,
constitute all of the issued and outstanding capital stock of the Company; and
WHEREAS, Conway desires to purchase from Seller and Seller desires to
sell to Conway hereby all of the Shares owned by Sellers all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
<PAGE>
"BUILDINGS" shall mean collectively (i) the Company's office,
showroom and warehouse facilities located at 1224 West Genesee Street, Syracuse,
New York 13204 (the "SYRACUSE BUILDING"); (ii) the Company's office facility
located at 89 Fox Street, Owego, New York 13827; (iii) the Company's building
facility located at 455 Commerce Drive, Amherst, New York 14228 (Buffalo
location); (iv) the Company's building located at 270 Commerce Drive, Rochester,
New York 14623; and (v) the Company's satellite sales office located at 95 Brown
Road #103, Ithaca, New York 14850.
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Seller to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"CONWAY" has the meaning specified in the first paragraph of this
Agreement.
-2-
<PAGE>
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"ECCCI" means Eastern Copy Credit Corporation, Inc., a New York
corporation and, prior to its merger into the Company, a wholly-owned subsidiary
of the Company.
"ECP VEND" means ECP Vend-a-Copy Division, Inc., a New York
corporation and, prior to its merger into the Company, a wholly-owned subsidiary
of the Company.
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Kleinhans to be entered into at Closing in the form of Exhibit F.
---------
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the Skaneateles Savings Bank.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Seller, Konica, Conway and the Escrow Agent in the form of Exhibit
-------
A.
- -
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business; (iv)
indebtedness of others guaranteed by the Company or secured by an Encumbrance on
the Company's property; (v) indebtedness of the Company under extended
-3-
<PAGE>
credit terms of more than 30 days from manufacturers provided to the Company; or
(vi) any receivables owed by the Seller to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"KLEINHANS" means Michael E. Kleinhans.
"KONICA" means Konica Business Machines U.S.A., Inc.
"KONICA PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement dated August __, 1997 between Conway and Konica.
"KONICA SHARES" means the 10 shares of the Company's Common Stock
owned by Konica.
"L-T DEFERRED SERVICE LIABILITIES" means all long-term deferred
service liabilities owed to customers of the Company and/or its subsidiaries.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "MATERIAL ADVERSE
CHANGE" or "MATERIAL ADVERSE EFFECT" has occurred, the quantitative amounts set
forth at the end of Article III shall be conclusive.
-----------
-4-
<PAGE>
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Conway.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of the Effective Date. The
Preliminary Closing Balance Sheet shall be delivered to Conway not less than one
(1) nor more than five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company, excluding the Konica Shares.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
interest or any penalty, addition to tax or additional amount imposed thereon by
any Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities as calculated in accordance with
GAAP.
"WORKING CAPITAL TARGET" shall have the meaning assigned to such
term in Section 2.6 hereof.
-----------
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Seller agrees to sell the Shares to
Conway and Conway agrees to purchase the Shares from Seller.
2.2 PURCHASE PRICE. The total purchase price for the Shares and the
--------------
Konica Shares (the "PURCHASE PRICE") shall be equal to [**], subject to any
adjustment required to be made pursuant to Section 2.6 or Section 2.8 below.
----------- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by Conway at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price less the amounts set forth in
Section 2.6(a), (b), (c) and (d) will be paid, at the direction of the Seller,
- -------------- --- --- ---
in cash by wire transfer of funds as specified in Schedule 2.3 (including the
------------
payment of [**] for the covenant not to compete provided in Section 6.4);
-----------
(B) the assumption by Conway of all L-T Deferred Service
Liabilities; and
(C) [**] of the Seller's portion of the Purchase Price less the
amount set forth in Section 2.6(e) will be paid in cash by wire transfer of
--------------
funds to the Escrow Agent to be held in escrow for satisfaction of Seller's
indemnification obligations specified in Section 8.1 or payment to the Seller
-----------
in accordance with the terms of Section 2.5 below.
-----------
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 11:00 a.m., Eastern time, at
the offices of Eastern Copy Products, Inc. in Syracuse, New York, on August 29,
1997, or at such other date and time as the parties shall agree (the "CLOSING
DATE"), effective as of August 1, 1997 (the "EFFECTIVE DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Seller, Konica, Conway and the Escrow Agent, [**] of the
Purchase Price (including the Konica portion) shall be delivered to the Escrow
Agent at Closing. Such monies (which, together with all interest accrued
thereon, is hereinafter referred to as the "ESCROW SUM") shall be held pursuant
to the terms of the Escrow Agreement for payment from such Escrow Sum of the
amounts, if any, owing by Seller and Konica to Conway pursuant to Section 2.8 or
-----------
Article VIII below. At the conclusion of the period ending on the third
anniversary of the Closing Date (such period being referred to herein as the
"ESCROW PERIOD"), 90% of such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Conway or previously delivered to Seller and
Konica in accordance with the terms of the Escrow Agreement and this Agreement
shall be disbursed to Seller. Seller and Conway agree that each will execute
and deliver such reasonable instruments and documents as are furnished by any
other party to enable such furnishing party to receive those portions of the
Escrow Sum to which the furnishing party is entitled under the provisions of the
Escrow Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be reduced by the total amount of Funded Indebtedness, if any, assumed or
paid by Conway in cash by wire transfer of funds to the accounts of the holders
of Funded Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's
------------
Funded Indebtedness with such institutions.
(B) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will increased or decreased, as the case may be, by the amount by which L-T
Deferred Service Liabilities on the Closing Date are more or less than $710,000.
(C) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the adjusted Working Capital as
reflected on the Preliminary Closing Balance Sheet is less than $[971,000] (the
"WORKING CAPITAL TARGET").
(D) The Seller's portion of the Purchase Price payable pursuant
to Section 2.3(a) above will be reduced by an amount equal to ten percent (10%)
--------------
of the aggregate Purchase Price payable at Closing (after any adjustments
determined pursuant to Sections 2.6(a), (b) and (c) above), which amount shall
--------------- --- ---
be paid to Konica pursuant to the Konica Purchase Agreement.
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
(E) The portion of the Purchase Price payable pursuant to
Section 2.3(c) above to the Escrow Sum will be reduced by [**], which amount
- --------------
shall be paid from the amount paid to Konica pursuant to the Konica Purchase
Agreement.
2.7 CLOSING AUDIT. Within 120 days following the Closing Date, there
-------------
shall be delivered to Conway and to Seller an audit of the Preliminary Closing
Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Company at and as of
the Effective Date. The Preliminary Closing Balance Sheet shall be audited by
Ernst & Young, LLP in accordance with GAAP. The cost of the Audited Closing
Balance Sheet shall be paid by Conway. In the event that the Seller disputes any
items on the Audited Closing Balance Sheet within thirty days after Seller's
receipt thereof, the parties shall jointly select and retain an independent "Big
Six" accounting firm (the "INDEPENDENT ACCOUNTANTS") to review the disputed
item(s) on the Audited Closing Balance Sheet. The final determination of such
disputed item(s) by the Independent Accountants shall be reflected on the
Audited Closing Balance Sheet. The cost of retaining the Independent Accountants
shall be borne by Seller; provided, however, that Conway shall reimburse Seller
for the cost of the Independent Accountants in the event that such review
results in an increase in the Company's Working Capital as reflected on the
Audited Closing Balance Sheet prepared by Ernst & Young, LLP.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(c) above. The post-closing adjustment to the
--------------
Purchase Price, if any, shall be paid by Seller to Conway from the Escrow Sum or
by Conway to Seller, as the case may be, in immediately available funds within
ten (10) business days of delivery of the Audited Closing Balance Sheet, unless
the Seller disputes any items on the Audited Closing Balance Sheet, in which
case it shall be paid within ten (10) business days after the Independent
Accountants finally determine the disputed item(s), and Conway delivers to
Seller an Audited Closing Balance Sheet modified to reflect such determination.
Notwithstanding the foregoing, Konica shall be responsible for or shall receive,
as the case may be, ten percent (10%) of any adjustment to the Purchase Price
made pursuant to this Section 2.8.
-----------
-8-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
The Company and Seller represent and warrant to Global and Conway
that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 100 shares of Common Stock, all of which are issued and outstanding.
All of the Shares are duly authorized, validly issued, fully paid, and
nonassessable. All of the Shares are owned of record and beneficially by Seller
and Konica in the amounts set forth on Schedule 3.1 hereto. None of the Shares
------------
was issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any Person. The Seller and Konica
collectively own all of the issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Seller owns
------------------ ------------
the Shares, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, and none of the Shares is subject to
any outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Shares is subject to any restriction on
transfer thereof except for restrictions imposed by applicable federal and state
securities laws. At Closing, Seller will have full power and authority to convey
good and marketable title to the Shares, free and clear of any Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of New York
and has full corporate power and authority to carry on the Business as now
conducted and as proposed to be conducted through Closing. Complete and correct
copies of the Articles of Incorporation and Bylaws of the Company, and all
amendments thereto, have been heretofore delivered to Global and are attached
hereto as Schedule 3.4. The Company is qualified to do business in Pennsylvania
------------
and in each jurisdiction in which the nature of the Business or the ownership of
its properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 SUBSIDIARIES. If ECP Vend and/or ECCCI have not been merged into
------------
the Company, the Company is the owner of all of the outstanding shares of the
capital stock of each of ECP Vend and ECCCI (the "SUBSIDIARY SHARES") free and
clear of all Encumbrances, and none of the Subsidiary Shares is subject to any
outstanding option, warrant, call, or similar right
-9-
<PAGE>
of any other Person to acquire the same, and none of the Subsidiary Shares is
subject to any restriction on transfer thereof except for restrictions imposed
by applicable federal and state securities laws. There are no authorized or
outstanding warrants, options, or rights of any kind to acquire from the
Company, ECP Vend or ECCCI any equity or debt securities of either ECP Vend or
ECCCI, or securities convertible into or exchangeable for equity or debt
securities of either ECP Vend or ECCCI, and there are no Subsidiary Shares
reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company, ECP Vend or ECCCI to
issue, sell or deliver any additional Subsidiary Shares. Except for ECP Vend and
ECCCI, neither the Company, nor its subsidiaries, directly or indirectly have
any subsidiaries or any direct or indirect ownership interests in any Person.
The Seller does not own any other Person engaged in the Business.
3.6 DUE AUTHORIZATION. The Company and the Seller each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Seller and constitutes the valid and binding obligations of the Company and
Seller, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and Seller, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or Seller, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any material agreement to which the Company or
Seller are a party, or by which any of them or any of their respective property
is bound, (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Seller, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements
--------------------
(herein so called) of the Company have been delivered to Global and Conway by
the Company: consolidated balance sheets of the Company as of July 31, 1994,
July 31, 1995, July 31, 1996 and June 30, 1997, and consolidated statements of
income of the Company for the fiscal years ended July 31, 1994, July 31, 1995
and July 31, 1996 and for the 11 month period ending June 30, 1997.
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated and fairly present the financial position, results of
operations and changes in financial position of the Company as of the indicated
dates and for the indicated periods, subject (in the case of the 6 month
Financial Statements) to year end accruals made in the ordinary course of the
Business which are not materially adverse and which are consistent with past
practices. Except to the extent reflected or provided for in the Financial
Statements or the notes thereto and
-10-
<PAGE>
obligations and liabilities incurred in the ordinary course of business since
the date of the last of such Financial Statements, the Company has no
liabilities required by GAAP to be reflected on the Company's balance sheet or
notes thereto that are not so reflected, nor any other obligations (whether
absolute, contingent, or otherwise) which are (individually or in the aggregate)
Material (in amount or to the conduct of the Business); and neither the Company
nor Seller has knowledge of any basis for the assertion of any such liability or
obligation. Since July 31, 1996, there has been no Material Adverse Change in
the prospects of the Company.
3.8 CERTAIN ACTIONS. Since July 31, 1996, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder; (c) made or agreed to make any loans
or advances or guaranteed or agreed to guarantee any loans or advances to any
party whatsoever; (d) suffered or permitted any Encumbrance to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) cancelled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$10,000 individually or $25,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any assets
(except in the ordinary course of the Business); (g) amended its charter or
bylaws; (h) paid or made a commitment to pay any severance or termination
payment to any employee or consultant; (i) made any material change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (k) made any investment or commitment therefor in any Person;
(l) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) materially amended or experienced a
termination of any material contract, agreement, lease, franchise or license to
which the Company is a party that would or could reasonably be expected to have
a Material Adverse Effect, except in the ordinary course of the Business; or (o)
entered into any other material transactions that would or could reasonably be
expected to have a Material Adverse Effect except in the ordinary course of the
Business. Since July 31, 1996, except as disclosed on Schedule 3.8B hereto or
-------------
any of the Financial Statements or notes thereto, there has not been (a) any
Material Adverse Change including, but not limited to, the loss of any material
customers or suppliers of the Company, or in any material assets of the Company,
(b) any extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company, or (d) any shutdown, material
-11-
<PAGE>
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Company, nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of each interest in real property (including, without
limitation, leasehold interests) and each item of personal property utilized by
the Company in the conduct of the Business having a book value in excess of
$25,000 as of the date hereof. Except for Permitted Exceptions or as expressly
set forth on Schedule 3.9, such real and personal properties are free and clear
------------
of Encumbrances. Seller and the Company have delivered to Global a lien search
obtained from the New York Secretary of State of all UCC liens of record against
the Company's personal property in the State of New York. All of the properties
and assets necessary for continued operation of the Business as currently
conducted (including, without limitation, all books, records, computers and
computer software and data processing systems) are owned, leased or licensed by
the Company and are suitable for the purposes for which they are currently being
used. With the exception of used equipment and inventory valued at no more than
$10,000 on the Company's Financial Statements, the physical properties of the
Company, including the real properties leased by the Company, are in good
operating condition and repair, normal wear and tear excepted, and are free from
any defects of a material nature. Except for Permitted Exceptions or as
otherwise set forth on Schedule 3.9, the Company has full and unrestricted legal
------------
and equitable title to all such properties and assets. The operation of the
properties and Business of the Company in the manner in which they are now and
have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for Permitted Exceptions or as set forth on Schedule 3.9, no restrictive
------------
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and will remain legal, valid,
binding, enforceable and in full force and effect on identical terms immediately
following the Closing, except to the extent that enforceability may be limited
by laws affecting creditors' rights and debtors' obligations generally, and
legal limitations relating to remedies of specific performance and injunctive
and other forms of equitable relief. All facilities owned or leased by the
Company have received all approvals of any Governmental Body (including
Governmental Permits) required in connection with the operation thereof and have
been operated and maintained in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a
-------------------- -------------
list of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received notification from any Governmental
Body of violation of any such Governmental Permit or the Requirements of Laws
governing the issuance or continued validity thereof other than violations (if
any) which would not individually or in the aggregate have a Material Adverse
Effect. No additional Governmental Permit is
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<PAGE>
required from any Governmental Body thereof in connection with the conduct of
the Business which Governmental Permit, if not obtained, would have a Material
Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities (collectively, the
"INTELLECTUAL PROPERTY"). The Company has furnished Global with copies of all
license agreements to which the Company is a party, either as licensor or
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Company has good title to or the right to use such
- -------------
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of their Business, in their
Business as presently conducted without the payment of any royalty or similar
payment, and the Company is not infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Seller is aware of any infringement by others of any
such rights owned by the Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. No claim has been made by any Governmental Body
(and, to the best knowledge of the Company and Seller, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental Obligation
or that a Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Seller's knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
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<PAGE>
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is
------------------------ -------------
a list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company
-14-
<PAGE>
or its properties are bound pursuant to which the obligations thereunder of
either party thereto are, or are contemplated as being, for any one contract
$25,000 or greater (collectively, the "CONTRACTS"). The Company is not and, to
the best knowledge of Seller and the Company, no other party thereto is in
default (and no event has occurred which, with the passage of time or the giving
of notice, or both, would constitute a default by the Company) under any of the
Contracts, and the Company has not waived any right under any of the Contracts.
All of the Contracts to which the Company is a party are legal, valid, binding,
enforceable and in full force and effect and will remain legal, valid, binding,
enforceable and in full force and effect on identical terms immediately after
the Closing, except to the extent that enforceability may be limited by laws
affecting creditors' rights and debtors' obligations generally, and legal
limitations relating to remedies of specific performance and injunctive and
other forms of equitable relief. Except as set forth in Schedule 3.15, the
-------------
Company has not guaranteed any obligations of any other Person. To the best of
Seller's and the Company's Knowledge, no manufacturer of office equipment sold
by the Company will cease doing business with the Company immediately following
the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Seller or the
Company, threatened against or affecting the Company or any of its properties or
assets, at law or in equity, or before or by any court, municipality or other
Governmental Body. Except as set forth on Schedule 3.16, none of such claims,
-------------
actions, suits, proceedings, or investigations, if adversely determined, will
result in any liability or loss to the Company. The Company has not been and
the Company is not now, subject to any Court Order, stipulation, or consent of
or with any court or Governmental Body. No inquiry, action or proceeding has
been instituted or, to the best knowledge and belief of the Seller or the
Company, threatened or asserted against the Seller or the Company to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement or
to challenge the validity of such transactions or any part thereof or seeking
damages on account thereof. To the best knowledge of the Company and Seller,
except as set forth on Schedule 3.16, there is no basis for any such valid claim
-------------
or action.
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Seller
are presently subject to an extension of the time to file. All Taxes,
assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods
-15-
<PAGE>
then ended and all prior periods. The Company has not executed any presently
effective waiver or extension of any statute of limitations against assessments
and collection of Taxes, and there are no pending or threatened claims,
assessments, notices, proposals to assess, deficiencies, or audits with respect
to any such Taxes of which any of the Seller or the Company are aware. For
Governmental Bodies with respect to which the Company does not file Tax Returns,
no such Governmental Body has given the Company written notification that the
Company is or may be subject to taxation by that Governmental Body. The Company
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, shareholder, creditor,
independent contractor or other party. There are no Tax liens on any of the
property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company has never made an election to be taxed under subchapter S of
the Code.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
--------- -------------
names and annual rates of compensation of the directors and executive officers
of the Company, and of the employees of the Company whose annual rates of
compensation during the fiscal years ended July 31, 1996 or July 31, 1997
(including base salary, bonus and incentive pay) exceed (or by July 31, 1997 are
expected to exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit
-------------
sharing, percentage compensation, company automobile, club membership, and other
like benefits, if any, paid or payable to such directors, officers, and
employees during the Company's fiscal years ended July, 1996, July 1997 and to
the date hereof. Schedule 3.18 also contains a brief description of all
-------------
material terms of employment agreements to which the Company is a party and all
severance benefits which any director, officer or employee of the Company is or
may be entitled to receive. The employee relations of the Company are generally
good and there is no pending or, to the best knowledge of Seller or the Company,
threatened labor dispute or union organization campaign. None of the employees
of the Company are represented by any labor union or organization. The Company
is in compliance in all material respects with all Requirements of Laws
respecting employment and employment practices, terms and conditions
-16-
<PAGE>
of employment, and wages and hours, and are not engaged in any unfair labor
practices. Neither the Company or Seller has been advised, or has good reason to
believe, that any of the persons whose names are set forth on Schedule 3.18 or
-------------
any other employee will not agree to remain employed by the Company after the
consummation of the transactions contemplated hereby. There is no unfair labor
practice claim against the Company before the National Labor Relations Board, or
any strike, dispute, slowdown, or stoppage pending or, to the best knowledge of
the Company and Seller, threatened against or involving the Company, and none
has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Seller knows or has
------------------
good reason to believe that any customer or supplier of the Company will cease
to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Seller nor the Company has received any notice
of any material disruption (including delayed deliveries or allocations by
suppliers) in the availability of any material portion of the materials used by
the Company nor is the Company or Seller aware of any facts which could lead
them to believe that the Business will be subject to any such material
disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
-------------
accounts) will be collected in full within 180 days following the Closing Date.
Except as disclosed on Schedule 3.20 hereto (a) all of such accounts, notes, and
-------------
loans receivable are free and clear of any Encumbrances; (b) no claims of offset
have been asserted in writing against any of such accounts, notes, or loans
receivable; and (c) none of the obligors of such accounts, notes, or loans
receivable has given written notice that it will or may refuse to pay the full
amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
------------- -------------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and in
----------
the ordinary course of the Business, no written claim for breach of product or
service warranty to any customer has been made against the Company since January
1, 1997. To the best knowledge of Seller and the Company, no state of facts
exists, and no event has occurred, which could reasonably be expected to form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Seller has engaged, or caused
-------
to be incurred any liability to any finder, broker, or sales agent in connection
with the origin,
-17-
<PAGE>
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No
--------------------------------------------------
officer, director, or shareholder of the Company or any affiliate of any such
officer, director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description of
- --------- -------------
the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in Schedule 3.26
----------------------- -------------
hereto, the Company does not have any material liabilities (whether absolute,
accrued, contingent or otherwise), of a nature required by GAAP to be reflected
on a corporate balance sheet or disclosed in the notes thereto, except such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto, including without limitation any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date, other than liabilities incurred in the ordinary course of the Business
since the date of the latest of such Financial Statements.
3.27 INFORMATION FURNISHED. The Company and Seller have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
---------
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global or Conway pursuant to this Agreement
contains any untrue statement of a material fact or omits any material fact
necessary to make the statements herein or therein, as the case may be, not
misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $25,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $25,000 per occurrence or $50,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable
-18-
<PAGE>
subject matter. All references to the "COMPANY" in Sections 3.6 through 3.27
------------ ----
shall include the Companies' subsidiaries.
ARTICLE IV
GLOBAL'S AND CONWAY'S REPRESENTATIONS AND WARRANTIES
Global and Conway represent and warrant to Seller as follows:
4.1 DUE ORGANIZATION. Each of Global and Conway is a corporation
----------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and New Hampshire, respectively, and each has full corporate
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global and Conway, and the Agreement has been duly and validly executed and
delivered by Global and Conway and constitutes the valid and binding obligation
of Global and Conway, enforceable in accordance with its terms, except to the
extent that enforceability may be limited by laws affecting creditors' rights
and debtors' obligations generally, and legal limitations relating to remedies
of specific performance and injunctive and other forms of equitable relief. The
execution, delivery, and performance of this Agreement (as well as all other
instruments, agreements, certificates or other documents contemplated hereby) by
Global and Conway, do not (a) violate any Requirements of Laws or Court Order of
any Governmental Body applicable to Global or its property or Conway or its
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under any agreement to which Global or Conway is a party or
by which it or its property is bound, (c) permit the acceleration of the
maturity of any indebtedness of, or any indebtedness secured by the property of,
Global or Conway, or (d) violate or conflict with any provision of the charter
or bylaws of Global or Conway.
4.3 NO BROKERS. Neither Global nor Conway has engaged, or caused to
----------
be incurred any liability to any finder, broker or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
4.4 INVESTMENT. Conway will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
-19-
<PAGE>
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
------------------
Seller shall use their best efforts to obtain and to cause the Company to obtain
all authorizations, consents and permits required of the Company and Seller to
permit them to consummate the transactions contemplated by this Agreement.
Seller shall have obtained the written consent of (i) Konica and the Company's
other Material office equipment suppliers and (ii) the lessors of the Buildings
to the transactions contemplated by the Agreement.
5.2 SELLER'S EFFORTS. The Company and Seller shall use all
----------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Seller shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Global and
Kleinhans) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). The Seller
acknowledges and agrees that from and after the Closing, Conway will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Company, which shall be maintained at the chief
executive office of the Company; provided, however, that Seller shall be
entitled to reasonable access to and to make copies of such books and records at
his sole cost and expense and Conway will maintain all of the same for a period
of at least three (3) years after Closing. Thereafter, the Company will offer
such documentation to Seller before disposal thereof.
6.2 TRANSITION. For a period of four (4) years following Closing,
----------
the Seller will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of four (4) years following Closing, the
Seller will refer all customer inquiries relating to the Business to the
Company.
-20-
<PAGE>
******Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.]
6.3 CONFIDENTIALITY. The Seller will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Conway for a period of three (3) years from the Closing, and deliver
promptly to Conway or destroy, at the written request and option of Conway, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that
Seller is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, Seller will notify Conway promptly of the request or requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Seller by Conway, Seller
covenants and agrees, for a period of four (4) years from and after the Closing
Date, that he will not, directly or indirectly without the prior written consent
of Conway, for or on behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/office equipment dealer, service or
distribution business in competition with the Company, within the greater of (i)
a 100 mile radius of the Company's office facilities in Ithaca, Rochester,
Owego, Buffalo and Syracuse, New York (the "CURRENT TRADE AREA") or (ii) in any
geographic area in which the Company currently conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company in
the Current Trade Area or to cause them to reduce or end their business with the
Company; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof.
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<PAGE>
6.5 ADDITIONAL MATTERS.
------------------
(A) The Seller shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Seller shall
cause Pasquale & Bowers, CPA to prepare a short period tax return for the
Company covering the period July 31, 1997 through the Effective Date. The cost
of preparation of such short period tax return shall be paid for by Seller.
(B) Conway and Seller recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Conway and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Conway agrees to cause the Company to (A) use its best efforts
---------
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Seller and his agents and representatives
at times and dates mutually acceptable to the parties, to inspect, review and
make copies of such records as such other party may deem necessary or
appropriate from time to time, such activities to be conducted during normal
business hours and at the other party's expense.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S AND CONWAY'S OBLIGATIONS. Subject to
-----------------------------------------------
Section 2.4 above, the obligation of Global and Conway under this Agreement to
- -----------
consummate the Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company and
-----------------------------------------
Seller shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Company and Seller
set forth in this Agreement shall be accurate in all material respects at and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date.
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<PAGE>
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Seller of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation of the transactions contemplated hereby shall
have been obtained in form and substance reasonably satisfactory to Conway
unless such failure could not reasonably be expected to have a Material Adverse
Effect. All approvals of the Board of Directors and shareholders of the Company
necessary for the consummation of this Agreement and the transactions
contemplated hereby shall have been obtained.
(C) LEASES. The lessors of the Buildings shall have provided an
------
Estoppel Certificate to Global's lenders in the form of Exhibit B hereto, except
---------
as specifically waived by Global and Conway. The leases for all of such
Buildings shall provide that such leases (i) survive the Closing for the term of
such leases, copies of which have been provided to Global and Conway; provided,
however, that the lease for the Syracuse Building shall be for a term of five
(5) years after the Closing on the terms of Exhibit J hereof and (ii) the annual
---------
rent for the lease of the Syracuse Building shall be for no more than $120,000.
In addition, the lease for the Syracuse Building attached hereto in the form of
Exhibit J shall be executed at Closing.
- ---------
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Seller and the Company
-----------------------------------
shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company and all extended credit from vendors at the Closing
(other than customary accounts payable outstanding on 90 day or less payment
terms in accordance with past practices). Such Funded Indebtedness, if any, as
of August 15, 1997, is listed on Schedule 7.1(d) hereto. Seller shall have also
---------------
provided for the termination of all Encumbrances of record on the properties of
the Company, except for Permitted Exceptions. All liens or UCC filings against
the Company and each of the Subsidiaries or Affiliates of the Company which
engaged in the Business, shall have been terminated as of the Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change with respect to the Company since June 30, 1997.
(F) TRANSFER TAXES. Seller shall be responsible for all stock
--------------
transfer or gains taxes imposed on Seller incurred in connection with this
Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
-------------------
Capital as projected at the Closing shall be greater than $971,000.00 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing (in an amount not less than $100,000 or, if less than $100,000, the
Purchase Price will be reduced further by the amount of such deficiency), to
continue to operate the Business in the ordinary course.
(H) DOCUMENTS TO BE DELIVERED BY SELLER AND THE COMPANY. The
---------------------------------------------------
following documents shall be delivered at the Closing by Seller and the Company:
-23-
<PAGE>
(I) OPINION OF SELLER'S COUNSEL. Global and Conway shall
---------------------------
have received an opinion of counsel to the Company and Seller, dated
the Closing Date, in substantially the same form as the form of
opinion that is Exhibit C hereto.
---------
(II) CERTIFICATES. Conway shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in
substantially the same forms as the forms of certificates that are
Exhibit D hereto.
---------
(III) RELEASE. Seller shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit E hereto.
---------
(IV) ESCROW AGREEMENT. Seller shall have delivered to
----------------
Conway at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Kleinhans shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
---------
employed by the Company following the Closing.
(VI) BUILDING LEASES. The leases of the Buildings (other
---------------
than the Syracuse Building) will be for the terms and at the rates per
annum as are currently in effect in accordance with those leases
agreements provided to Global and Conway prior to the date hereof, and
the lease for the Syracuse Building attached hereto as Exhibit J,
---------
shall be executed and delivered by the Seller, as the owner of the
Syracuse Building. Seller shall have delivered to Conway an Estoppel
Certificate of the landlords of the Buildings to Global's lenders in
the same form attached as Exhibit B hereto, except as specifically
---------
waived by Global and Conway.
(VII) COLLATERAL ASSIGNMENT OF RIGHTS. Seller shall have
-------------------------------
executed and delivered to Jackson National Life Insurance Company a
Collateral Assignment of Rights in the form attached hereto as Exhibit
-------
I.
-
(VIII) STOCK CERTIFICATES. Seller shall have delivered the
------------------
Shares accompanied by duly executed stock powers, together with any
stock transfer stamps or receipts for any transfer taxes required to
be paid thereon.
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<PAGE>
(I) PURCHASE OF KONICA SHARES. Conway shall have
-------------------------
consummated the purchase of the Konica Shares from Konica and received
the Konica Shares from Konica.
7.2 CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS. The
----------------------------------------------------
obligation of Seller and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global and
-----------------------------------------
Conway shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by Global or Conway prior to or
at the Closing and the representations and warranties of Global and Conway set
forth in Article IV hereof shall be accurate in all material respects, at and as
of the Closing Date, with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of the Business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representations, the same shall be true as of such specified
date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global and Conway of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation by Global and Conway of the transactions
contemplated hereby shall have been obtained unless such failure shall not have
a Material Adverse Effect on the Business. Global shall have used its
reasonable best efforts to have obtained the release of the Seller from all
personal guarantees with respect to the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL AND CONWAY. The
----------------------------------------------
following documents shall be delivered at the Closing by Global and Conway:
(I) OPINION OF GLOBAL'S AND CONWAY'S COUNSEL. Seller
----------------------------------------
shall have received an opinion of Davis, Graham & Stubbs LLP, counsel
to Global and Conway, dated the Closing Date, in substantially the
same form as the form of opinion that is Exhibit G hereto.
---------
(II) CERTIFICATES. Seller shall have received an
------------
officers' certificate and a secretary's certificate executed by
officers of Conway and Global, dated the Closing Date, in
substantially the same forms as the forms of certificates that are
Exhibit H hereto.
---------
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
(III) ESCROW AGREEMENT. Conway shall have delivered to
----------------
Seller at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(IV) EMPLOYMENT AGREEMENT. Conway shall have caused the
--------------------
Company to duly execute and deliver the Employment Agreement with
Kleinhans in the same form attached as Exhibit F hereto, pursuant to
---------
which he will be employed by the Company following the Closing.
(V) PURCHASE PRICE. Seller shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. Kleinhans shall have been offered
---------------------
the right to invest up to [**] in the capital stock of Global on the same terms
provided to other recent outside investors in Global.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6,
------------------------- -----------
as Global's and Conway's sole and exclusive remedy for any breach by the Seller
hereunder, Seller agrees to indemnify and hold harmless Global and Conway and
each officer, director, and affiliate of Global and Conway, including without
limitation the Company or any successor of the Company (collectively, the
"INDEMNIFIED PARTIES") from and against any and all damages, losses, claims,
liabilities, demands, charges, suits, penalties, costs and expenses (including
court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) (collectively, the
"INDEMNIFIABLE COSTS"), which any of the Indemnified Parties may sustain, or to
which any of the Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by Seller or the Company of or under any of
the representations, covenants, agreements or other provisions of this Agreement
or any agreement or document executed in connection herewith; (B) the assertion
and final determination of any claim or liability against the Company or any of
the Indemnified Parties by any Person based upon the facts which form the
alleged basis for any litigation to the extent it should have been, but was not,
reserved for in the Financial Statements in accordance with GAAP; and (C) the
Company's tortious acts or omissions to act prior to Closing for which the
Company did not carry liability insurance for themselves as the insured party,
whether or not such acts or omissions to act result in a breach or violation of
any representation or warranty.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Seller may be liable hereunder, such Indemnified Party shall give prompt written
notice thereof to Seller and, except as otherwise provided in Section 8.4 below,
-----------
Seller shall have the right to defend, or cause the
-26-
<PAGE>
Company or its successors to defend, any litigation, action, suit, demand, or
claim for which it may seek indemnification unless, in the reasonable judgment
of Global, such litigation, action, suit, demand, or claim, or the resolution
thereof, would have an ongoing effect on Global, Conway, the Company or its
successors, and such Indemnified Party shall extend reasonable cooperation in
connection with such defense, which shall be at Seller's expense. In the event
Seller fails or refuses to defend the same within a reasonable length of time,
the Indemnified Parties shall be entitled to assume the defense thereof, and
Seller shall be liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including reasonable
attorneys' fees and settlement payments) if it is determined that such request
for indemnification was proper. If Seller shall not have the right to assume the
defense of any litigation, action, suit, demand, or claim in accordance with
either of the two preceding sentences, the Indemnified Parties shall have the
absolute right to control the defense of and to settle, in their sole discretion
and without the consent of Seller, such litigation, action, suit, demand, or
claim, but Seller shall be entitled, at his own expense, to participate in such
litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Seller,
which shall not unreasonably be withheld and subject to the right of Seller to
have their accountants and attorneys consult with Global on such audits or
procedures at Seller's expense). Seller shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, Seller shall be
responsible for and shall promptly pay all Taxes, interest, and penalties to
which any of the Indemnified Parties shall be entitled to indemnification, net
of the present value of any Tax benefits to Global as a result of any such audit
or other proceeding..
8.5 INDEMNIFICATION OF SELLER. Conway agrees to indemnify and hold
-------------------------
harmless Seller and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global or Conway of
or under any of the covenants, agreements or other provisions of this Agreement
or any agreement or document executed in connection herewith, and (B) any
tortious acts or omissions by Global or Conway before or after or the Company
after, the Closing. In addition, the Company and Global shall indemnify the
-27-
<PAGE>
Seller for any payment or satisfaction of any guarantees by Seller of the
Company's obligations occurring after the Closing Date.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Seller under Sections 3.1,
-------------
3.2, 3.3 or 3.17 hereof (the indemnification for which shall expire on the
- ----------------
expiration of the applicable statute of limitations), the indemnification
provided under this Article VIII shall expire on the third anniversary of the
Closing Date. The Seller shall not be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
obligation hereunder exceeds $25,000, whereupon Seller shall be liable for all
amounts for which indemnification may be sought. Notwithstanding the foregoing,
in no event shall the aggregate liability of Seller to Global and Conway exceed
$5,000,000 (except for claims made for any breach of the representations and
warranties of Seller under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which
---------------------- ----
the limit of indemnification hereunder shall be the Purchase Price). However
nothing in this Article VIII shall limit Global, Conway or Seller in exercising
or securing any remedies provided by applicable common law with respect to the
conduct of Seller or Conway in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that Conway
successfully proves intentional fraud or intentional fraudulent conduct in
connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
-28-
<PAGE>
Global or Conway:
----------------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Christopher J. Hagan
Fax No.: (202) 293-4794
Tel No.: (202) 822-1035
or after September 1, 1997:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
The Company or Seller:
----------------------
c/o Eastern Copy Products, Inc.
1224 West Genesee Street
Syracuse, New York 13204
Attention: Michael Kleinhans
Fax No.: (315) 474-7000
Tel No.: (315) 474-6479
-29-
<PAGE>
With a copy to:
Goldberg & Fabiano
1408 West Genesee Street
Syracuse, New York 13204
Attention: Harold Goldberg, Esq.
Fax No.: (315) 422-6191
Tel No.: (315) 426-9670
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Seller shall bear all costs and expenses of (i) any broker involved in this
transaction and (ii) all legal expenses of Seller or the Company with respect to
this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global, Conway and Seller, their
heirs, representatives, successors, and permitted assigns, in accordance with
the terms hereof. This Agreement shall not be assignable by the Company or
Seller without the prior written consent of Conway. This Agreement shall be
assignable by Conway to a wholly-owned subsidiary of Global without the prior
written consent of Seller, but any such assignment shall not relieve Global or
Conway of its obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of New York.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and
-30-
<PAGE>
the related indemnities made hereunder or pursuant hereto or in connection with
the transactions contemplated hereby shall survive the Closing for a period of
three (3) years, provided (a) the representations and warranties contained in
Section 3.17 of this Agreement, and the related indemnities, shall survive the
- ------------
Closing until the expiration of the applicable statutes of limitations for
determining or contesting Tax liabilities and (b) the representations and
warranties contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the
-------------------------
related indemnities, shall survive the Closing until expiration of the
applicable statute of limitations.
9.9 INVALID PROVISIONS. If any provision of this Agreement is deemed
------------------
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLER AND GLOBAL WITH
------------------
RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLER AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN SYRACUSE, NEW YORK, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES.
-31-
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-32-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
---------------------
Thomas S. Johnson
President and Chief Executive Officer
CONWAY:
------
CONWAY OFFICE PRODUCTS, INC.
By: /s/ Thomas S. Johnson
---------------------
Thomas S. Johnson
Chairman
THE COMPANY:
-----------
EASTERN COPY PRODUCTS, INC.
By: /s/ Michael E. Kleinhans
------------------------
Michael E. Kleinhans
President
SELLER:
------
/s/ Michael E. Kleinhans
------------------------
Michael E. Kleinhans
-33-
<PAGE>
EXHIBIT 10.22
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.***]
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
DUPLICATING SPECIALTIES, INC. (D/B/A
COPYTRONIX) (THE "COMPANY")
AND
THE SHAREHOLDERS OF THE COMPANY
DATED SEPTEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions..............................................................1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase...........................................5
2.2 Purchase Price...........................................................5
2.3 Payment of Purchase Price................................................6
2.4 Closing..................................................................6
2.5 Escrow Arrangements......................................................6
2.6 Purchase Price Adjustments...............................................6
2.7 Closing Audit............................................................7
2.8 Post-Closing Purchase Price Adjustment...................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
3.1 Capitalization...........................................................8
3.2 No Liens on Shares.......................................................8
3.3 Other Rights to Acquire Capital Stock....................................8
3.4 Due Organization.........................................................8
3.5 Subsidiaries.............................................................8
3.6 Due Authorization........................................................9
3.7 Financial Statements.....................................................9
3.8 Certain Actions.........................................................10
3.9 Properties..............................................................11
3.10 Licenses and Permits....................................................12
3.11 Intellectual Property...................................................12
3.12 Compliance with Laws....................................................12
3.13 Insurance...............................................................13
3.14 Employee Benefit Plans..................................................13
(a) Employee Welfare Benefit Plans.....................................13
(b) Employee Pension Benefit Plans.....................................13
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements......................................................14
3.15 Contracts and Agreements................................................14
3.16 Claims and Proceedings..................................................14
3.17 Taxes...................................................................15
3.18 Personnel...............................................................16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
3.19 Business Relations......................................................16
3.20 Accounts Receivable.....................................................16
3.21 Bank Accounts...........................................................17
3.22 Warranties..............................................................17
3.23 Brokers.................................................................17
3.24 Interest in Competitors, Suppliers, Customers, Etc......................17
3.25 Indebtedness To and From Officers, Directors, Shareholders, and
Employees..............................................................17
3.26 Undisclosed Liabilities.................................................17
3.27 Information Furnished...................................................18
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization........................................................18
4.2 Due Authorization.......................................................18
4.3 No Brokers..............................................................19
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 Consents of Others......................................................19
5.2 Seller's Efforts........................................................19
5.3 Powers of Attorney......................................................19
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General.................................................................20
6.2 Transition..............................................................20
6.3 Confidentiality.........................................................20
6.4 Covenant Not to Compete.................................................20
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations......................................22
(a) Covenants, Representations and Warranties..........................22
(b) Consents...........................................................22
(c) Leases.............................................................23
(d) Discharge of Indebtedness and Liens................................23
(e) Material Adverse Change............................................23
(f) Transfer Taxes.....................................................23
(g) Financial Condition................................................23
(h) Documents to be Delivered by Seller and the Company................23
(i) Opinion of Seller's Counsel................................23
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
(ii) Certificates...............................................23
(iii) Release....................................................23
(iv) Escrow Agreement...........................................24
(v) Employment Agreement.......................................24
(vi) Building Leases............................................24
(vii) Collateral Assignment of Rights............................24
(viii) Stock Certificates.........................................24
7.2 Conditions to Seller's and the Company's Obligations....................24
(a) Covenants, Representations and Warranties..........................24
(b) Consents...........................................................24
(c) Documents to be Delivered by Global................................25
(ii) Certificates................................................25
(iii) Escrow Agreement............................................25
(iv) Employment Agreement........................................25
(iv) Purchase Price..............................................25
(d) Right of Reinvestment..............................................25
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global...............................................26
8.2 Defense of Claims.......................................................26
8.3 Escrow Claim............................................................27
8.4 Tax Audits, Etc.........................................................27
8.5 Indemnification of Seller...............................................28
8.6 Limits on Indemnification...............................................28
ARTICLE IX
MISCELLANEOUS
9.1 Modifications...........................................................28
9.2 Notices.................................................................29
9.3 Counterparts............................................................30
9.4 Expenses................................................................30
9.5 Binding Effect; Assignment..............................................30
9.6 Entire and Sole Agreement...............................................30
9.7 Governing Law...........................................................30
9.8 Survival of Representations, Warranties and Covenants...................30
9.9 Invalid Provisions......................................................31
9.10 Public Announcements....................................................31
9.11 Remedies Cumulative.....................................................31
9.12 Waiver..................................................................31
9.13 Dispute Resolution......................................................31
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Seller's Counsel
Exhibit D Seller's Certificates
Exhibit E Release
Exhibit F Groves Executive Agreement
Exhibit G Global Certificates
Exhibit H Collateral Assignment of Rights
LIST OF SCHEDULES
Schedule 2.3 Seller's Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
September 30, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), DUPLICATING SPECIALTIES, INC. (d/b/a COPYTRONIX), an
Oregon corporation (the "COMPANY") and THE SHAREHOLDER OF THE COMPANY (the
"SELLER").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the distribution, sale and service
of office equipment in the State of Oregon and in the State of Washington (the
"BUSINESS"); and
WHEREAS, Seller owns all of the outstanding shares of capital stock of
the Company (the "SHARES"), which Shares constitute all of the issued and
outstanding capital stock of the Company; and
WHEREAS, Global desires to purchase from Seller and Seller desires to
sell to Global hereby all of the Shares owned by Seller all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
"BUILDINGS" shall mean the Company's offices, showroom and
warehouse facilities located at 15860 SW Upper Boones Ferry Road, Lake Oswego,
Oregon 97035.
<PAGE>
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Seller to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Dean Groves to be entered into at Closing in the form of Exhibit F.
---------
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind.
-2-
<PAGE>
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the Key Bank of Oregon.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Seller, Global and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business on no more than
90 day payment terms; (iv) indebtedness of others guaranteed by the Company or
secured by an Encumbrance on the Company's property; (v) indebtedness of the
Company under extended credit terms of more than 30 days from manufacturers
provided to the Company; or (vi) any receivables owed by the Seller to the
Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
-3-
<PAGE>
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "MATERIAL ADVERSE
CHANGE" or "MATERIAL ADVERSE EFFECT" has occurred, the quantitative amounts set
forth at the end of Article III shall be conclusive.
-----------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of August 31, 1997. The Preliminary
Closing Balance Sheet shall be delivered to Global not less than five (5) days
prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company.
-4-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
"SUBSIDIARY" has the meaning set forth in Section 3.5 of this
-----------
Agreement.
"SUBSIDIARY SHARES" has the meaning set forth in Section 3.5 of
-----------
this Agreement.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed thereon by any
Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities as calculated in accordance with
GAAP.
"WORKING CAPITAL TARGET" shall have the meaning assigned to such
term in Section 2.6 hereof.
-----------
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Seller agrees to sell the Shares to
Global and Global agrees to purchase the Shares from Seller.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
--------------
"PURCHASE PRICE") shall be equal to [**], subject to any adjustment required to
be made pursuant to Section 2.6 or Section 2.8 below.
----------- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by Global at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price less the amounts set forth in
Section 2.6(a) and (b) will be paid, at the direction of the Seller, in cash by
- -------------- ---
wire transfer of
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
funds as specified in Schedule 2.3 (including the payment of [**] for the
covenant not to compete provided in Section 6.4); and
(B) [**] of the Purchase Price will be paid in cash by wire
transfer of funds to the Escrow Agent to be held in escrow for satisfaction of
Seller's indemnification obligations specified in Section 8.1 or payment to the
-----------
Seller in accordance with the terms of Section 2.5 below.
-----------
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 9:00 a.m., Pacific Coast
time, at the offices of Draneas & Gregores in Portland, Oregon on September 30,
1997, or at such other date and time as the parties shall agree (the "CLOSING
DATE"), effective as of September 1, 1997 (the "EFFECTIVE DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Seller, Global and the Escrow Agent, [**] of the Purchase
Price shall be delivered to the Escrow Agent at Closing. Such monies (which,
together with all interest accrued thereon, is hereinafter referred to as the
"ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement for
payment from such Escrow Sum of the amounts, if any, owing by Seller to Global
pursuant to Section 2.8 or Article VIII below. At the conclusion of the period
-----------
ending on the first anniversary of the Closing Date (such period being referred
to herein as the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Global in accordance with the terms of the
Escrow Agreement and this Agreement shall be disbursed to Seller. Seller and
Global agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be reduced by the total amount of Funded Indebtedness, if any, assumed or
paid by Global in cash by wire transfer of funds to the accounts of the holders
of Funded Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's
------------
Funded Indebtedness with such institutions.
(B) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the adjusted Working Capital as
reflected on the Preliminary Closing Balance Sheet is less than $532,906 [THE
AMOUNT WHICH IS $50,000 LESS THAN THE AVERAGE OF THE WORKING CAPITAL BALANCES AT
THE END OF EACH OF THE FIRST SIX MONTHS OF 1997] (the "WORKING CAPITAL TARGET").
2.7 CLOSING AUDIT. Within 120 days following the Closing Date, there
-------------
shall be delivered to Global and to Seller an audit of the Preliminary Closing
Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Company at and as of
the Effective Date. The
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<PAGE>
Preliminary Closing Balance Sheet shall be audited by Ernst & Young, LLP in
accordance with GAAP. The cost of the Audited Closing Balance Sheet shall be
paid by Global. In the event that the Seller disputes any items on the Audited
Closing Balance Sheet within ten days after Seller's receipt thereof, the
parties shall jointly select and retain an independent "Big Six" accounting firm
(the "INDEPENDENT ACCOUNTANTS") to review the disputed item(s) on the Audited
Closing Balance Sheet. The final determination of such disputed item(s) by the
Independent Accountants shall be reflected on the Audited Closing Balance Sheet.
The cost of retaining the Independent Accountants shall be borne by Seller;
provided, however, that Global shall reimburse Seller for the cost of the
Independent Accountants in the event that such review results in an increase of
more than $50,000 in the Company's Working Capital as reflected on the Audited
Closing Balance Sheet prepared by Ernst & Young, LLP.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(b) above. The post-closing adjustment to the
--------------
Purchase Price, if any, shall be paid by Seller to Global from the Escrow Sum or
by Global to Seller, as the case may be, in immediately available funds within
ten (10) business days of delivery of the Audited Closing Balance Sheet, unless
the Seller disputes any items on the Audited Closing Balance Sheet, in which
case it shall be paid within ten (10) business days after the Independent
Accountants finally determine the disputed item(s), and Global delivers to
Seller an Audited Closing Balance Sheet modified to reflect such determination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
The Company and Seller represent and warrant to Global that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 20 shares of Common Stock, all of which are issued and outstanding.
All of the Shares are duly authorized, validly issued, fully paid, and
nonassessable. All of the Shares are owned of record and beneficially by Seller
in the amounts set forth on Schedule 3.1 hereto. None of the Shares was issued
------------
or will be transferred under this Agreement in violation of any preemptive or
preferential rights of any Person. The Seller owns all of the issued and
outstanding capital stock of the Company.
-7-
<PAGE>
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Seller
------------------ ------------
owns the Shares, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, and none of the Shares is subject to
any outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Shares is subject to any restriction on
transfer thereof except for restrictions imposed by applicable federal and state
securities laws. At Closing, Seller will have full power and authority to
convey good and marketable title to the Shares, free and clear of any
Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Oregon and
has full corporate power and authority to carry on the Business as now conducted
and as proposed to be conducted through Closing. Complete and correct copies of
the Articles of Incorporation and Bylaws of the Company, and all amendments
thereto, have been heretofore delivered to Global and are attached hereto as
Schedule 3.4. The Company is qualified to do business in the State of Oregon and
- ------------
in each jurisdiction in which the nature of the Business or the ownership of its
properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 SUBSIDIARIES. The Company is the owner of all of the outstanding
------------
shares of the capital stock of each subsidiary (individually, a "SUBSIDIARY" and
collectively, the "SUBSIDIARIES") of the Company listed on Schedule 3.5 (such
------------
shares shall be collectively referred to as the "SUBSIDIARY SHARES"), free and
clear of all Encumbrances, and none of the Subsidiary Shares is subject to any
outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Subsidiary Shares is subject to any
restriction on transfer thereof except for restrictions imposed by applicable
federal and state securities laws. There are no authorized or outstanding
warrants, options, or rights of any kind to acquire from the Company, or any
Subsidiary of the Company, any equity or debt securities of any Subsidiary of
the Company, or securities convertible into or exchangeable for equity or debt
securities of any Subsidiary of the Company, and there are no Subsidiary Shares
reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company or any Subsidiary of
the Company to issue, sell or deliver any additional Subsidiary Shares. Except
for the Subsidiaries of the Company listed on Schedule 3.5, neither the Company,
------------
nor its subsidiaries, directly or indirectly have any subsidiaries or any direct
or indirect ownership interests in any Person. The Seller does not own any other
Person engaged in the Business.
-8-
<PAGE>
3.6 DUE AUTHORIZATION. The Company and the Seller each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Seller and constitutes the valid and binding obligations of the Company and
Seller, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and Seller, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or Seller, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any material agreement to which the Company or
Seller are a party, or by which any of them or any of their respective property
is bound, (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Seller, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements (herein
--------------------
so called) of the Company have been delivered to Global by the Company:
unaudited, reviewed balance sheets of the Company as of October 31, 1994,
October 31, 1995 and October 31, 1996 and unaudited balance sheet as of August
31, 1997, and unaudited reviewed statements of income of the Company for the
fiscal years ended October 31, 1994, October 31, 1995 and October 31, 1996 and
unaudited statement of income for the 10 month period ending August 31, 1997.
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated and fairly present the financial position, results of
operations and changes in financial position of the Company as of the indicated
dates and for the indicated periods, subject (in the case of the 10 month
Financial Statements) to year end accruals made in the ordinary course of the
Business which are not materially adverse and which are consistent with past
practices. Except to the extent reflected or provided for in the Financial
Statements or the notes thereto and obligations and liabilities incurred in the
ordinary course of business since the date of the last of such Financial
Statements, the Company has no liabilities required by GAAP to be reflected on
the Company's balance sheet or notes thereto that are not so reflected, nor any
other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) Material (in amount or to the conduct of the
Business); and neither the Company nor Seller has knowledge of any basis for the
assertion of any such liability or obligation. Since October 31, 1996, there
has been no Material Adverse Change in the prospects of the Company.
3.8 CERTAIN ACTIONS. Since October 31, 1996, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or
-9-
<PAGE>
contingent, other than current liabilities incurred and paid in the ordinary
course of the Business; (b) paid or declared any dividends or distributions, or
purchased, redeemed, acquired, or retired any stock or indebtedness from any
stockholder; (c) made or agreed to make any loans or advances or guaranteed or
agreed to guarantee any loans or advances to any party whatsoever; (d) suffered
or permitted any Encumbrance to arise or be granted or created against or upon
any of its assets, real or personal, tangible or intangible; (e) canceled,
waived, or released or agreed to cancel, waive, or release any of its debts,
rights, or claims against third parties in excess of $10,000 individually or
$25,000 in the aggregate; (f) sold, assigned, pledged, mortgaged, or otherwise
transferred, or suffered any material damage, destruction, or loss (whether or
not covered by insurance) to, any assets (except in the ordinary course of the
Business); (g) amended its charter or bylaws; (h) paid or made a commitment to
pay any severance or termination payment to any employee or consultant; (i) made
any material change in its method of management or operation or method of
accounting; (j) made any capital expenditures, including, without limitation,
replacements of equipment in the ordinary course of the Business, or entered
into commitments therefor, except for capital expenditures or commitments
therefor which do not, in the aggregate, exceed $50,000; (k) made any investment
or commitment therefor in any Person; (l) made any payment or contracted for the
payment of any bonus or other compensation or personal expenses, other than (A)
wages and salaries and business expenses paid in the ordinary course of the
Business, and (B) wage and salary adjustments made in the ordinary course of the
Business for employees who are not officers, directors, or shareholders of the
Company; (m) made, amended, or entered into any written employment contract or
created or made any material change in any bonus, stock option, pension,
retirement, profit sharing or other employee benefit plan or arrangement; (n)
materially amended or experienced a termination of any material contract,
agreement, lease, franchise or license to which the Company is a party that
would or could reasonably be expected to have a Material Adverse Effect, except
in the ordinary course of the Business; or (o) entered into any other material
transactions that would or could reasonably be expected to have a Material
Adverse Effect except in the ordinary course of the Business. Since October 31,
1996, except as disclosed on Schedule 3.8B hereto or any of the Financial
-------------
Statements or notes thereto, there has not been (a) any Material Adverse Change
including, but not limited to, the loss of any material customers or suppliers
of the Company, or in any material assets of the Company, (b) any extraordinary
contracts, commitments, orders or rebates, (c) any strike, material slowdown, or
demand for recognition by a labor organization by or with respect to any of the
employees of the Company, or (d) any shutdown, material slow-down, or cessation
of any material operations conducted by, or constituting part of, the Company,
nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of each interest in real property (including, without limitation,
leasehold interests) and each item of personal property utilized by the Company
in the conduct of the Business having a book value in excess of $15,000 as of
the date hereof. Except for Permitted Exceptions or as expressly set forth on
Schedule 3.9, such real and personal properties are free and clear of
- ------------
Encumbrances. Seller and the Company have delivered to Global a lien search
obtained from the counties where the Company conducts business and the Oregon
Secretary of State office of all UCC liens of record against the Company's
personal property in the State of Oregon. All of the
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<PAGE>
properties and assets necessary for continued operation of the Business as
currently conducted (including, without limitation, all books, records,
computers and computer software and data processing systems) are owned, leased
or licensed by the Company and are suitable for the purposes for which they are
currently being used. With the exception of used equipment and inventory valued
at no more than $10,000 on the Company's Financial Statements, the physical
properties of the Company, including the real properties leased by the Company,
are in good operating condition and repair, normal wear and tear excepted, and
are free from any defects of a material nature. Except for Permitted Exceptions
or as otherwise set forth on Schedule 3.9, the Company has full and unrestricted
------------
legal and equitable title to all such properties and assets. The operation of
the properties and Business of the Company in the manner in which they are now
and have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for Permitted Exceptions or as set forth on Schedule 3.9, no restrictive
------------
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and will remain legal, valid,
binding, enforceable and in full force and effect on identical terms immediately
following the Closing, except to the extent that enforceability may be limited
by laws affecting creditors' rights and debtors' obligations generally, and
legal limitations relating to remedies of specific performance and injunctive
and other forms of equitable relief. All facilities owned or leased by the
Company have received all approvals of any Governmental Body (including
Governmental Permits) required in connection with the operation thereof and have
been operated and maintained in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a list
-------------------- -------------
of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received notification from any Governmental
Body of violation of any such Governmental Permit or the Requirements of Laws
governing the issuance or continued validity thereof other than violations (if
any) which would not individually or in the aggregate have a Material Adverse
Effect. No additional Governmental Permit is required from any Governmental Body
thereof in connection with the conduct of the Business which Governmental
Permit, if not obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities (collectively, the
"INTELLECTUAL PROPERTY"). The Company has furnished Global with copies of all
license agreements to which the Company is a party, either as licensor or
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Company
- -------------
-11-
<PAGE>
has good title to or the right to use such Intellectual Property and all
inventions, processes, designs, formulae, trade secrets and know-how necessary
for the conduct of their Business, in their Business as presently conducted
without the payment of any royalty or similar payment, and the Company is not
infringing on any patent right, tradename, copyright or trademark right or other
Intellectual Property right of others, and neither the Company nor Seller is
aware of any infringement by others of any such rights owned by the Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in a
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. No claim has been made by any Governmental Body
(and, to the best knowledge of the Company and Seller, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental Obligation
or that a Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Seller's knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration
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<PAGE>
or disputed claim outstanding; and (v) all premiums due on any insurance
contract through which the plan is funded have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is
------------------------ -------------
a list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $25,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Seller and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts. All of the
Contracts to which the Company is a party are legal, valid, binding, enforceable
and in full force and effect and will remain legal, valid, binding, enforceable
and in full force and effect on identical terms immediately after the Closing,
except to the extent that enforceability may be
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<PAGE>
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief. Except as set forth in Schedule
--------
3.15, the Company has not guaranteed any obligations of any other Person. To the
- ----
best of Seller's and the Company's Knowledge, no manufacturer of office
equipment sold by the Company will cease doing business with the Company
immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Seller or the
Company, threatened against or affecting the Company or any of its properties or
assets, at law or in equity, or before or by any court, municipality or other
Governmental Body. Except as set forth on Schedule 3.16, none of such claims,
-------------
actions, suits, proceedings, or investigations, if adversely determined, will
result in any liability or loss to the Company. The Company has not been and
the Company is not now, subject to any Court Order, stipulation, or consent of
or with any court or Governmental Body. No inquiry, action or proceeding has
been instituted or, to the best knowledge and belief of the Seller or the
Company, threatened or asserted against the Seller or the Company to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement or
to challenge the validity of such transactions or any part thereof or seeking
damages on account thereof. To the best knowledge of the Company and Seller,
except as set forth on Schedule 3.16, there is no basis for any such valid claim
-------------
or action.
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Seller
are presently subject to an extension of the time to file. All Taxes,
assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Seller or the Company are aware.
For Governmental Bodies with respect to which the Company does not file Tax
Returns, no such Governmental Body has given the Company written notification
that the Company is or may be subject to taxation by that Governmental Body.
The Company has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any
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<PAGE>
employee, shareholder, creditor, independent contractor or other party. There
are no Tax liens on any of the property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company has never made an election to be taxed under subchapter S of
the Code.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of
--------- -------------
the names and annual rates of compensation of the directors and executive
officers of the Company, and of the employees of the Company whose annual rates
of compensation during the fiscal year ended October 31, 1996 (including base
salary, bonus and incentive pay) exceed (or by October 31, 1997 are expected to
exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended October 31, 1996 and to the date hereof.
Schedule 3.18 also contains a brief description of all material terms of
- -------------
employment agreements to which the Company is a party and all severance benefits
which any director, officer or employee of the Company is or may be entitled to
receive. To the best knowledge of Seller and the Company, the employee
relations of the Company are generally good and there is no pending or, to the
best knowledge of Seller or the Company, threatened labor dispute or union
organization campaign. None of the employees of the Company are represented by
any labor union or organization. The Company is in compliance in all material
respects with all Requirements of Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and are not
engaged in any unfair labor practices. Neither the Company or Seller has been
advised, or has good reason to believe, that any of the persons whose names are
set forth on Schedule 3.18 or any other employee will not agree to remain
-------------
employed by the Company after the consummation of the transactions contemplated
hereby. There is no unfair labor practice claim against the Company before the
National Labor Relations Board, or any strike, dispute, slowdown, or stoppage
pending or, to the best knowledge of the Company and Seller, threatened against
or involving the Company, and none has occurred.
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<PAGE>
3.19 BUSINESS RELATIONS. Neither the Company nor Seller knows that
------------------
any customer or supplier of the Company will cease to do business with the
Company after the consummation of the transactions contemplated hereby in the
same manner and at the same levels as previously conducted with the Company
except for any reductions which do not result in a Material Adverse Change.
Neither Seller nor the Company has received any notice of any material
disruption (including delayed deliveries or allocations by suppliers) in the
availability of any material portion of the materials used by the Company nor is
the Company or Seller aware of any facts which could lead them to believe that
the Business will be subject to any such material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
-------------
accounts) will be collected in full within 180 days following the Closing Date.
Except as disclosed on Schedule 3.20 hereto (a) all of such accounts, notes, and
-------------
loans receivable are free and clear of any Encumbrances; (b) no claims of offset
have been asserted in writing against any of such accounts, notes, or loans
receivable; and (c) none of the obligors of such accounts, notes, or loans
receivable has given written notice that it will or may refuse to pay the full
amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
------------- -------------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and
----------
in the ordinary course of the Business, no written claim for breach of product
or service warranty to any customer has been made against the Company since
January 1, 1997. To the best knowledge of Seller and the Company, no state of
facts exists, and no event has occurred, which could reasonably be expected to
form the basis of any present claim against the Company for liability on account
of any express or implied warranty to any third party in connection with
products sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Seller has engaged, or
-------
caused to be incurred any liability to any finder, broker, or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No
--------------------------------------------------
officer, director, or shareholder of the Company or any affiliate of any such
officer, director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or
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<PAGE>
has real or contingent rights to own, less than one percent of any class of
outstanding securities) or any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description
- --------- -------------
of the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in Schedule 3.26
----------------------- -------------
hereto, the Company does not have any material liabilities (whether absolute,
accrued, contingent or otherwise), of a nature required by GAAP to be reflected
on a corporate balance sheet or disclosed in the notes thereto, except such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto, including without limitation any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date, other than liabilities incurred in the ordinary course of the Business
since the date of the latest of such Financial Statements.
3.27 INFORMATION FURNISHED. The Company and Seller have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
---------
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global pursuant to this Agreement contains
any untrue statement of a material fact or omits any material fact necessary to
make the statements herein or therein, as the case may be, not misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $25,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $25,000 per occurrence or $50,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
All references to the "COMPANY" in Sections 3.6 through 3.27 shall include the
------------ ----
Companies' subsidiaries.
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<PAGE>
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Seller as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance
-----------------
of this Agreement has been duly authorized by all necessary corporate action of
Global and the Agreement has been duly and validly executed and delivered by
Global and constitutes the valid and binding obligation of Global, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates or other documents contemplated hereby) by Global, do not (a)
violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any indebtedness secured by the
property of, Global, or (d) violate or conflict with any provision of the
charter or bylaws of Global.
4.3 NO BROKERS. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 INVESTMENT. Global will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
------------------
Seller shall use their best efforts to obtain and to cause the Company to obtain
all authorizations, consents and permits required of the Company and Seller to
permit them to consummate the transactions contemplated by this Agreement.
Seller shall have obtained the written consent of (i) the Company's Material
office equipment suppliers and (ii) the lessors of the Buildings to the
transactions contemplated by the Agreement.
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<PAGE>
5.2 SELLER'S EFFORTS. The Company and Seller shall use all reasonable
----------------
efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Seller shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Global and
Seller) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). The Seller
acknowledges and agrees that from and after the Closing, Global will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Company, which shall be maintained at the chief
executive office of the Company; provided, however, that Seller shall be
entitled to reasonable access to and to make copies of such books and records at
his sole cost and expense and Global will maintain all of the same for a period
of at least three (3) years after Closing. Thereafter, the Company will offer
such documentation to Seller before disposal thereof.
6.2 TRANSITION. For a period of three (3) years following
----------
Closing, the Seller will not take any action that primarily is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relations with the Company after the Closing as it maintained with the
Company prior to the Closing. For a period of three (3) years following
Closing, the Seller will refer all customer inquiries relating to the Business
to the Company.
6.3 CONFIDENTIALITY. The Seller will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Global for a period of three (3) years from the Closing, and deliver
promptly to Global or destroy, at the written request and option of Global, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that
Seller is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, Seller will notify Global promptly of the request or requirement.
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Seller by Global, Seller
covenants and agrees, for a period of three years from and after the Closing
Date, that he will not, directly or indirectly without the prior written consent
of Global for himself or on behalf or in conjunction with any other person,
partnership, corporation or other entity:
(A) own, maintain, engage in, render any services for, manage,
have any financial interest in, or permit his name to be used in connection with
as a shareholder, bondholder, creditor, officer, director, partner, agent,
contractor with, employer or representative of, or in any manner associated
with, or give financial, technical or other assistance to, any Person, firm or
corporation for the purpose of engaging in the copier/office equipment dealer,
distribution, sales or service business within the greater of (i) a 100 mile
radius of the Company's office facilities in Lake Oswego, Oregon (the "CURRENT
TRADE AREA") or (ii) in any geographic area in which the Company currently
conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company in
the Current Trade Area or to cause them to reduce or end their business with the
Company; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof.
6.5 ADDITIONAL MATTERS.
------------------
(A) The Seller shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Seller shall
cause Moss, Adams to prepare a short period tax return for the Company covering
the period from October 31, 1996 through the Effective Date. The cost of
preparation of such short period tax return shall be paid for by Seller.
(B) Global and Seller recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Global and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Global agrees to cause the Company to (A) use its best efforts
---------
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow
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<PAGE>
the Seller and his agents and representatives at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such records as
such other party may deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and at the other party's
expense.
(C) Global and the Company hereby agree to cause the Company to
make a 7% profit sharing and 401(k) contribution to employees for the fiscal
year ending October 31, 1997 to the extent that such contribution has been
reserved as a current liability on the Preliminary Closing Balance Sheet.
(D) Seller has informed Global that the Company has earned two
trips for four people from Konica prior to the Closing Date. Global hereby
consents to the award of such trips to Seller and his spouse for their personal
use.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S OBLIGATIONS. Subject to Section 2.4
---------------------------------- -----------
above, the obligation of Global under this Agreement to consummate the Closing
is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company
-----------------------------------------
and Seller shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Company and Seller
set forth in this Agreement shall be accurate in all material respects at and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Seller of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation of the transactions contemplated hereby shall
have been obtained in form and substance reasonably satisfactory to Global
unless such failure could not reasonably be expected to have a Material Adverse
Effect. All approvals of the Board of Directors and shareholders of the Company
necessary for the consummation of this Agreement and the transactions
contemplated hereby shall have been obtained.
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<PAGE>
(C) LEASES. The lessors of the Buildings shall have provided an
------
Estoppel Certificate to Global's lenders in the form of Exhibit B hereto, except
---------
as specifically waived by Global. The leases for all of such Buildings shall
provide that such leases survive the Closing for the term of such leases, copies
of which have been provided to Global.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Seller and the
-----------------------------------
Company shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company and all extended credit from vendors at the Closing
(other than customary accounts payable outstanding on 90 day or less payment
terms in accordance with past practices). Such Funded Indebtedness, if any, as
of August 31, 1997, is listed on Schedule 7.1(d) hereto. Seller shall have also
---------------
provided for the termination of all Encumbrances of record on the properties of
the Company, except for Permitted Exceptions. All liens or UCC filings against
the Company and each of the Subsidiaries or Affiliates of the Company which
engaged in the Business, shall have been terminated as of the Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change with respect to the Company since October 31, 1996.
(F) TRANSFER TAXES. Seller shall be responsible for all stock
--------------
transfer or gains taxes imposed on Seller incurred in connection with this
Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
-------------------
Capital as projected at the Closing shall be greater than $532,406 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing (in an amount not less than $50,000 or, if less than $50,000, the
Purchase Price will be reduced further by the amount of such deficiency), to
continue to operate the Business in the ordinary course.
(H) DOCUMENTS TO BE DELIVERED BY SELLER AND THE COMPANY.
---------------------------------------------------
The following documents shall be delivered at the Closing by Seller and the
Company:
(I) OPINION OF SELLER'S COUNSEL. Global shall have
---------------------------
received an opinion of counsel to the Company and Seller, dated the
Closing Date, in substantially the same form as the form of opinion
that is Exhibit C hereto.
---------
(II) CERTIFICATES. Global shall have received an officer's
------------
certificate and a secretary's certificate of the Company executed by
officers of the Company, dated the Closing Date, in substantially the
same forms as the forms of certificates that are Exhibit D hereto.
---------
(III) RELEASE. Seller shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit E hereto.
---------
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<PAGE>
(IV) ESCROW AGREEMENT. Seller shall have delivered to
----------------
Global at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Dean Groves shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
---------
employed by the Company following the Closing.
(VI) BUILDING LEASES. Global shall be reasonably satisfied
---------------
with the terms of the leases of the Buildings. Seller shall have
delivered to Global an Estoppel Certificate of the landlords of the
Buildings to Global's lenders in the same form attached as Exhibit B
---------
hereto, except as specifically waived by Global.
(VII) COLLATERAL ASSIGNMENT OF RIGHTS. Seller shall have
-------------------------------
executed and delivered to Jackson National Life Insurance Company a
Collateral Assignment of Rights in the form attached hereto as Exhibit
-------
H.
-
(VIII) STOCK CERTIFICATES. Seller shall have delivered
------------------
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
7.2 CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS. The
----------------------------------------------------
obligation of Seller and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Global prior to or at the Closing and the
representations and warranties of Global set forth in Article IV hereof shall be
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of the Business and
except to the extent that such representations and warranties are expressly made
as of another specified date and, as to such representations, the same shall be
true as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation of the transaction contemplated by this Agreement shall have been
fulfilled and all authorizations, consents and approvals, including expiration
or early termination of all waiting periods under the HSR Act and those of all
federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
by Global of the transactions contemplated hereby shall have been obtained
unless such failure shall not have a Material Adverse Effect on the Business.
Global shall have used its reasonable best efforts to have obtained the release
of the Seller from all personal guarantees with respect to the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL. The following documents
-----------------------------------
shall be delivered at the Closing by Global:
(II) CERTIFICATES. Seller shall have received an officers'
------------
certificate and a secretary's certificate executed by officers of
Global, dated the Closing Date, in substantially the same forms as the
forms of certificates that are Exhibit G hereto.
---------
(III) ESCROW AGREEMENT. Global shall have delivered to
----------------
Seller at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(IV) EMPLOYMENT AGREEMENT. Global shall have caused the
--------------------
Company to duly execute and deliver the Employment Agreement with Dean
Groves in the same form attached as Exhibit F hereto, pursuant to
---------
which he will be employed by the Company following the Closing.
(IV) PURCHASE PRICE. Seller shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. Seller shall have been offered the
---------------------
right to invest up to [**] in the capital stock of Global on the same terms
provided to other recent outside investors in Global.
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<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6,
------------------------- -----------
as Global's sole and exclusive remedy for any breach by the Seller hereunder,
Seller agrees to indemnify and hold harmless Global and each officer, director,
and affiliate of Global, including without limitation the Company or any
successor of the Company (collectively, the "INDEMNIFIED PARTIES") from and
against any and all damages, losses, claims, liabilities, demands, charges,
suits, penalties, costs and expenses (including court costs and reasonable
attorneys' fees and expenses incurred in investigating and preparing for any
litigation or proceeding) (collectively, the "INDEMNIFIABLE COSTS"), which any
of the Indemnified Parties may sustain, or to which any of the Indemnified
Parties may be subjected, arising out of (A) any misrepresentation, breach or
default by Seller or the Company of or under any of the representations,
covenants, agreements or other provisions of this Agreement or any agreement or
document executed in connection herewith; (B) the assertion and final
determination of any claim or liability against the Company or any of the
Indemnified Parties by any Person based upon the facts which form the alleged
basis for any litigation to the extent it should have been, but was not,
reserved for in the Financial Statements in accordance with GAAP; and (C) the
Company's tortious acts or omissions to act prior to Closing for which the
Company did not carry liability insurance for themselves as the insured party,
whether or not such acts or omissions to act result in a breach or violation of
any representation or warranty.
8.2 DEFENSE OF CLAIMS.
-----------------
(a) If any third party shall notify any Indemnified Party with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a claim for
indemnification against Seller under Section 8.1, then the Indemnified Party
-----------
shall promptly notify Seller in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying Seller shall relieve Seller from any
obligation hereunder unless (and then solely to the extent) Seller thereby is
materially prejudiced.
(b) Seller will have the right to defend the Indemnified Party
against the Third Party Claim with counsel of its choice satisfactory to the
Indemnified Party so long as (i) Seller notifies the Indemnified Party in
writing within 15 days after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will assume the defense of such claim,
(ii) Seller provides the Indemnified Party with evidence acceptable to the
Indemnified Party that the Seller will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification obligations
hereunder, (iii) the Third Party Claim involves only money damages not in excess
of the limitations set forth in Section 8.6 hereof and does not seek an
-----------
injunction or other equitable relief, (iv) settlement of, or an adverse judgment
with respect to, the Third Party claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedentual custom or practice adverse
to the continuing business interests of the Indemnified Party, and (v) Seller
conducts the defense of the Third Party Claim actively and diligently.
-25-
<PAGE>
(c) So long as Seller is conducting the defense of the Third
Party claim in accordance with Section 8.2(b) above, (i) the Indemnified Party
--------------
may retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (ii) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of Seller (not to be
withheld unreasonably), and (iii) Seller will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(d) In the event any of the conditions in Section 8.2(b) above
--------------
is or becomes unsatisfied, however, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, Seller in connection therewith), (ii) Seller will reimburse the
Indemnified Party promptly and periodically for the costs of defending against
the Third Party Claim, including reasonable attorneys' fees and expenses (but
only if and to the extent they are required to do so under this Agreement), an
(iii) Seller will remain responsible for any Indemnifiable Costs the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Article VIII.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company for periods following the Closing Date (but not prior
periods, for which Seller shall have the right to control such proceedings in
accordance with the provisions of Section 8.2(b) above) and any and all
--------------
subsequent proceedings in connection therewith, including appeals (subject to
the prior written consent of Seller, which shall not unreasonably be withheld
and subject to the right of Seller to have their accountants and attorneys
consult with Global on such audits or procedures at Seller's expense). Seller
and Global shall each cooperate fully in all matters relating to any such audit
or other Tax proceeding (including according access to all records pertaining
thereto), and will execute and file any and all consents, powers of attorney,
and other documents as shall be reasonably necessary in connection therewith.
If additional Taxes are payable by the Company as a result of any such audit or
other proceeding, Seller shall be responsible for and shall promptly pay all
Taxes, interest, and penalties to which any of the Indemnified Parties shall be
entitled to indemnification.
-26-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
8.5 INDEMNIFICATION OF SELLER. Global agrees to indemnify and hold
-------------------------
harmless Seller and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global of or under
any of the covenants, agreements or other provisions of this Agreement or any
agreement or document executed in connection herewith, and (B) any tortious acts
or omissions by Global before or after or the Company after, the Closing. In
addition, the Company and Global shall indemnify the Seller for any payment or
satisfaction of any guarantees by Seller of the Company's obligations occurring
after the Closing Date.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Seller under Sections 3.1,
-------------
3.2, 3.3 or 3.17 hereof (the indemnification for which shall expire on the
- ----------------
expiration of the applicable statute of limitations), the indemnification
provided under this Article VIII shall expire on the third anniversary of the
Closing Date. The Seller shall not be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
obligation hereunder exceeds $50,000, whereupon Seller shall be liable for all
amounts for which indemnification may be sought. Notwithstanding the foregoing,
in no event shall the aggregate liability of Seller to Global exceed [**]
(except for claims made for any breach of the representations and warranties of
Seller under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which the limit of
---------------------- ----
indemnification hereunder shall be the Purchase Price). However nothing in this
Article VIII shall limit Global or Seller in exercising or securing any remedies
provided by applicable common law with respect to the conduct of Seller or
Global in connection with this Agreement or in the amount of damages that it can
recover from the other in the event that Global successfully proves intentional
fraud or intentional fraudulent conduct in connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
-27-
<PAGE>
Global:
------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
The Company or Seller:
---------------------
15860 SW Upper Boones Ferry Road
Lake Oswego, Oregon 97035
Attention: Mr. Dean Groves
Fax No.: (503) 620-1730
Tel No.: (503) 620-0202
With a copy to:
Draneas & Gregores
222 SW Columbia, Suite 1625
Portland, Oregon 97201-6618
Attention: George Gregores, Esq.
Fax No.: (503) 222-2089
Tel No.: (503) 221-1040
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
-28-
<PAGE>
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Seller shall bear all costs and expenses of (i) any broker involved in this
transaction and (ii) all legal expenses of Seller or the Company with respect to
this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global and Seller, their heirs,
representatives, successors, and permitted assigns, in accordance with the
terms hereof. This Agreement shall not be assignable by the Company or Seller
without the prior written consent of Global. This Agreement shall be assignable
by Global to a wholly-owned subsidiary of Global without the prior written
consent of Seller, but any such assignment shall not relieve Global of its
obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Oregon.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of three
(3) years, provided (a) the representations and warranties contained in Section
-------
3.17 of this Agreement, and the related indemnities, shall survive the Closing
- ----
until the expiration of the applicable statutes of limitations for determining
or contesting Tax liabilities and (b) the representations and warranties
contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related
-------------------------
indemnities, shall survive the Closing until expiration of the applicable
statute of limitations.
9.9 INVALID PROVISIONS. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
-29-
<PAGE>
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLER AND GLOBAL
------------------
WITH RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLER AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN PORTLAND, OREGON, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-30-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
---------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
-----------
DUPLICATING SPECIALTIES, INC.
By: /s/ Dean Groves
---------------------------------------
Name: Dean Groves
President
SELLER:
------
/s/ Dean Groves
---------------------------------------
Dean Groves
-31-
<PAGE>
EXHIBIT 10.23
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.***]
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
QUALITY BUSINESS SYSTEMS, INC. (THE "COMPANY")
AND
THE SHAREHOLDERS OF THE COMPANY
DATED SEPTEMBER 30, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions..................................................... 1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase.................................. 5
2.2 Purchase Price.................................................. 5
2.3 Payment of Purchase Price....................................... 5
2.4 Closing......................................................... 6
2.5 Escrow Arrangements............................................. 6
2.6 Purchase Price Adjustments...................................... 6
2.7 Closing Audit................................................... 6
2.8 Post-Closing Purchase Price Adjustment.......................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
3.1 Capitalization.................................................. 7
3.2 No Liens on Shares.............................................. 8
3.3 Other Rights to Acquire Capital Stock........................... 8
3.4 Due Organization................................................ 8
3.5 Subsidiaries.................................................... 8
3.6 Due Authorization............................................... 8
3.7 Financial Statements............................................ 9
3.8 Certain Actions................................................. 9
3.9 Properties...................................................... 10
3.10 Licenses and Permits............................................ 11
3.11 Intellectual Property........................................... 11
3.12 Compliance with Laws............................................ 11
3.13 Insurance....................................................... 12
3.14 Employee Benefit Plans.......................................... 12
(a) Employee Welfare Benefit Plans............................. 12
(b) Employee Pension Benefit Plans............................. 12
(c) Employment and Non-Tax Qualified Deferred
Compensation Arrangements.................................. 13
3.15 Contracts and Agreements........................................ 13
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
3.16 Claims and Proceedings.......................................... 13
3.17 Taxes........................................................... 14
3.18 Personnel....................................................... 14
3.19 Business Relations.............................................. 15
3.20 Accounts Receivable............................................. 15
3.21 Bank Accounts................................................... 15
3.22 Warranties...................................................... 15
3.23 Brokers......................................................... 16
3.24 Interest in Competitors, Suppliers, Customers, Etc.............. 16
3.25 Indebtedness To and From Officers, Directors, Shareholders, and
Employees....................................................... 16
3.26 Undisclosed Liabilities......................................... 16
3.27 Information Furnished........................................... 16
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization................................................ 17
4.2 Due Authorization............................................... 17
4.3 No Brokers...................................................... 17
4.3 Investment...................................................... 17
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 Consents of Others.............................................. 18
5.2 Seller's Efforts................................................ 18
5.3 Powers of Attorney.............................................. 18
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General......................................................... 18
6.2 Transition...................................................... 18
6.3 Confidentiality................................................. 18
6.4 Covenant Not to Compete......................................... 19
6.5 Additional Matters.............................................. 19
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations.............................. 21
(a) Covenants, Representations and Warranties.................. 21
(b) Consents................................................... 21
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
(c) Leases..................................................... 21
(d) Discharge of Indebtedness and Liens........................ 21
(e) Material Adverse Change.................................... 22
(f) Transfer Taxes............................................. 22
(g) Financial Condition........................................ 22
(h) Documents to be Delivered by Seller and the Company........ 22
(i) Opinion of Seller's Counsel...................... 22
(ii) Certificates..................................... 22
(iii) Release.......................................... 22
(iv) Escrow Agreement................................. 22
(v) Employment Agreement............................. 22
(vi) Office Lease..................................... 22
(vii) Assignment of Rights............................. 22
(viii) Stock Certificates............................... 23
7.2 Conditions to Seller's and the Company's Obligations............ 23
(a) Covenants, Representations and Warranties.................. 23
(b) Consents................................................... 23
(c) Documents to be Delivered by Global........................ 23
(i) Certificates..................................... 23
(ii) Escrow Agreement................................. 23
(iii) Employment Agreement............................. 23
(iv) Purchase Price................................... 24
(d) Right of Reinvestment...................................... 24
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global....................................... 24
8.2 Defense of Claims............................................... 24
8.3 Escrow Claim.................................................... 25
8.4 Tax Audits, Etc................................................. 25
8.5 Indemnification of Seller....................................... 25
8.6 Limits on Indemnification....................................... 25
ARTICLE IX
MISCELLANEOUS
9.1 Modifications................................................... 26
9.2 Notices......................................................... 26
9.3 Counterparts.................................................... 27
9.4 Expenses........................................................ 27
9.5 Binding Effect; Assignment...................................... 27
9.6 Entire and Sole Agreement....................................... 27
9.7 Governing Law................................................... 28
9.8 Survival of Representations, Warranties and Covenants........... 28
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
9.9 Invalid Provisions.............................................. 28
9.10 Public Announcements............................................ 28
9.11 Remedies Cumulative............................................. 28
9.12 Waiver.......................................................... 28
9.13 DISPUTE RESOLUTION.............................................. 28
</TABLE>
-v-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Seller's Counsel
Exhibit D Seller's Certificates
Exhibit E Release
Exhibit F Stevens Executive Agreement
Exhibit G Global Certificates
Exhibit H Collateral Assignment of Rights
LIST OF SCHEDULES
Schedule 2.3 Seller's Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
-vi-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
September 30, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), QUALITY BUSINESS SYSTEMS, INC., a Washington corporation
(the "COMPANY") and THE SHAREHOLDER OF THE COMPANY (the "SELLER").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the distribution, sale and service
of office equipment in the State of Washington (the "BUSINESS"); and
WHEREAS, Seller owns all of the outstanding shares of capital stock of
the Company (the "SHARES"), which Shares constitute all of the issued and
outstanding capital stock of the Company; and
WHEREAS, Global desires to purchase from Seller and Seller desires to
sell to Global hereby all of the Shares owned by Seller all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"ASSUMED FUNDED INDEBTEDNESS" has the meaning specified in
Section 2.3(c).
- --------------
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
<PAGE>
"BUILDINGS" shall mean collectively (i) the Company's offices,
showroom or warehouse facilities located at (i) 14648 Northeast 95th Street,
Redmond, Washington, 98052; (ii) 9840 Willows Road NE, Suite 100, Redmond, WA
98052; (iii) 5009 Pacific Hwy. E., Suite 1--0, Fife, WA 98424; and (iv) 2101
Fourth Avenue, Suite 900 (Demo Room), Seattle, WA 98121.
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Seller to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Gary Stevens to be entered into at Closing in the form of Exhibit F.
---------
-2-
<PAGE>
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the Commerce Bank of Washington, N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Seller, Global and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business on no more than
90 day payment terms; (iv) indebtedness of others guaranteed by the Company or
secured by an Encumbrance on the Company's property; (v) indebtedness of the
Company under extended credit terms of more than 30 days from manufacturers
provided to the Company; or (vi) any receivables owed by the Seller to the
Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
-3-
<PAGE>
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "MATERIAL ADVERSE
CHANGE" or "MATERIAL ADVERSE EFFECT" has occurred, the quantitative amounts set
forth at the end of Article III shall be conclusive.
-----------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of the Effective Date. The
Preliminary Closing Balance Sheet shall be delivered to Global not less than
five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
-4-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed thereon by any
Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities as calculated in accordance with
GAAP.
"WORKING CAPITAL TARGET" shall have the meaning assigned to such
term in Section 2.6 hereof.
-----------
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Seller agrees to sell the Shares to
Global and Global agrees to purchase the Shares from Seller.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
--------------
"PURCHASE PRICE") shall be equal to [**], subject to any adjustment required to
be made pursuant to Section 2.6 or Section 2.8 below.
----------- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by Global at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price as adjusted as set forth in
Section 2.6 below will be paid, at the direction of the Seller, in cash by wire
- -----------
transfer of funds as
-5-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
specified in Schedule 2.3 (including the payment of [**] for the covenant not
------------
to compete provided in Section 6.4);
-----------
(B) [**] of the Purchase Price will be paid in cash by wire
transfer of funds to the Escrow Agent to be held in escrow for satisfaction of
Seller's indemnification obligations specified in Section 8.1 or payment to the
-----------
Seller in accordance with the terms of Section 2.5 below; and
-----------
(C) the payment of [**] to Ronald Baker; and
(D) the assumption of up to [**] in Funded Indebtedness on
certain service vehicles acquired in 1997 (the "ASSUMED FUNDED
INDEBTEDNESS").
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 9:00 a.m., Pacific Coast
time, at the offices of Lasher & Holzapfel in Seattle, Washington on September
30, 1997, or at such other date and time as the parties shall agree (the
"CLOSING DATE"), effective as of September 1, 1997 (the "EFFECTIVE DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Seller, Global and the Escrow Agent, [**] of the Purchase
Price shall be delivered to the Escrow Agent at Closing. Such monies (which,
together with all interest accrued thereon, is hereinafter referred to as the
"ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement for
payment from such Escrow Sum of the amounts, if any, owing by Seller to Global
pursuant to Section 2.8 or Article VIII below. At the conclusion of the period
-----------
ending on the first anniversary of the Closing Date (such period being referred
to herein as the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Global in accordance with the terms of the
Escrow Agreement and this Agreement shall be disbursed to Seller. Seller and
Global agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) Except (i) for the Assumed Funded Indebtedness (which
Assumed Funded Indebtedness shall continue to remain outstanding), the Purchase
Price payable pursuant to Section 2.3(a) above will be reduced by the total
--------------
amount of Funded Indebtedness, if any, assumed or paid by Global in cash by wire
transfer of funds to the accounts of the holders of Funded Indebtedness listed
on Schedule 2.6 hereto to satisfy the Company's Funded Indebtedness with such
------------
institutions.
(B) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the adjusted Working Capital as
reflected on the
-6-
<PAGE>
Preliminary Closing Balance Sheet is less than $91,472 the amount which is
$50,000 less than the average of the Working Capital balances at the end of each
of the first six months of 1997 (the "WORKING CAPITAL TARGET"). In calculating
"WORKING CAPITAL TARGET," 39.6% of all taxable income of the Company for the
period from January 1, 1997 through the Closing Date shall be excluded from the
Working Capital Target. In addition, the Working Capital Target will be adjusted
downward for all long-term fixed assets purchased with cash by the Company since
January 1, 1997.
(C) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be decreased or increased, as the case may be, by the amount that the
Company's indebtedness on the Closing Date to Ronald Baker is more or less than
$700,000.
2.7 CLOSING AUDIT. Within 90 days following the Closing Date,
-------------
there shall be delivered to Global and to Seller an audit of the Preliminary
Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Company at
and as of the Effective Date. The Preliminary Closing Balance Sheet shall be
audited by Ernst & Young, LLP in accordance with GAAP. The cost of the Audited
Closing Balance Sheet shall be paid by Global. In the event that the Seller
disputes any items on the Audited Closing Balance Sheet within ten days after
Seller's receipt thereof, the parties shall jointly select and retain an
independent "Big Six" accounting firm (the "INDEPENDENT ACCOUNTANTS") to review
the disputed item(s) on the Audited Closing Balance Sheet. The final
determination of such disputed item(s) by the Independent Accountants shall be
reflected on the Audited Closing Balance Sheet. The cost of retaining the
Independent Accountants shall be borne by Seller; provided, however, that Global
shall reimburse Seller for the cost of the Independent Accountants in the event
that such review results in an increase of more than $50,000 in the Company's
Working Capital as reflected on the Audited Closing Balance Sheet prepared by
Ernst & Young, LLP. In calculating the Working Capital as reflected on the
Audited Closing Balance Sheet, no adjustment will be made to conform inventory
to reflect Global's net costs or for adjustments of parts to a percentage of
service billing.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(b) above. The post-closing adjustment to the
--------------
Purchase Price, if any, shall be paid by Seller to Global from the Escrow Sum
(or, at Seller's option, in cash) or by Global to Seller, as the case may be, in
immediately available funds within ten (10) business days
-7-
<PAGE>
of delivery of the Audited Closing Balance Sheet, unless the Seller disputes any
items on the Audited Closing Balance Sheet, in which case it shall be paid
within ten (10) business days after the Independent Accountants finally
determine the disputed item(s), and Global delivers to Seller an Audited Closing
Balance Sheet modified to reflect such determination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
The Company and Seller represent and warrant to Global that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 50,000 shares of Common Stock, 1,000 of which are issued and
outstanding. All of the Shares are duly authorized, validly issued, fully paid,
and nonassessable. All of the Shares are owned of record and beneficially by
Seller in the amounts set forth on Schedule 3.1 hereto. None of the Shares was
------------
issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any Person. The Seller owns all of the
issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Seller
------------------ ------------
owns the Shares, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, and none of the Shares is subject to
any outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Shares is subject to any restriction on
transfer thereof except for restrictions imposed by applicable federal and state
securities laws. At Closing, Seller will have full power and authority to
convey good and marketable title to the Shares, free and clear of any
Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly
----------------
organized, validly existing, and in good standing under the laws of the State of
Washington and has full corporate power and authority to carry on the Business
as now conducted and as proposed to be conducted through Closing. Complete and
correct copies of the Articles of Incorporation and Bylaws of the Company, and
all amendments thereto, have been heretofore delivered to Global and are
attached hereto as Schedule 3.4. The Company is qualified to do business in the
------------
State of Washington and in each jurisdiction in which the nature of the Business
or the ownership of its
-8-
<PAGE>
properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 SUBSIDIARIES. The Company has no subsidiaries or ownership in
------------
any Person.
3.6 DUE AUTHORIZATION. The Company and the Seller each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Seller and constitutes the valid and binding obligations of the Company and
Seller, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and Seller, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or Seller, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any material agreement to which the Company or
Seller are a party, or by which any of them or any of their respective property
is bound, (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Seller, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements
--------------------
(herein so called) of the Company have been delivered to Global by the Company:
compiled balance sheets of the Company as of December 31, 1994, December 31,
1995 and December 31, 1996 and unaudited consolidated balance sheet as of
August 31, 1997, and compiled statements of income of the Company for the fiscal
years ended December 31, 1994, December 31, 1995 and December 31, 1996 and
unaudited consolidated statement of income for the eight-month period ending
August 31, 1997.
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated and fairly present the financial position, results of
operations and changes in financial position of the Company as of the indicated
dates and for the indicated periods, subject (in the case of the eight month
Financial Statements) to year end accruals made in the ordinary course of the
Business which are not materially adverse and which are consistent with past
practices. Except to the extent reflected or provided for in the Financial
Statements or the notes thereto and obligations and liabilities incurred in the
ordinary course of business since the date of the last of such Financial
Statements, the Company has no liabilities required by GAAP to be reflected on
the Company's balance sheet or notes thereto that are not so reflected, nor any
other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) Material (in amount or to the conduct of the
Business); and neither the Company nor Seller has knowledge
-9-
<PAGE>
of any basis for the assertion of any such liability or obligation. Since August
31, 1997, there has been no Material Adverse Change in the prospects of the
Company.
3.8 CERTAIN ACTIONS. Since August 31, 1997, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder; (c) made or agreed to make any loans
or advances or guaranteed or agreed to guarantee any loans or advances to any
party whatsoever; (d) suffered or permitted any Encumbrance to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) canceled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$10,000 individually or $25,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any assets
(except in the ordinary course of the Business); (g) amended its charter or
bylaws; (h) paid or made a commitment to pay any severance or termination
payment to any employee or consultant; (i) made any material change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $35,000; (k) made any investment or commitment therefor in any Person;
(l) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) materially amended or experienced a
termination of any material contract, agreement, lease, franchise or license to
which the Company is a party that would or could reasonably be expected to have
a Material Adverse Effect, except in the ordinary course of the Business; or (o)
entered into any other material transactions that would or could reasonably be
expected to have a Material Adverse Effect except in the ordinary course of the
Business. Since August 31, 1997, except as disclosed on Schedule 3.8B hereto or
-------------
any of the Financial Statements or notes thereto, there has not been (a) any
Material Adverse Change including, but not limited to, the loss of any material
customers or suppliers of the Company, or in any material assets of the Company,
(b) any extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company, or (d) any shutdown, material
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Company, nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list
---------- ------------
containing a description of each interest in real property (including, without
limitation, leasehold interests)
-10-
<PAGE>
and each item of personal property utilized by the Company in the conduct of the
Business having a book value in excess of $15,000 as of the date hereof. Except
for Permitted Exceptions or as expressly set forth on Schedule 3.9, such real
------------
and personal properties are free and clear of Encumbrances. Seller and the
Company have delivered to Global a lien search obtained from the counties where
the Company conducts business and the Washington Secretary of State office of
all UCC liens of record against the Company's personal property in the State of
Washington. All of the properties and assets necessary for continued operation
of the Business as currently conducted (including, without limitation, all
books, records, computers and computer software and data processing systems) are
owned, leased or licensed by the Company and are suitable for the purposes for
which they are currently being used. With the exception of used equipment and
inventory valued at no more than $10,000 on the Company's Financial Statements,
the physical properties of the Company, including the real properties leased by
the Company, are in good operating condition and repair, normal wear and tear
excepted, and are free from any defects of a material nature. Except for
Permitted Exceptions or as otherwise set forth on Schedule 3.9, the Company has
------------
full and unrestricted legal and equitable title to all such properties and
assets. The operation of the properties and Business of the Company in the
manner in which they are now and have been operated does not violate any zoning
ordinances, municipal regulations, or other Requirements of Laws, except for any
such violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Except for Permitted Exceptions or as set forth on
Schedule 3.9, no restrictive covenants, easements, rights-of-way, or
- ------------
regulations of record impair the uses of the properties of the Company for the
purposes for which they are now operated. All leases of real or personal
property by the Company are legal, valid, binding, enforceable and in full force
and effect and will remain legal, valid, binding, enforceable and in full force
and effect on identical terms immediately following the Closing, except to the
extent that enforceability may be limited by laws affecting creditors' rights
and debtors' obligations generally, and legal limitations relating to remedies
of specific performance and injunctive and other forms of equitable relief. All
facilities owned or leased by the Company have received all approvals of any
Governmental Body (including Governmental Permits) required in connection with
the operation thereof and have been operated and maintained in accordance with
all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a
-------------------- -------------
list of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received notification from any Governmental
Body of violation of any such Governmental Permit or the Requirements of Laws
governing the issuance or continued validity thereof other than violations (if
any) which would not individually or in the aggregate have a Material Adverse
Effect. No additional Governmental Permit is required from any Governmental
Body thereof in connection with the conduct of the Business which Governmental
Permit, if not obtained, would have a Material Adverse Effect.
-11-
<PAGE>
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities (collectively, the
"INTELLECTUAL PROPERTY"). The Company has furnished Global with copies of all
license agreements to which the Company is a party, either as licensor or
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Company has good title to or the right to use such
- -------------
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of their Business, in their
Business as presently conducted without the payment of any royalty or similar
payment, and the Company is not infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Seller is aware of any infringement by others of any
such rights owned by the Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. No claim has been made by any Governmental Body
(and, to the best knowledge of the Company and Seller, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental Obligation
or that a Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Seller's knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit
-12-
<PAGE>
plan" as such term is defined in Section 3(1) of ERISA. With respect to each
such plan, (i) the plan is in material compliance with ERISA; (ii) the plan has
been administered in accordance with its governing documents; (iii) neither the
plan, nor any fiduciary with respect to the plan, has engaged in any "prohibited
transaction" as defined in Section 406 of ERISA other than any transaction
subject to a statutory or administrative exemption; (iv) except for the
processing of routine claims in the ordinary course of administration, there is
no material litigation, arbitration or disputed claim outstanding; and (v) all
premiums due on any insurance contract through which the plan is funded have
been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is
------------------------ -------------
a list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $25,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Seller and the Company, no
-13-
<PAGE>
other party thereto is in default (and no event has occurred which, with the
passage of time or the giving of notice, or both, would constitute a default by
the Company) under any of the Contracts, and the Company has not waived any
right under any of the Contracts. All of the Contracts to which the Company is a
party are legal, valid, binding, enforceable and in full force and effect and
will remain legal, valid, binding, enforceable and in full force and effect on
identical terms immediately after the Closing, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. Except as set
forth in Schedule 3.15, the Company has not guaranteed any obligations of any
-------------
other Person. To the best of Seller's and the Company's Knowledge, no
manufacturer of office equipment sold by the Company will cease doing business
with the Company immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Seller or the
Company, threatened against or affecting the Company or any of its properties or
assets, at law or in equity, or before or by any court, municipality or other
Governmental Body. Except as set forth on Schedule 3.16, none of such claims,
-------------
actions, suits, proceedings, or investigations, if adversely determined, will
result in any liability or loss to the Company. The Company has not been and
the Company is not now, subject to any Court Order, stipulation, or consent of
or with any court or Governmental Body. No inquiry, action or proceeding has
been instituted or, to the best knowledge and belief of the Seller or the
Company, threatened or asserted against the Seller or the Company to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement or
to challenge the validity of such transactions or any part thereof or seeking
damages on account thereof. To the best knowledge of the Company and Seller,
except as set forth on Schedule 3.16, there is no basis for any such valid claim
-------------
or action.
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Seller
are presently subject to an extension of the time to file. All Taxes,
assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or
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<PAGE>
audits with respect to any such Taxes of which any of the Seller or the Company
are aware. For Governmental Bodies with respect to which the Company does not
file Tax Returns, no such Governmental Body has given the Company written
notification that the Company is or may be subject to taxation by that
Governmental Body. The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
shareholder, creditor, independent contractor or other party. There are no Tax
liens on any of the property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company's election to be taxed under subchapter S of the Code is
valid, legally binding and in full force and effect under all applicable Tax
laws.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of
--------- -------------
the names and annual rates of compensation of the directors and executive
officers of the Company, and of the employees of the Company whose annual rates
of compensation during the calendar year ended December 31, 1996 (including
base salary, bonus and incentive pay) exceed (or by December 31, 1997 are
expected to exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit
-------------
sharing, percentage compensation, company automobile, club membership, and other
like benefits, if any, paid or payable to such directors, officers, and
employees during the Company's calendar year ended December 31, 1996 and to the
date hereof. Schedule 3.18 also contains a brief description of all material
-------------
terms of employment agreements to which the Company is a party and all severance
benefits which any director, officer or employee of the Company is or may be
entitled to receive. The employee relations of the Company are generally good
and there is no pending or, to the best knowledge of Seller or the Company,
threatened labor dispute or union organization campaign. None of the employees
of the Company are represented by any labor union or organization. The Company
is in compliance in all material respects with all Requirements of Laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and are not engaged in any unfair labor
practices. Neither the Company or Seller has been advised, or has good reason
to believe, that any of the persons
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<PAGE>
whose names are set forth on Schedule 3.18 or any other employee will not agree
-------------
to remain employed by the Company after the consummation of the transactions
contemplated hereby. There is no unfair labor practice claim against the Company
before the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the best knowledge of the Company and Seller, threatened
against or involving the Company, and none has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Seller knows or
------------------
has good reason to believe that any customer or supplier of the Company will
cease to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Seller nor the Company has received any notice
of any material disruption (including delayed deliveries or allocations by
suppliers) in the availability of any material portion of the materials used by
the Company nor is the Company or Seller aware of any facts which could lead
them to believe that the Business will be subject to any such material
disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
-------------
accounts) will be collected in full within 180 days following the Closing Date.
Except as disclosed on Schedule 3.20 hereto (a) all of such accounts, notes, and
-------------
loans receivable are free and clear of any Encumbrances; (b) no claims of offset
have been asserted in writing against any of such accounts, notes, or loans
receivable; and (c) none of the obligors of such accounts, notes, or loans
receivable has given written notice that it will or may refuse to pay the full
amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
------------- -------------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and in
----------
the ordinary course of the Business, no written claim for breach of product or
service warranty to any customer has been made against the Company since January
1, 1997. To the best knowledge of Seller and the Company, no state of facts
exists, and no event has occurred, which could reasonably be expected to form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Seller has engaged, or caused
-------
to be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
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<PAGE>
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No
--------------------------------------------------
officer, director, or shareholder of the Company or any affiliate of any such
officer, director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description
- --------- -------------
of the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in Schedule 3.26
----------------------- -------------
hereto, the Company does not have any material liabilities (whether absolute,
accrued, contingent or otherwise), of a nature required by GAAP to be reflected
on a corporate balance sheet or disclosed in the notes thereto, except such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto, including without limitation any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date, other than liabilities incurred in the ordinary course of the Business
since the date of the latest of such Financial Statements.
3.27 INFORMATION FURNISHED. The Company and Seller have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
---------
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global pursuant to this Agreement contains
any untrue statement of a material fact or omits any material fact necessary to
make the statements herein or therein, as the case may be, not misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $20,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $20,000 per occurrence or $40,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
All references to the "COMPANY" in Sections 3.6 through 3.27 shall include the
------------ ----
Companies' subsidiaries.
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<PAGE>
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Seller as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized, validly
----------------
existing, and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global and the Agreement has been duly and validly executed and delivered by
Global and constitutes the valid and binding obligation of Global, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates or other documents contemplated hereby) by Global, do not (a)
violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any indebtedness secured by the
property of, Global, or (d) violate or conflict with any provision of the
charter or bylaws of Global.
4.3 NO BROKERS. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 INVESTMENT. Global will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
4.5 FUTURE PERFORMANCE. Global acknowledges that it has had the
------------------
opportunity to inspect the Company's business and properties, and understands
that no warranties as to the future performance of the Business have been or are
being made by the Company or the Seller.
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<PAGE>
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and Seller
------------------
shall use their best efforts to obtain and to cause the Company to obtain all
authorizations, consents and permits required of the Company and Seller to
permit them to consummate the transactions contemplated by this Agreement.
Seller shall have obtained the written consent of (i) the Company's Material
office equipment suppliers and (ii) the lessors of the Buildings to the
transactions contemplated by the Agreement.
5.2 SELLER'S EFFORTS. The Company and Seller shall use all reasonable
----------------
efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Seller shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further action
-------
is legally necessary or reasonably desirable (as determined by Global and
Seller) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). The Seller
acknowledges and agrees that from and after the Closing, Global will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Company, which shall be maintained at the chief
executive office of the Company; provided, however, that Seller shall be
entitled to reasonable access to and to make copies of such books and records at
his sole cost and expense and Global will maintain all of the same for a period
of at least three (3) years after Closing. Thereafter, the Company will offer
such documentation to Seller before disposal thereof.
6.2 TRANSITION. For a period of three (3) years following Closing,
----------
the Seller will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of three (3) years following Closing, the
Seller will refer all customer inquiries relating to the Business to the
Company.
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
6.3 CONFIDENTIALITY. The Seller will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Global for a period of three (3) years from the Closing, and deliver
promptly to Global or destroy, at the written request and option of Global, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that
Seller is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, Seller will notify Global promptly of the request or requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Seller by Global, Seller
covenants and agrees, for a period of three years from and after the Closing
Date, that he will not, directly or indirectly without the prior written consent
of Global, for or on behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/office equipment dealer, service or
distribution business in competition with the Company, within the greater of (i)
a 100 mile radius of the Company's office facilities in the State of Washington
(the "CURRENT TRADE AREA") or (ii) in any geographic area in which the Company
currently conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company in
the Current Trade Area or to cause them to reduce or end their business with the
Company; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof.
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
6.5 ADDITIONAL MATTERS.
------------------
(A) The Seller shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Seller shall
cause Seller's CPA to prepare a short period tax return for the Company covering
the period January 1, 1997 through the Effective Date. The cost of preparation
of such short period tax return shall be paid for by Seller.
(B) Global and Seller recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Global and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Global agrees to cause the Company to (A) use its best efforts
---------
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Seller and his agents and representatives
at times and dates mutually acceptable to the parties, to inspect, review and
make copies of such records as such other party may deem necessary or
appropriate from time to time, such activities to be conducted during normal
business hours and at the other party's expense.
(C) SECTION 338(H)(10) ELECTION. The Seller and Global shall
---------------------------
join in making a timely election (but in no event later than 180 days following
the Closing) under Section 338(h)(10) of the Code (including the prerequisite
election under Section 338 of the Code) and any similar state law provisions in
all applicable states which permit corporations to make such elections, with
respect to the sale and purchase of the Shares pursuant to this Agreement, and
each party shall provide the others all necessary information to permit such
elections to be made. Global and the Seller shall, as promptly as practicable
following the Closing Date, take all actions necessary and appropriate
(including filing such forms, returns, schedules and other documents as may be
required) to effect and preserve timely elections; provided, however, that
Global shall be the party responsible for preparing and filing the forms,
returns, schedules and other documents necessary for making an effective and
timely election. All Taxes attributable to the elections made pursuant to this
Section 6.5(c) shall be the liability of the Seller; provided, however, that
- --------------
Global shall reimburse Seller on a net after tax basis, for any additional Taxes
solely as a result of such election. In connection with such elections, within
sixty (60) days following the Closing Date, Global and the Seller shall act
together in good faith to determine and agree upon the "deemed sales price" to
be allocated to each asset of the Company in accordance with Treasury Regulation
Section 1.338(h)(10)-1(f) and the other regulations under Section 338 of the
Code. Notwithstanding the generality of the immediately preceding sentence,
Global and the Seller agree that the "deemed sales price" shall be allocated to
the monetary assets of the Company at their fair market value as of the Closing
Date as determined as part of the determination of the Working Capital of the
Company in accordance with Section 2.8 hereof, [**] shall be allocated to the
-----------
covenant not to compete contained in Section 6.4 hereof, and the balance of the
-----------
"deemed sales price" shall be allocated to the fixed
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<PAGE>
assets, goodwill and other intangible assets of the Company. Both Global and
Seller shall report the tax consequences of the transactions contemplated by
this Agreement consistently with such allocations and shall not take any
position inconsistent with such allocations in any Tax Return or otherwise. In
the event that Global and the Seller are unable to agree as to such allocations,
Global's reasonable positions with respect to such allocations shall control.
The Seller, shall be liable for, and shall indemnify and hold Global and the
Company harmless against, any Taxes or other costs attributable solely to (i) a
failure on the part of the Seller to take all actions required of him under this
Section 6.5(c); or (ii) a failure on the part of the Company to qualify, at or
- --------------
prior to the Closing, as an "S corporation" for federal and/or state income Tax
purposes.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S OBLIGATIONS. The obligation of Global
----------------------------------
under this Agreement to consummate the Closing is subject to the conditions
that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company
-----------------------------------------
and Seller shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Company and Seller
set forth in this Agreement shall be accurate in all material respects at and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Seller of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation of the transactions contemplated hereby shall
have been obtained in form and substance reasonably satisfactory to Global
unless such failure could not reasonably be expected to have a Material Adverse
Effect. All approvals of the Board of Directors and shareholders of the Company
necessary for the consummation of this Agreement and the transactions
contemplated hereby shall have been obtained.
(C) LEASES. The lessors of the Buildings shall have provided an
------
Estoppel Certificate to Global's lenders in the form of Exhibit B hereto, except
---------
as specifically
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<PAGE>
waived by Global. The leases for all of such Buildings shall provide that such
leases survive the Closing for the term of such leases, copies of which have
been provided to Global.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Seller and the Company
-----------------------------------
shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company (other than Assumed Funded Indebtedness) and all
extended credit from vendors at the Closing (other than customary accounts
payable outstanding on 90 day or less payment terms in accordance with past
practices). Such Funded Indebtedness, if any, as of August 31, 1997, is listed
on Schedule 7.1(d) hereto. Seller shall have also provided for the termination
---------------
of all Encumbrances of record on the properties of the Company, except for
Permitted Exceptions. All liens or UCC filings against the Company and each of
the Subsidiaries or Affiliates of the Company which engaged in the Business,
shall have been terminated as of the Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change with respect to the Company since April 30, 1997.
(F) TRANSFER TAXES. Seller shall be responsible for all stock
--------------
transfer or gains taxes imposed on Seller incurred in connection with this
Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
-------------------
Capital as projected at the Closing shall be greater than $91,472 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing (in an amount not less than $50,000 or, if less than $50,000, the
Purchase Price will be reduced further by the amount of such deficiency), to
continue to operate the Business in the ordinary course.
(H) DOCUMENTS TO BE DELIVERED BY SELLER AND THE COMPANY.
---------------------------------------------------
The following documents shall be delivered at the Closing by Seller and the
Company:
(I) OPINION OF SELLER'S COUNSEL. Global shall have
---------------------------
received an opinion of counsel to the Company and Seller, dated the
Closing Date, in substantially the same form as the form of opinion
that is Exhibit C hereto.
---------
(II) CERTIFICATES. Global shall have received an officer's
------------
certificate and a secretary's certificate of the Company executed by
officers of the Company, dated the Closing Date, in substantially the
same forms as the forms of certificates that are Exhibit D hereto.
---------
(III) RELEASE. Seller shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit E hereto.
---------
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<PAGE>
(IV) ESCROW AGREEMENT. Seller shall have delivered to
----------------
Global at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Gary Stevens shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
---------
employed by the Company following the Closing.
(VI) BUILDING LEASES. Global shall be reasonably
---------------
satisfied with the terms of the leases of the Buildings. Seller shall
have delivered to Global an Estoppel Certificate of the landlords of
the Buildings to Global's lenders in the same form attached as Exhibit
-------
B hereto, except as specifically waived by Global.
-
(VII) COLLATERAL ASSIGNMENT OF RIGHTS. Seller shall have
-------------------------------
executed and delivered to Jackson National Life Insurance Company a
Collateral Assignment of Rights in the form attached hereto as Exhibit
-------
H.
-
(VIII) STOCK CERTIFICATES. Seller shall have delivered
------------------
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
7.2 CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS. The
----------------------------------------------------
obligation of Seller and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global shall
-----------------------------------------
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Global prior to or at the Closing and the
representations and warranties of Global set forth in Article IV hereof shall be
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of the Business and
except to the extent that such representations and warranties are expressly made
as of another specified date and, as to such representations, the same shall be
true as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
expiration or early termination of all waiting periods under the HSR Act and
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Global of the transactions contemplated hereby shall have been
obtained unless such failure
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
shall not have a Material Adverse Effect on the Business. Global shall have used
its reasonable best efforts to have obtained the release of the Seller from all
personal guarantees with respect to the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL. The following
-----------------------------------
documents shall be delivered at the Closing by Global:
(I) CERTIFICATES. Seller shall have received an officers'
------------
certificate and a secretary's certificate executed by officers of
Global, dated the Closing Date, in substantially the same forms as the
forms of certificates that are Exhibit G hereto.
---------
(II) ESCROW AGREEMENT. Global shall have delivered to
----------------
Seller at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(III) EMPLOYMENT AGREEMENT. Global shall have caused the
--------------------
Company to duly execute and deliver the Employment Agreement with Gary
Stevens in the same form attached as Exhibit F hereto, pursuant to
---------
which he will be employed by the Company following the Closing.
(IV) PURCHASE PRICE. Seller shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. Seller shall have been offered
---------------------
the right to invest up to [**] in the capital stock of Global on the same terms
provided to other recent outside investors in Global.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6,
------------------------- -----------
as Global's sole and exclusive remedy for any breach by the Seller hereunder,
Seller agrees to indemnify and hold harmless Global and each officer, director,
and affiliate of Global, including without limitation the Company or any
successor of the Company (collectively, the "INDEMNIFIED PARTIES") from and
against any and all damages, losses, claims, liabilities, demands, charges,
suits, penalties, costs and expenses (including court costs and reasonable
attorneys' fees and expenses incurred in investigating and preparing for any
litigation or proceeding) (collectively, the "INDEMNIFIABLE COSTS"), which any
of the Indemnified Parties may sustain, or to which any of the Indemnified
Parties may be subjected, arising out of (A) any misrepresentation, breach or
default by Seller or the Company of or under any of the representations,
covenants, agreements or other provisions of this Agreement or any agreement or
document executed in connection herewith; (B) the assertion and final
determination of any
-25-
<PAGE>
claim or liability against the Company or any of the Indemnified Parties by any
Person based upon the facts which form the alleged basis for any litigation to
the extent it should have been, but was not, reserved for in the Financial
Statements in accordance with GAAP; and (C) the Company's tortious acts or
omissions to act prior to Closing for which the Company did not carry liability
insurance for themselves as the insured party, whether or not such acts or
omissions to act result in a breach or violation of any representation or
warranty.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Seller may be liable hereunder, such Indemnified Party shall give prompt written
notice thereof to Seller and, except as otherwise provided in Section 8.4 below,
-----------
Seller shall have the right to defend, or cause the Company or its successors to
defend, any litigation, action, suit, demand, or claim for which it may seek
indemnification unless, in the reasonable judgment of Global, such litigation,
action, suit, demand, or claim, or the resolution thereof, would have an ongoing
effect on Global, the Company or its successors, and such Indemnified Party
shall extend reasonable cooperation in connection with such defense, which shall
be at Seller's expense. In the event Seller fails or refuses to defend the same
within a reasonable length of time, the Indemnified Parties shall be entitled to
assume the defense thereof, and Seller shall be liable to repay the Indemnified
Parties for all expenses reasonably incurred in connection with said defense
(including reasonable attorneys' fees and settlement payments) if it is
determined that such request for indemnification was proper. If Seller shall not
have the right to assume the defense of any litigation, action, suit, demand, or
claim in accordance with either of the two preceding sentences, the Indemnified
Parties shall have the absolute right to control the defense of and to settle,
in their sole discretion and without the consent of Seller, such litigation,
action, suit, demand, or claim, but Seller shall be entitled, at his own
expense, to participate in such litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Seller,
which shall not unreasonably be withheld and subject to the right of Seller to
have their accountants and attorneys consult with Global on such audits or
procedures at Seller's expense). Seller shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, Seller shall be
responsible for and shall promptly pay all Taxes,
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
interest, and penalties to which any of the Indemnified Parties shall be
entitled to indemnification.
8.5 INDEMNIFICATION OF SELLER. Global agrees to indemnify and hold
-------------------------
harmless Seller and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global of or under
any of the covenants, agreements or other provisions of this Agreement or any
agreement or document executed in connection herewith, and (B) any tortious acts
or omissions by Global before or after or the Company after, the Closing. In
addition, the Company and Global shall indemnify the Seller for any payment or
satisfaction of any guarantees by Seller of the Company's obligations occurring
after the Closing Date.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Seller under Sections 3.1,
-------------
3.2, 3.3 or 3.17 hereof (the indemnification for which shall expire on the
- ----------------
expiration of the applicable statute of limitations), the indemnification
provided under this Article VIII shall expire on the third anniversary of the
Closing Date. The Seller shall not be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
obligation hereunder exceeds $25,000, whereupon Seller shall be liable for all
amounts for which indemnification may be sought. Notwithstanding the foregoing,
in no event shall the aggregate liability of Seller to Global exceed [**]
(except for claims made for any breach of the representations and warranties of
Seller under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which the limit of
---------------------- ----
indemnification hereunder shall be the Purchase Price). However nothing in this
Article VIII shall limit Global or Seller in exercising or securing any remedies
provided by applicable common law with respect to the conduct of Seller or
Global in connection with this Agreement or in the amount of damages that it can
recover from the other in the event that Global successfully proves intentional
fraud or intentional fraudulent conduct in connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
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<PAGE>
9.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Global:
------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
The Company or Seller:
---------------------
9840 Willows Road, NE
Suite 100
Redmond, Washington 98052
Attention: Mr. Gary Stevens
Fax No.: ===============
Tel No.: ===============
With a copy to:
Lasher & Holzapfel
2600 Two Union Square
601 Union Street
Seattle, Washington 98101
Attention: Paul A. Tonella, Esq.
Fax No.: (206) 340-2563
Tel No.: (206) 624-1230
-28-
<PAGE>
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Seller shall bear all costs and expenses of (i) any broker involved in this
transaction and (ii) all legal expenses of Seller or the Company with respect to
this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global and Seller, their heirs,
representatives, successors, and permitted assigns, in accordance with the
terms hereof. This Agreement shall not be assignable by the Company or Seller
without the prior written consent of Global. This Agreement shall be assignable
by Global to a wholly-owned subsidiary of Global without the prior written
consent of Seller, but any such assignment shall not relieve Global of its
obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Washington.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of three
(3) years, provided (a) the representations and warranties contained in Section
-------
3.17 of this Agreement, and the related indemnities, shall survive the Closing
- ----
until the expiration of the applicable statutes of limitations for determining
or contesting Tax liabilities and (b) the representations and warranties
contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related
-------------------------
indemnities, shall survive the Closing until expiration of the applicable
statute of limitations.
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<PAGE>
9.9 INVALID PROVISIONS. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLER AND GLOBAL
------------------
WITH RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLER AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN SEATTLE, WASHINGTON, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
---------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
-----------
QUALITY BUSINESS SYSTEMS, INC.
By: /s/ Gary Stevens
---------------------------------
Name: Gary Stevens
President
SELLER:
------
/s/ Gary Stevens
-------------------------------------
Gary Stevens
-31-
<PAGE>
EXHIBIT 10.24
[***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***]
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
CASCADE OFFICE SYSTEMS, INC. (THE "COMPANY")
AND
THE SHAREHOLDERS OF THE COMPANY
DATED SEPTEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I 1
1.1 Definitions............................................... 1
ARTICLE II........................................................... 5
2.1 Agreement to Sell and Purchase............................ 5
2.2 Purchase Price............................................ 5
2.3 Payment of Purchase Price................................. 5
2.4 Closing................................................... 6
2.5 Escrow Arrangements....................................... 6
2.6 Purchase Price Adjustments................................ 6
2.7 Closing Audit............................................. 7
2.8 Post-Closing Purchase Price Adjustment.................... 7
ARTICLE III.......................................................... 8
3.1 Capitalization............................................ 8
3.2 No Liens on Shares........................................ 8
3.3 Other Rights to Acquire Capital Stock..................... 8
3.4 Due Organization.......................................... 8
3.5 Subsidiaries.............................................. 9
3.6 Due Authorization......................................... 9
3.7 Financial Statements...................................... 9
3.8 Certain Actions........................................... 10
3.9 Properties................................................ 11
3.10 Licenses and Permits...................................... 11
3.11 Intellectual Property..................................... 12
3.12 Compliance with Laws...................................... 12
3.13 Insurance................................................. 12
3.14 Employee Benefit Plans.................................... 13
(a) Employee Welfare Benefit Plans...................... 13
(b) Employee Pension Benefit Plans...................... 13
(c) Employment and Non-Tax Qualified Deferred
Compensation Arrangements......................... 13
3.15 Contracts and Agreements.................................. 13
3.16 Claims and Proceedings.................................... 14
3.17 Taxes..................................................... 14
3.18 Personnel................................................. 15
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
3.19 Business Relations............................................................ 16
3.20 Accounts Receivable........................................................... 16
3.21 Bank Accounts................................................................. 16
3.22 Warranties.................................................................... 17
3.23 Brokers....................................................................... 17
3.24 Interest in Competitors, Suppliers, Customers, Etc............................ 17
3.25 Indebtedness To and From Officers, Directors, Shareholders, and Employees..... 17
3.26 Undisclosed Liabilities....................................................... 17
3.27 Information Furnished......................................................... 17
ARTICLE IV............................................................................... 18
4.1 Due Organization.............................................................. 18
4.2 Due Authorization............................................................. 18
4.3 No Brokers.................................................................... 18
4.5 Due Diligence Review.......................................................... 19
4.7 Investment Intent............................................................. 19
4.9 Qualification as a Sophisticated Investor..................................... 19
4.11 Legend........................................................................ 19
ARTICLE V................................................................................ 20
5.1 Consents of Others............................................................ 20
5.2 Seller's Efforts.............................................................. 20
5.3 Powers of Attorney............................................................ 20
ARTICLE VI............................................................................... 20
6.1 General....................................................................... 20
6.2 Transition.................................................................... 20
6.3 Confidentiality............................................................... 21
6.4 Covenant Not to Compete....................................................... 21
6.6 Additional Matters............................................................ 22
ARTICLE VII.............................................................................. 23
7.1 Conditions to Global's Obligations............................................ 23
(a) Covenants, Representations and Warranties.............................. 23
(b) Consents............................................................... 24
(c) Leases................................................................. 24
(d) Discharge of Indebtedness and Liens.................................... 24
(e) Material Adverse Change................................................ 24
(f) Transfer Taxes......................................................... 24
(g) Financial Condition.................................................... 24
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
(h) Documents to be Delivered by Seller and the Company..... 25
(i) Opinion of Seller's Counsel...................... 25
(ii) Certificates..................................... 25
(iii) Release.......................................... 25
(iv) Escrow Agreement................................. 25
(v) Consulting Agreement............................. 25
(vi) Building Leases.................................. 25
(vii) Collateral Assignment of Rights.................. 25
(viii) Stock Certificates............................... 25
7.2 Conditions to Seller's and the Company's Obligations........... 25
(a) Covenants, Representations and Warranties............... 26
(b) Consents................................................ 26
(c) Documents to be Delivered by Global..................... 26
(ii) Certificates..................................... 26
(iii) Escrow Agreement................................. 26
(iv) Consulting Agreement............................. 26
(iv) Purchase Price................................... 27
(d) Right of Reinvestment................................... 27
ARTICLE VIII.............................................................. 27
8.1 Indemnification of Global...................................... 27
8.2 Defense of Claims.............................................. 27
8.3 Escrow Claim................................................... 28
8.4 Tax Audits, Etc................................................ 28
8.5 Indemnification of Seller...................................... 28
8.6 Limits on Indemnification...................................... 28
ARTICLE IX................................................................ 29
MISCELLANEOUS............................................................. 29
9.1 Modifications.................................................. 29
9.2 Notices........................................................ 29
9.3 Counterparts................................................... 30
9.4 Expenses....................................................... 30
9.5 Binding Effect; Assignment..................................... 30
9.6 Entire and Sole Agreement...................................... 30
9.7 Governing Law.................................................. 31
9.8 Survival of Representations, Warranties and Covenants.......... 31
9.9 Invalid Provisions............................................. 31
9.10 Public Announcements........................................... 31
9.11 Remedies Cumulative............................................ 31
9.12 Waiver......................................................... 31
9.13 DISPUTE RESOLUTION............................................. 32
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Seller's Counsel
Exhibit D Seller's Certificates
Exhibit E Release
Exhibit F Woodard Consulting Agreement
Exhibit G Global Certificates
Exhibit H Collateral Assignment of Rights
LIST OF SCHEDULES
Schedule 2.3 Seller's Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
September 30, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), CASCADE OFFICE SYSTEMS, INC., a Washington corporation
(the "COMPANY") and THE SHAREHOLDER OF THE COMPANY (the "SELLER").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the distribution, sale and service
of office equipment in the State of Washington (the "BUSINESS"); and
WHEREAS, Seller owns all of the outstanding shares of capital stock of
the Company (the "SHARES"), which Shares constitute all of the issued and
outstanding capital stock of the Company; and
WHEREAS, Global desires to purchase from Seller and Seller desires to
sell to Global hereby all of the Shares owned by Seller all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
"BUILDINGS" shall mean the Company's offices, showroom and
warehouse facilities located at 3810 148th Avenue, NE, Redmond, Washington.
<PAGE>
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Seller to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONSULTING AGREEMENT" shall mean the consulting agreement with
Fred Woodard to be entered into at Closing in the form of Exhibit F.
"CONTRACTS" has the meaning specified in Section 3.15.
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
"ENCUMBRANCE" means any bona fide lien, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, or restrictive covenant.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
3.12.
-2-
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the First Trust National Association.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Seller, Global and the Escrow Agent in the form of Exhibit A.
"ESCROW PERIOD" has the meaning specified in Section 2.5.
"ESCROW SUM" has the meaning specified in Section 2.5.
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business on no more than
90 day payment terms; (iv) indebtedness of others guaranteed by the Company or
secured by an Encumbrance on the Company's property; (v) indebtedness of the
Company under extended credit terms of more than 30 days from manufacturers
provided to the Company; or (vi) any receivables owed by the Seller to the
Company. Funded Indebtedness does not include the officer loan which is being
paid off at Closing.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
2.7.
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-3-
<PAGE>
"INTELLECTUAL PROPERTY" has the meaning specified in Section
3.11.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "MATERIAL ADVERSE
CHANGE" or "MATERIAL ADVERSE EFFECT" has occurred, the quantitative amounts set
forth at the end of Article III shall be conclusive.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of the Effective Date. The
Preliminary Closing Balance Sheet shall be delivered to Global not less than
five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company.
-4-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed thereon by any
Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities (excluding Funded Indebtedness) as
calculated in accordance with GAAP.
"WORKING CAPITAL TARGET" shall have the meaning assigned to such
term in Section 2.6 hereof.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Seller agrees to sell the Shares to
Global and Global agrees to purchase the Shares from Seller.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
"PURCHASE PRICE") shall be equal to [**] and the note payable to Seller of [**]
and [**] for the payments due under the Consulting Agreement, subject to any
adjustment required to be made pursuant to Section 2.6 or Section 2.8 below.
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
by Global at the Closing (hereinafter defined) as follows:
(A) [**] of the Purchase Price as adjusted downward as set forth
in Section 2.6 below will be paid, at the direction of the Seller, in cash by
wire transfer of funds as specified in Schedule 2.3 (including the payment of
[**] for the covenant not to compete provided in Section 6.4 and in addition
[**] for the payments due under the Consulting Agreement);
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
(B) [**] of the Purchase Price will be paid in cash by wire
transfer of funds to the Escrow Agent to be held in escrow for satisfaction of
Seller's indemnification obligations specified in Section 8.1 or payment to the
Seller in accordance with the terms of Section 2.5 below; and
(C) [**] shall be paid to Seller for repayment of a loan owed to
Seller by Company.
2.4 CLOSING. The Closing of the purchase and sale of the Shares
contemplated by this Agreement shall take place at 9:00 a.m., Pacific Coast
time, at the offices of Lasher & Holzapfel in Seattle, Washington on September
30, 1997, or at such other date and time as the parties shall agree (the
"CLOSING DATE"), effective as of September 1, 1997 (the "EFFECTIVE DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement in the
form attached as Exhibit A hereto to be entered into among Seller, Global and
the Escrow Agent, [**] of the Purchase Price shall be delivered to the Escrow
Agent at Closing. Such monies (which, together with all interest accrued
thereon, is hereinafter referred to as the "ESCROW SUM") shall be held pursuant
to the terms of the Escrow Agreement for payment from such Escrow Sum of the
amounts, if any, owing by Seller to Global pursuant to Section 2.8 or Article
VIII below. At the conclusion of the period ending on the first anniversary of
the Closing Date (such period being referred to herein as the "ESCROW PERIOD"),
such remaining portion of the Escrow Sum not theretofore claimed by or paid to
Global in accordance with the terms of the Escrow Agreement and this Agreement
shall be disbursed to Seller. Seller and Global agree that each will execute and
deliver such reasonable instruments and documents as are furnished by any other
party to enable such furnishing party to receive those portions of the Escrow
Sum to which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
(A) The Purchase Price payable pursuant to Section 2.3(a) above
will be reduced by the total amount of Funded Indebtedness (excluding [**] paid
to Seller pursuant to Section 2.3(c) above), if any, assumed or paid by Global
in cash by wire transfer of funds to the accounts of the holders of Funded
Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's Funded
Indebtedness with such institutions.
(b) The portion of the Purchase Price payable at Closing will be
reduced by $41,021, which is the amount by which the adjusted Working Capital as
reflected on the Preliminary Closing Balance Sheet is less than $527,156 [the
amount which is $25,000 less than the average of the Working Capital balances at
the end of each of the first six months of 1997] (the "WORKING CAPITAL TARGET").
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2.7 CLOSING AUDIT. Within 90 days following the Closing Date,
there shall be delivered to Global and to Seller an audit of the Preliminary
Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the Company at
and as of the Effective Date. The Preliminary Closing Balance Sheet shall be
audited by Ernst & Young, LLP in accordance with GAAP. The cost of the Audited
Closing Balance Sheet shall be paid by Global. In the event that the Seller
disputes any items on the Audited Closing Balance Sheet within ten days after
Seller's receipt thereof, the parties shall jointly select and retain an
independent "Big Six" accounting firm (the "INDEPENDENT ACCOUNTANTS") to review
the disputed item(s) on the Audited Closing Balance Sheet. The final
determination of such disputed item(s) by the Independent Accountants shall be
reflected on the Audited Closing Balance Sheet. The cost of retaining the
Independent Accountants shall be borne equally by Seller and Global.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(b) above. The post-closing adjustment to the
Purchase Price, if any, shall be paid by Seller to Global from the Escrow Sum
(or, at Seller's option, in cash) or by Global to Seller, as the case may be, in
immediately available funds within ten (10) business days of delivery of the
Audited Closing Balance Sheet, unless the Seller disputes any items on the
Audited Closing Balance Sheet, in which case it shall be paid within ten (10)
business days after the Independent Accountants finally determine the disputed
item(s), and Global delivers to Seller an Audited Closing Balance Sheet modified
to reflect such determination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
The Company and Seller represent and warrant to Global that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
consists of 1,098 shares of Common Stock, all of which are issued and
outstanding. All of the Shares are duly authorized, validly issued, fully paid,
and nonassessable. All of the Shares are owned of record and beneficially by
Seller in the amounts set forth on Schedule 3.1 hereto. None of the Shares was
issued or will be transferred under this Agreement in violation of any
preemptive or
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preferential rights of any Person. The Seller owns all of the issued and
outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Seller
owns the Shares, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, and none of the Shares is subject to
any outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Shares is subject to any restriction on
transfer thereof except for restrictions imposed by applicable federal and state
securities laws. At Closing, Seller will have full power and authority to
convey good and marketable title to the Shares, free and clear of any
Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock, except for the right of
first refusal granted to Quality Business Systems, Inc. (the "QBS RIGHT").
3.4 DUE ORGANIZATION. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington and has full corporate power and authority to carry on the Business
as now conducted and as proposed to be conducted through Closing. Complete and
correct copies of the Articles of Incorporation and Bylaws of the Company, and
all amendments thereto, have been heretofore delivered to Global and are
attached hereto as Schedule 3.4. Except as set forth on Schedule 3.10, the
Company is qualified to do business in the State of Washington and in each
jurisdiction in which the nature of the Business or the ownership of its
properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 SUBSIDIARIES. The Company has no subsidiaries or ownership
interest in any Person.
3.6 DUE AUTHORIZATION. The Company and the Seller each have full
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Seller and constitutes the valid and binding obligations of the Company and
Seller, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as
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well as all other instruments, agreements, certificates, or other documents
contemplated hereby) by the Company and Seller, do not (a) violate any
Requirements of Laws or any Court Order of any Governmental Body applicable to
the Company or Seller, or their respective property, (b) violate or conflict
with, or permit the cancellation of, or constitute a default under, any material
agreement to which the Company or Seller are a party, or by which any of them or
any of their respective property is bound (other than the consent of the
Company's landlord), (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Seller, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements
(herein so called) of the Company have been delivered to Global by the Company:
compiled balance sheets of the Company as of December 31, 1994, December 31,
1995 and December 31, 1996 and unaudited balance sheet as of August 31, 1997,
and compiled statements of income of the Company for the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996 and unaudited
statement of income for the eight (8) month period ending August 31, 1997.
The Financial Statements have been prepared in accordance with GAAP except for
built-in gain tax liability as described on Schedule 3.7, throughout the periods
indicated and fairly present the financial position, results of operations and
changes in financial position of the Company as of the indicated dates and for
the indicated periods, subject (in the case of the eight (8) month Financial
Statements) to year end accruals made in the ordinary course of the Business
which are not materially adverse and which are consistent with past practices.
Except to the extent reflected or provided for in the Financial Statements or
the notes thereto and obligations and liabilities incurred in the ordinary
course of business since the date of the last of such Financial Statements, the
Company has no liabilities required by GAAP to be reflected on the Company's
balance sheet or notes thereto that are not so reflected, nor any other
obligations (whether absolute, contingent, or otherwise) which are (individually
or in the aggregate) Material (in amount or to the conduct of the Business); and
neither the Company nor Seller has knowledge of any basis for the assertion of
any such liability or obligation. Since April 30, 1997, there has been no
Material Adverse Change in the prospects of the Company except for the slowdown
in deliveries by Konica (the "KONICA SLOWDOWN").
3.8 CERTAIN ACTIONS. Since April 30, 1997, the Company has not,
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder; (c) made or agreed to make any loans
or advances or guaranteed or agreed to guarantee any loans or advances to any
party whatsoever; (d) suffered or permitted any Encumbrance to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) canceled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$10,000 individually or $25,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or
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otherwise transferred, or suffered any material damage, destruction, or loss
(whether or not covered by insurance) to, any assets (except in the ordinary
course of the Business); (g) amended its charter or bylaws; (h) paid or made a
commitment to pay any severance or termination payment to any employee or
consultant; (i) made any material change in its method of management or
operation or method of accounting; (j) made any capital expenditures, including,
without limitation, replacements of equipment in the ordinary course of the
Business, or entered into commitments therefor, except for capital expenditures
or commitments therefor which do not, in the aggregate, exceed $35,000; (k) made
any investment or commitment therefor in any Person; (l) made any payment or
contracted for the payment of any bonus or other compensation or personal
expenses, other than (A) wages and salaries and business expenses paid in the
ordinary course of the Business, and (B) wage and salary adjustments made in the
ordinary course of the Business for employees who are not officers, directors,
or shareholders of the Company; (m) made, amended, or entered into any written
employment contract or created or made any material change in any bonus, stock
option, pension, retirement, profit sharing or other employee benefit plan or
arrangement; (n) materially amended or experienced a termination of any material
contract, agreement, lease, franchise or license to which the Company is a party
that would or could reasonably be expected to have a Material Adverse Effect,
except in the ordinary course of the Business; or (o) entered into any other
material transactions that would or could reasonably be expected to have a
Material Adverse Effect except in the ordinary course of the Business. Since
April 30, 1997, except as disclosed on Schedule 3.8B hereto or any of the
Financial Statements or notes thereto, there has not been (a) any Material
Adverse Change including, but not limited to, the loss of any material customers
or suppliers of the Company, or in any material assets of the Company, (b) any
extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company other than the Konica Slowdown,
or (d) any shutdown, material slow-down, or cessation of any material operations
conducted by, or constituting part of, the Company, nor has the Company agreed
to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
a description of each interest in real property (including, without limitation,
leasehold interests) and each item of personal property utilized by the Company
in the conduct of the Business having a book value in excess of $25,000 as of
the date hereof. Except for Permitted Exceptions or as expressly set forth on
Schedule 3.9, such real and personal properties are free and clear of
Encumbrances. Global has performed a lien search obtained from the counties
where the Company conducts business and the Washington Secretary of State office
of all UCC liens of record against the Company's personal property in the State
of Washington. All of the properties and assets necessary for continued
operation of the Business as currently conducted (including, without limitation,
all books, records, computers and computer software and data processing systems)
are owned, leased or licensed by the Company and are suitable for the purposes
for which they are currently being used. With the exception of used equipment
and inventory valued at no more than $10,000 on the Company's Financial
Statements, the physical properties of the Company, including the real
properties leased by the Company, are in good operating condition and repair,
normal wear and tear excepted, and are free from any defects of a material
nature. Except for Permitted Exceptions or as otherwise set forth on Schedule
3.9,
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the Company has full and unrestricted legal and equitable title to all such
properties and assets. The operation of the properties and Business of the
Company in the manner in which they are now and have been operated does not
violate any zoning ordinances, municipal regulations, or other Requirements of
Laws, except for any such violations which would not, individually or in the
aggregate, have a Material Adverse Effect except as set forth in Schedule 3.10.
Except for Permitted Exceptions or as set forth on Schedule 3.9, no restrictive
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and will remain legal, valid,
binding, enforceable and in full force and effect on identical terms immediately
following the Closing (except for the consent of the Company's landlord), except
to the extent that enforceability may be limited by laws affecting creditors'
rights and debtors' obligations generally, and legal limitations relating to
remedies of specific performance and injunctive and other forms of equitable
relief. All facilities owned or leased by the Company have received all
approvals of any Governmental Body (including Governmental Permits) required in
connection with the operation thereof and have been operated and maintained in
accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a
list of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. Except as set forth in
Schedule 3.10, the Company has complied in all material respects with the terms
and conditions of all such Governmental Permits, and the Company has not
received notification from any Governmental Body of violation of any such
Governmental Permit or the Requirements of Laws governing the issuance or
continued validity thereof other than violations (if any) which would not
individually or in the aggregate have a Material Adverse Effect. No additional
Governmental Permit is required from any Governmental Body thereof in connection
with the conduct of the Business which Governmental Permit, if not obtained,
would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities (collectively, the
"INTELLECTUAL PROPERTY"). The Company has furnished Global with copies of all
license agreements to which the Company is a party, either as licensor or
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Company has good title to or the right to use such
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of their Business, in their
Business as presently conducted without the payment of any royalty or similar
payment, and the Company is not infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Seller is aware of any
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infringement by others of any such rights owned by the Company, except as
disclosed on Schedule 3.11 hereto.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. No claim has been made by any Governmental Body
(and, to the best knowledge of the Company and Seller, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental Obligation
or that a Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Seller's knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. To the best of
Seller's and the Company's knowledge after due inquiry, all of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
Schedule 3.14, the Company does not maintain or contribute to any "employee
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
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(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
Schedule 3.14, the Company does not maintain or contribute to any arrangement
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is a
list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $25,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Seller and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts. All of the
Contracts to which the Company is a party are legal, valid, binding, enforceable
and in full force and effect and will remain legal, valid, binding, enforceable
and in full force and effect on identical terms immediately after the Closing,
except to the extent that enforceability may be limited by laws affecting
creditors' rights and debtors' obligations generally, and legal limitations
relating to remedies of specific performance and injunctive and other forms of
equitable relief. Except as set forth in Schedule 3.15, the Company has not
guaranteed any obligations of any
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other Person. To the best of Seller's and the Company's Knowledge, no
manufacturer of office equipment sold by the Company will cease doing business
with the Company immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Seller or the
Company, threatened against or affecting the Company or any of its properties or
assets, at law or in equity, or before or by any court, municipality or other
Governmental Body. Except as set forth on Schedule 3.16, none of such claims,
actions, suits, proceedings, or investigations, if adversely determined, will
result in any liability or loss to the Company. The Company has not been and the
Company is not now, subject to any Court Order, stipulation, or consent of or
with any court or Governmental Body. No inquiry, action or proceeding has been
instituted or, to the best knowledge and belief of the Seller or the Company,
threatened or asserted against the Seller or the Company to restrain or prohibit
the carrying out of the transactions contemplated by this Agreement or to
challenge the validity of such transactions or any part thereof or seeking
damages on account thereof. To the best knowledge of the Company and Seller,
except as set forth on Schedule 3.16, there is no basis for any such valid claim
or action.
3.17 TAXES.
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Seller
are presently subject to an extension of the time to file. All Taxes,
assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Seller or the Company are aware.
For Governmental Bodies with respect to which the Company does not file Tax
Returns, no such Governmental Body has given the Company written notification
that the Company is or may be subject to taxation by that Governmental Body. The
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, shareholder, creditor,
independent contractor or other party. There are no Tax liens on any of the
property or assets of the Company.
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(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company's election to be taxed under subchapter S of the Code is
valid, legally binding and in full force and effect under all applicable Tax
laws.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
names and annual rates of compensation of the directors and executive officers
of the Company, and of the employees of the Company whose annual rates of
compensation during the fiscal year ended December 31, 1996 (including base
salary, bonus and incentive pay) exceed (or by December 31, 1997 are expected to
exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended December 31, 1996 and to the date hereof.
Schedule 3.18 also contains a brief description of all material terms of
employment agreements to which the Company is a party and all severance benefits
which any director, officer or employee of the Company is or may be entitled to
receive. The employee relations of the Company are generally good and there is
no pending or, to the best knowledge of Seller or the Company, threatened labor
dispute or union organization campaign. None of the employees of the Company are
represented by any labor union or organization. The Company is in compliance in
all material respects with all Requirements of Laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and are not engaged in any unfair labor practices. Neither the Company or Seller
has been advised, or has good reason to believe, that any of the persons whose
names are set forth on Schedule 3.18 or any other employee will not agree to
remain employed by the Company after the consummation of the transactions
contemplated hereby. There is no unfair labor practice claim against the Company
before the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the best knowledge of the Company and Seller, threatened
against or involving the Company, and none has occurred.
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3.19 BUSINESS RELATIONS. Neither the Company nor Seller knows or
has good reason to believe that any customer or supplier of the Company will
cease to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Seller nor the Company has received any notice
of any material disruption (including delayed deliveries or allocations by
suppliers) other than the Konica Slowdown, in the availability of any material
portion of the materials used by the Company nor is the Company or Seller aware
of any facts which could lead them to believe that the Business will be subject
to any such material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
accounts) will be collected in full within 180 days following the Closing Date
except for such failures which would not in the aggregate have a Material
Adverse Effect. Except as disclosed on Schedule 3.20 hereto (a) all of such
accounts, notes, and loans receivable are free and clear of any Encumbrances;
(b) no claims of offset have been asserted in writing against any of such
accounts, notes, or loans receivable; and (c) none of the obligors of such
accounts, notes, or loans receivable has given written notice that it will or
may refuse to pay the full amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and
in the ordinary course of the Business, no written claim for breach of product
or service warranty to any customer has been made against the Company since
January 1, 1997. To the best knowledge of Seller and the Company, no state of
facts exists, and no event has occurred, which could reasonably be expected to
form the basis of any present claim against the Company for liability on account
of any express or implied warranty to any third party in connection with
products sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Seller has engaged, or
caused to be incurred any liability to any finder, broker, or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No officer,
director, or shareholder of the Company or any affiliate of any such officer,
director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or
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has real or contingent rights to own, less than one percent of any class of
outstanding securities) or any property used in the operation of the Business,
except for the QBS Right.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description
of the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. To the best of Seller's and the
Company's knowledge, except as indicated in Schedule 3.26 hereto, the Company
does not have any material liabilities (whether absolute, accrued, contingent or
otherwise), of a nature required by GAAP to be reflected on a corporate balance
sheet or disclosed in the notes thereto, except such liabilities which are
accrued or reserved against in the Financial Statements or disclosed in the
notes thereto, including without limitation any accounts payable or service
liabilities of the Company incurred prior to the Closing Date, other than
liabilities incurred in the ordinary course of the Business since the date of
the latest of such Financial Statements.
3.27 INFORMATION FURNISHED. The Company and Seller have made
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global pursuant to this Agreement contains
any knowingly untrue statement of a material fact or knowingly omits any
material fact necessary to make the statements herein or therein, as the case
may be, not misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $25,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $25,000 per occurrence or $40,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
All references to the "COMPANY" in Sections 3.6 through 3.27 shall include the
Companies' subsidiaries.
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ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Seller as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary corporate action of
Global and the Agreement has been duly and validly executed and delivered by
Global and constitutes the valid and binding obligation of Global, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates or other documents contemplated hereby) by Global, do not (a)
violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any indebtedness secured by the
property of, Global, or (d) violate or conflict with any provision of the
charter or bylaws of Global.
4.3 NO BROKERS. Global has not engaged, or caused to be
incurred any liability to any finder, broker or sales agent in connection with
the origin, negotiation, execution, delivery, or performance of this Agreement
or the transactions contemplated hereby.
4.4 DUE DILIGENCE REVIEW. This transaction has been structured as a
sale of stock to accommodate the desires of Global. Global has conducted its own
due diligence review of all aspects of this stock purchase transaction, and has
a full and complete opportunity as it deems necessary to ask questions of, and
obtain information from, the Seller in order to evaluate the merits and risks of
purchasing the Shares. Global can afford a complete loss of the value of the
Shares and is able to bear the economic risk of holding the Shares for an
indefinite period. Global understands that in the future it will be precluded
from selling the Shares, except in a private placement transaction, and that
there is no assurance Global will be able to locate prospective purchasers in
order to dispose of the Shares even in a private placement transaction. Neither
Seller nor the Company has made any representation or warranty to Global other
than as set forth in this Agreement and except for the representations and
warranties expressly set forth herein, Global has relied exclusively on its own
investigation of the Company in deciding to purchase the shares.
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4.5 INVESTMENT INTENT. Global represents and warrants that the stock
being acquired by it is being acquired for its own account for investment and
without the view to, or for re-sale in connection with, any distribution or
public offering thereof within the meaning of the Securities Act of 1933 (the
"SECURITIES ACT"). Global understands that the stock has not been registered
under the Securities Act or any state securities act, and therefore, the shares
must be held indefinitely unless they are registered under the Securities Act or
an exemption from registration is available.
4.6 QUALIFICATION AS A SOPHISTICATED INVESTOR. Global represents
and warrants that it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
being made by Global hereunder.
4.7 LEGEND. Each Share shall will be endorsed with the following
legend:
The securities evidenced hereby have not been registered
under the Securities Act of 1933 and may not be sold,
transferred, assigned, pledged or otherwise distributed for
value unless there is an effective registration statement
under such Act covering such securities or unless such sale,
transfer, assignment, pledge or distribution is exempt from
the registration and prospectus delivery requirements of
such Act.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
Seller shall use their best efforts to obtain and to cause the Company to obtain
all authorizations, consents and permits required of the Company and Seller to
permit them to consummate the transactions contemplated by this Agreement.
Seller shall have obtained the written consent of (i) the Company's Material
office equipment suppliers and (ii) the lessors of the Buildings to the
transactions contemplated by the Agreement.
5.2 SELLER'S EFFORTS'. The Company and Seller shall use all
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Seller shall cause the
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
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6.1 GENERAL. In case at any time after the Closing any further
action is legally necessary or reasonably desirable (as determined by Global and
Seller) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). The Seller
acknowledges and agrees that from and after the Closing, Global will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Company, which shall be maintained at the chief
executive office of the Company; provided, however, that Seller shall be
entitled to reasonable access to and to make and keep copies of such books and
records at his sole cost and expense and Global will maintain all of the same
for a period of at least three (3) years after Closing. Thereafter, the Company
will offer such documentation to Seller before disposal thereof.
6.2 TRANSITION. For a period of four (4) years following Closing,
the Seller will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of four (4) years following Closing, the
Seller will refer all customer inquiries relating to the Business to the
Company.
6.3 CONFIDENTIALITY. The Seller will treat and hold as such
all Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement or otherwise for the
benefit of the Company or Global for a period of three (3) years from the
Closing, and deliver promptly to Global or destroy, at the written request and
option of Global, all tangible embodiments (and all copies) of the Confidential
Information which are in their possession except as otherwise permitted herein.
In the event that Seller is requested or required (by oral question or written
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar legal proceeding) to disclose
any Confidential Information, Seller will notify Global promptly of the request
or requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
allocation of [**] of the Purchase Price paid to the Seller by Global, Seller
covenants and agrees, for a period of three years from and after the Closing
Date, that he will not, directly or indirectly without the prior written consent
of Global, for or on behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/office equipment dealer, service or
distribution business in competition with the Company, within the greater of (i)
a 100 mile radius of the Company's office facilities in the State of Washington
(the
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"CURRENT TRADE AREA") or (ii) in any geographic area in which the Company
currently conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company in
the Current Trade Area or to cause them to reduce or end their business with the
Company; or
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
by reason thereof.
6.5 ADDITIONAL MATTERS.
(A) The Seller shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Seller shall
cause Seller's CPA to prepare a short period tax return for the Company covering
the period January 1, 1997 through the Effective Date. The cost of preparation
of such short period tax return shall be paid for by Seller. Global will pay for
all reasonable services incurred by Seller's CPA in preparation of the short
year return that pertain to the Section 338 election, including consultations
with Global and Global's CPAs related to same. Seller's CPA will invoice Global
based on Seller's CPA's reasonable allocation of costs incurred.
(B) Global and Seller recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Global and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Global agrees to cause the Company to (A) use its best efforts
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow the Seller and his agents and representatives
at times and dates mutually acceptable to the parties, to inspect, review and
make copies of such records as such other party may deem necessary or
appropriate from time to time, such activities to be conducted during normal
business hours and at the other party's expense.
(C) SECTION 338(H)(10) ELECTION. Seller and Global shall join
in making a timely election (but in no event later than 180 days following the
Closing) under Section 338(h)(10) of the Code (including the prerequisite
election under Section 338 of the
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Code) and any similar state law provisions in all applicable states which permit
corporations to make such elections, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall provide the others
all necessary information to permit such elections to be made. Global and the
Seller shall, as promptly as practicable following the Closing Date, take all
actions necessary and appropriate (including filing such forms, returns,
schedules and other documents as may be required) to effect and preserve timely
elections; provided, however, that Global shall be the party responsible for
preparing and filing the forms, returns, schedules and other documents necessary
for making an effective and timely election. All Taxes attributable to the
elections made pursuant to this Section 6.5(c) shall be the liability of the
Seller; provided, however, that Global shall reimburse Seller for any additional
Taxes solely as a result of such election. In connection with such elections,
within sixty (60) days following the Closing Date, Global and the Seller shall
act together in good faith to determine and agree upon the "deemed sales price"
to be allocated to each asset of the Company in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section 338
of the Code. Notwithstanding the generality of the immediately preceding
sentence, Global and the Seller agree that the "deemed sales price" shall be
allocated to the monetary assets of the Company at their fair market value as of
the Closing Date as determined as part of the determination of the Working
Capital of the Company in accordance with Section 2.8 hereof, [**] shall be
allocated to the covenant not to compete contained in Section 6.4 hereof, and
the balance of the "deemed sales price" shall be allocated to the fixed assets,
goodwill and other intangible assets of the Company. Both Global and Seller
shall report the tax consequences of the transactions contemplated by this
Agreement consistently with such allocations and shall not take any position
inconsistent with such allocations in any Tax Return or otherwise. In the event
that Global and the Seller are unable to agree as to such allocations, Global's
reasonable positions with respect to such allocations shall control. The Seller,
shall be liable for, and shall indemnify and hold Global and the Company
harmless against, any Taxes or other costs attributable solely to (i) a failure
on the part of the Seller to take all reasonable actions at Global's timely
request required of him under this Section 6.5(c); or (ii) a failure on the part
of the Company to qualify, at or prior to the Closing, as an "S corporation" for
federal and/or state income Tax purposes. Global's reimbursement to Seller shall
include the amount necessary to provide Seller with the same net proceeds (after
taxes) as would have resulted from the sale of stock by Seller for a price equal
to the Purchase Price stated in Section 2.2 of this Agreement (including the
officer loan repayment and the fees payable under the Consulting Agreement).
Seller's marginal tax rate, for purposes of "grossing-up" the reimbursement (to
net the appropriate amount) shall be 39.6%. The Seller shall further be
reimbursed by Global, if, in the future, an audit of the sale results in
additional taxes due by the Seller solely as a result of a deemed asset sale
resulting from the 338(h)(10) election. An example of this would be an
adjustment, upward, of the Built-in Gain tax. Global's reimbursement will again
be "grossed-up" by Seller's proven marginal tax rate to negate any tax impact to
Seller. This indemnification by Global shall remain in effect for all open tax
years. Global shall pay all incremental costs, legal/accounting, etc.,
associated with the Section 338(h)(10) election that may be incurred by Seller.
Such reimbursement shall be made to Seller by Global within fifteen (15) days
after written notice to Global, which notice shall be given pursuant to Section
9.2 herein.
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ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S OBLIGATIONS. The obligation of Global
under this Agreement to consummate the Closing is subject to the conditions
that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company
and Seller shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Company and Seller
set forth in this Agreement shall be accurate in all material respects at and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
consummation by the Company and Seller of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under all federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation of the
transactions contemplated hereby shall have been obtained in form and substance
reasonably satisfactory to Global unless such failure could not reasonably be
expected to have a Material Adverse Effect. All approvals of the Board of
Directors and shareholders of the Company necessary for the consummation of this
Agreement and the transactions contemplated hereby shall have been obtained.
(C) LEASES. The Company, Global and Seller shall each use
their reasonable best efforts to cintinue in full force and effect the leases
for all of such Buildings as provided in Schedule 7.1(c) hereto.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Seller and the
Company shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company and all extended credit from vendors at the Closing
(other than customary accounts payable outstanding on 90 day or less payment
terms in accordance with past practices). Such Funded Indebtedness, if any, as
of August 31, 1997, is listed on Schedule 7.1(d) hereto. Seller shall have also
provided for the termination of all Encumbrances of record on the properties of
the Company, except for Permitted Exceptions. All liens or UCC filings against
the Company and each of the Subsidiaries or Affiliates of the Company which
engaged in the Business, shall have been terminated as of the Closing.
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(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
Change with respect to the Company since April 30, 1997 except for the Konica
Slowdown.
(F) TRANSFER TAXES. Except as noted in Section 6.5(c), Seller
shall be responsible for all stock transfer or gains taxes imposed on Seller
incurred in connection with this Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
Capital as projected at the Closing shall be greater than $527,156 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing (in an amount not less than $25,000 or, if less than $25,000, the
Purchase Price will be reduced further by the amount of such deficiency), to
continue to operate the Business in the ordinary course.
(H) DOCUMENTS TO BE DELIVERED BY SELLER AND THE COMPANY. The
following documents shall be delivered at the Closing by Seller and the Company
or their attorney:
(I) OPINION OF SELLER'S COUNSEL. [Intentionally Left
Blank.]
(II) CERTIFICATES. Global shall have received an officer's
certificate and a secretary's certificate of the Company executed by
officers of the Company, dated the Closing Date, in the forms that are
attached as Exhibit D hereto.
(III) RELEASE. Seller shall have furnished the Company with
a general release of liabilities, excluding compensation and employee
benefits as well as obligations pursuant to this Agreement, in the
form attached as Exhibit E hereto.
(IV) ESCROW AGREEMENT. Seller shall have delivered to
Global at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
(V) CONSULTING AGREEMENT. Fred Woodard shall have duly
executed and delivered the Consulting Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
engaged by the Company, pursuant to the Consulting Agreement.
(VI) BUILDING LEASES. Global is reasonably satisfied with
the terms of the leases of the Buildings.
(VII) COLLATERAL ASSIGNMENT OF RIGHTS. Seller shall have
executed and delivered to Jackson National Life Insurance Company a
Collateral Assignment of Rights in the form attached hereto as Exhibit
H.
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(VIII) STOCK CERTIFICATES. Seller shall have delivered
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
7.2 CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS. The
obligation of Seller and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global shall have
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by Global prior to or at the Closing and the
representations and warranties of Global set forth in Article IV hereof shall be
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of the Business and
except to the extent that such representations and warranties are expressly made
as of another specified date and, as to such representations, the same shall be
true as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
consummation by Global of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
expiration or early termination of all waiting periods under all federal, state,
local and foreign governmental agencies and regulatory authorities required to
be obtained in order to permit the consummation by Global of the transactions
contemplated hereby shall have been obtained unless such failure shall not have
a Material Adverse Effect on the Business. Global shall have used its
reasonable best efforts to have obtained the release of the Seller from all
personal guarantees with respect to the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL. The following documents
shall be delivered at the Closing by Global:
(II) CERTIFICATES. Seller shall have received an officers'
certificate and a secretary's certificate executed by officers of
Global, dated the Closing Date, in substantially the same forms as the
forms of certificates that are Exhibit G hereto.
(III) ESCROW AGREEMENT. Global shall have delivered to
Seller at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
(IV) CONSULTING AGREEMENT. Global shall have caused the
Company to duly execute and deliver the Consulting Agreement with Fred
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Woodard in the same form attached as Exhibit F hereto, pursuant to
which he will be engaged by the Company pursuant to the Consulting
Agreement.
(IV) PURCHASE PRICE. Seller shall have received the
Purchase Price for the Shares and the repayment of the officer loan
and the consulting fees due to Consultant.
(D) RIGHT OF REINVESTMENT. Seller shall have been offered the
right to invest up to [**] in the capital stock of Global on the same terms
provided to other recent outside investors in Global.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6,
as Global's sole and exclusive remedy for any breach by the Seller hereunder,
Seller agrees to indemnify and hold harmless Global and each officer, director,
and affiliate of Global, including without limitation the Company or any
successor of the Company (collectively, the "INDEMNIFIED PARTIES") from and
against any and all material damages, losses, claims, liabilities, demands,
charges, suits, penalties, costs and expenses (including court costs and
reasonable attorneys' fees and expenses incurred in investigating and preparing
for any litigation or proceeding) (collectively, the "INDEMNIFIABLE COSTS"),
which any of the Indemnified Parties may sustain, or to which any of the
Indemnified Parties may be subjected, arising out of (A) any Material
misrepresentation, breach or default by Seller or the Company of or under any of
the representations, covenants, agreements or other provisions of this Agreement
or any agreement or document executed in connection herewith; (B) the assertion
and final determination of any claim or liability against the Company or any of
the Indemnified Parties by any Person based upon the facts which form the
alleged basis for any litigation to the extent it should have been, but was not,
reserved for in the Financial Statements in accordance with GAAP; and (C) the
Company's Material tortious acts or omissions to act prior to Closing for which
the Company did not carry liability insurance for themselves as the insured
party.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
or any claim or demand made, against any Indemnified Party in respect of which
Seller may be liable hereunder, such Indemnified Party shall give prompt written
notice thereof to Seller and, except as otherwise provided in Section 8.4 below,
Seller shall have the right to defend, or cause the Company or its successors to
defend, any litigation, action, suit, demand, or claim for which it may seek
indemnification unless, in the reasonable judgment of Global, such litigation,
action, suit, demand, or claim, or the resolution thereof, would have an ongoing
effect on Global, the Company or its successors, and such Indemnified Party
shall extend reasonable cooperation in connection with such defense, which shall
be at Seller's expense. In the event Seller fails or refuses to defend the same
within a reasonable length of time, the Indemnified Parties shall be entitled to
assume the defense thereof, and Seller shall be liable to repay the Indemnified
Parties
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<PAGE>
for all expenses reasonably incurred in connection with said defense (including
reasonable attorneys' fees and settlement payments) if it is determined that
such request for indemnification was proper. If Seller shall not have the right
to assume the defense of any litigation, action, suit, demand, or claim in
accordance with either of the two preceding sentences, the Indemnified Parties
shall have the absolute right to control the defense of and to settle, in their
sole discretion and without the consent of Seller, such litigation, action,
suit, demand, or claim, but Seller shall be entitled, at his own expense, to
participate in such litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Seller shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Global,
which shall not unreasonably be withheld and subject to the right of Global to
have their accountants and attorneys consult with Seller on such audits or
procedures at Global's expense). Global shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. Subject to the limitations set forth in
Article VIII hereof, if additional Taxes are payable by the Company as a result
of any such audit or other proceeding, Seller shall be responsible for and shall
promptly pay all material Taxes, interest, and penalties to which any of the
Indemnified Parties shall be entitled to indemnification.
8.5 INDEMNIFICATION OF SELLER. Global agrees to indemnify and hold
harmless Seller and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global of or under
any of the covenants, agreements or other provisions of this Agreement or any
agreement or document executed in connection herewith, and (B) any tortious acts
or omissions by Global before or after or the Company after, the Closing. In
addition, the Company and Global shall indemnify the Seller for any payment or
satisfaction of any guarantees by Seller of the Company's obligations occurring
after the Closing Date including the lease of the Buildings.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Seller under Sections 3.1,
3.2, 3.3 or 3.17 hereof (the indemnification for which shall expire on the
expiration of the applicable statute of limitations), the indemnification
provided under this Article
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
VIII shall expire on the third anniversary of the Closing Date. The Seller shall
not be obligated to pay any amounts for indemnification under this Article VIII
until the aggregate indemnification obligation hereunder exceeds $15,000,
whereupon Seller shall be liable for all amounts for which indemnification may
be sought. Notwithstanding the foregoing, in no event shall the aggregate
liability of Seller to Global exceed [**] (including the Escrow Amount) (except
for successful claims made for any breach of the representations and warranties
of Seller under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which the limit of
indemnification hereunder shall be the Purchase Price). However nothing in this
Article VIII shall limit Global or Seller in exercising or securing any remedies
provided by applicable common law with respect to the conduct of Seller or
Global in connection with this Agreement or in the amount of damages that it can
recover from the other in the event that Global successfully proves intentional
fraud or intentional fraudulent conduct in connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Global:
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
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<PAGE>
Washington, D.C. 20004-1109
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
The Company or Seller:
10315 163rd Avenue NE
Redmond, Washington 98052
Attention: Mr. Fred Woodard
Fax No.: ____________________
Tel No.: (425) 885-0840
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs,
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Seller shall bear all costs and expenses of (i) any broker involved in this
transaction and (ii) all legal expenses of Seller or the Company with respect to
this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Company, Global and Seller, their heirs,
representatives, successors, and permitted assigns, in accordance with the
terms hereof. This Agreement shall not be assignable by the Company or Seller
without the prior written consent of Global. This Agreement shall be assignable
by Global to a wholly-owned subsidiary of Global without the prior written
consent of Seller, but any such assignment shall not relieve Global of its
obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
enforcement, and interpretation shall be governed by the substantive laws of the
State of Washington.
-29-
<PAGE>
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing for a period of three
(3) years, provided (a) the representations and warranties contained in Section
3.17 of this Agreement, and the related indemnities, shall survive the Closing
until the expiration of the applicable statutes of limitations for determining
or contesting Tax liabilities and (b) the representations and warranties
contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related
indemnities, shall survive the Closing until expiration of the applicable
statute of limitations.
9.9 INVALID PROVISIONS. If any provision of this Agreement is deemed
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of competent jurisdiction,
such provision as so reformed or rewritten shall be binding upon all parties
hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLER AND GLOBAL WITH
RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLER AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN SEATTLE, WASHINGTON, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY
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<PAGE>
AGREED UPON BY THE PARTIES OR, IF NOT AGREED, THEN BY ARBITRATION AT JUDICIAL
ARBITRATION MEDIATION SERVICE IN SEATTLE, WASHINGTON.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
--------------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
CASCADE OFFICE SYSTEMS, INC.
By: /s/ Fred Woodard
--------------------------------------------
Fred Woodard
President
SELLER:
/s/ Fred Woodard
--------------------------------------------------
Fred Woodard
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<PAGE>
================================================================================
EXHIBIT 10.25
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
ELECTRONIC SYSTEMS, INC.,
ELECTRONIC SYSTEMS OF RICHMOND, INC.
AND
THE SHAREHOLDERS OF
ELECTRONIC SYSTEMS OF RICHMOND, INC.
DATED DECEMBER 23, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS................................................... 1
1.1 Definitions....................................................... 1
ARTICLE II AGREEMENT OF PURCHASE AND SALE; CLOSING....................... 6
2.1 Agreement to Sell and Purchase.................................... 6
2.2 Purchase Price.................................................... 6
2.3 Payment of Purchase Price......................................... 6
2.4 Closing........................................................... 7
2.5 Escrow Arrangements............................................... 7
2.6 Purchase Price Adjustments........................................ 8
2.7 Closing Audit..................................................... 8
2.8 Post-Closing Purchase Price Adjustment............................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLERS....................................................... 9
3.1 Capitalization.................................................... 9
3.2 No Liens on Shares................................................ 9
3.3 Other Rights to Acquire Capital Stock............................. 9
3.4 Due Organization.................................................. 10
3.5 No Subsidiaries................................................... 10
3.6 Due Authorization................................................. 10
3.7 Financial Statements.............................................. 10
3.8 Certain Actions................................................... 11
3.9 Properties........................................................ 12
3.10 Licenses and Permits............................................. 13
3.11 Intellectual Property............................................ 13
3.12 Compliance with Laws............................................. 13
3.13 Insurance........................................................ 14
3.14 Employee Benefit Plans........................................... 14
(a) Employee Welfare Benefit Plans............................... 14
(b) Employee Pension Benefit Plans............................... 14
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements................................................ 15
3.15 Contracts and Agreements......................................... 15
3.16 Claims and Proceedings........................................... 15
3.17 Taxes............................................................ 16
3.18 Personnel........................................................ 17
3.19 Business Relations............................................... 17
3.20 Accounts Receivable.............................................. 17
</TABLE>
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<TABLE>
<S> <C>
3.21 Bank Accounts.................................................... 18
3.22 Warranties....................................................... 18
3.23 Brokers.......................................................... 18
3.24 Interest in Competitors, Suppliers, Customers, Etc............... 18
3.25 Indebtedness To and From Officers, Directors, Shareholders,
and Employees.................................................... 18
3.26 Undisclosed Liabilities.......................................... 18
3.27 Information Furnished............................................ 19
ARTICLE IV GLOBAL'S AND ESI'S REPRESENTATIONS
AND WARRANTIES........................................................ 19
4.1 Due Organization.................................................. 19
4.2 Due Authorization................................................. 19
4.3 No Brokers........................................................ 20
ARTICLE V COVENANTS OF THE COMPANY AND SELLERS.......................... 20
5.1 Consents of Others................................................ 20
5.2 Sellers' Efforts.................................................. 20
5.3 Powers of Attorney................................................ 20
ARTICLE VI POST-CLOSING COVENANTS........................................ 20
6.1 General........................................................... 20
6.2 Transition........................................................ 21
6.3 Confidentiality................................................... 21
6.4 Covenant Not to Compete........................................... 21
ARTICLE VII CONDITIONS TO OBLIGATION OF PARTIES TO
CONSUMMATE CLOSING.................................................... 23
7.1 Conditions to Global's and ESI's Obligations...................... 23
(a) Covenants, Representations and Warranties.................... 23
(b) Consents..................................................... 24
(c) Leases....................................................... 24
(d) Discharge of Indebtedness and Liens.......................... 24
(e) Material Adverse Change...................................... 24
(f) Transfer Taxes............................................... 24
(g) Financial Condition.......................................... 24
(h) Documents to be Delivered by the Company and Sellers......... 25
(i) Opinion of Sellers' Counsel........................... 24
(ii) Certificates.......................................... 25
(iii) Release............................................... 25
(iv) Escrow Agreement...................................... 25
(v) Employment Agreement.................................. 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(vi) Office Lease.......................................... 25
(vii) Stock Certificates.................................... 25
(viii) Collateral Assignment of Rights....................... 25
7.2 Conditions to Sellers and the Company's Obligations................ 25
(a) Covenants, Representations and Warranties..................... 25
(b) Consents...................................................... 26
(c) Documents to be Delivered by Global and ESI................... 26
(i) Opinion of Global's and ESI's Counsel................. 26
(ii) Certificates.......................................... 26
(iii) Escrow Agreement...................................... 26
(iv) Employment Agreement.................................. 26
(vi) Purchase Price........................................ 26
(d) Right of Reinvestment......................................... 26
ARTICLE VIII INDEMNIFICATION............................................... 27
8.1 Indemnification of Global.......................................... 27
8.2 Defense of Claims.................................................. 27
8.3 Escrow Claim....................................................... 28
8.4 Tax Audits, Etc.................................................... 28
8.5 Indemnification of Sellers......................................... 28
8.6 Limits on Indemnification.......................................... 29
ARTICLE IX MISCELLANEOUS................................................. 30
9.1 Modifications...................................................... 29
9.2 Notices............................................................ 29
9.3 Counterparts....................................................... 31
9.4 Expenses........................................................... 31
9.5 Binding Effect; Assignment......................................... 31
9.6 Entire and Sole Agreement.......................................... 31
9.7 Governing Law...................................................... 31
9.8 Survival of Representations, Warranties and Covenants.............. 31
9.9 Invalid Provisions................................................. 32
9.10 Public Announcements.............................................. 32
9.11 Remedies Cumulative............................................... 32
9.12 Waiver............................................................ 32
9.13 DISPUTE RESOLUTION................................................ 32
</TABLE>
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<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Estoppel Certificate for Building Leases
Exhibit C Opinion of Sellers' Counsel
Exhibit D Sellers' Certificates
Exhibit E Release
Exhibit F McCulloch Executive Agreement
Exhibit G Opinion of Global's and ESI's Counsel
Exhibit H Global Certificate
Exhibit I Collateral Assignment of Rights
LIST OF SCHEDULES AND ANNEXES
Annex I Determination of Adjusted EBIT
Schedule 2.3 Sellers' Accounts
Schedule 2.6 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
December 23, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), ELECTRONIC SYSTEMS, INC., a Virginia corporation and
wholly-owned subsidiary of Global ("ESI"), ELECTRONIC SYSTEMS OF RICHMOND, INC.,
a Virginia corporation (the "COMPANY") and THE SHAREHOLDERS OF ELECTRONIC
SYSTEMS OF RICHMOND, INC. (each individually, a "SELLER," and collectively, the
"SELLERS").
W I T N E S S E T H:
WHEREAS, the Company is engaged in systems integration and the sales,
distribution and service of computer and networking equipment in the State of
Virginia (the "BUSINESS"); and
WHEREAS, Sellers collectively own 1,071 shares of the outstanding
Common Stock of the Company (the "SHARES"), which Shares constitute all of the
issued and outstanding capital stock of the Company; and
WHEREAS, ESI desires to purchase from Sellers and Sellers desire to
sell to ESI hereby all of the Shares owned by Sellers, all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"ADJUSTED EBIT" has the meaning specified in Section 2.3(c).
--------------
<PAGE>
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.7.
- -----------
"BUILDINGS" shall mean collectively (i) the Company's office,
showroom and warehouse facilities located at Three James Center, 1051 East Cary
Street, Suite 1150, Richmond, Virginia and (ii) 901 N. Stuart Street, Arlington,
Virginia.
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments
-- ---
thereto, any successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from
the Sellers to ESI.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global, ESI or the Company, or (iv)
which is subsequently disclosed by any third party not in breach of a
confidentiality agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EARN-OUT PAYMENT" has the meaning specified in Section 2.3(c).
--------------
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<PAGE>
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with
Mr. McCulloch to be entered into at Closing in the form of Exhibit F.
---------
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind other
than Permitted Exceptions.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section
-------
3.12.
- ----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means the Richmond office of First Union National
Bank.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among the Sellers, ESI and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"ESI" has the meaning specified in the first paragraph of this
Agreement.
"FINAL ADJUSTMENT AMOUNT" has the meaning specified in Section
-------
2.8.
- ---
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company
for borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company; (iii) obligations of the Company to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business; (iv)
indebtedness of others guaranteed by the Company or secured by an Encumbrance on
the Company's property; or (v) indebtedness of the Company under extended credit
terms of more than 90 days from manufacturers provided to the Company.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
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<PAGE>
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.10.
------------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.7.
- ---
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
3.11.
- ----
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company, taken as a
whole. In determining whether a "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE
EFFECT" has occurred, the quantitative amounts set forth at the end of Article
-------
III shall be conclusive.
- ---
"MR. MCCULLOCH" means Timothy D. McCulloch, the largest
stockholder of the Company.
"MR. KAMAREK" means William G. Kamarek, the second largest
stockholder of the Company.
"NET WORTH" shall mean the difference between the Company's total
assets and its total liabilities as calculated in accordance with GAAP.
"NET WORTH ESTIMATE" means the amount of Net Worth reflected on
the Company's Preliminary Closing Balance Sheet.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value or the
existing use of the property affected by such lien or imperfection, (d) such
statements of fact and exceptions shown on any title insurance policies
delivered to Global and ESI.
-4-
<PAGE>
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY ADJUSTMENT AMOUNT" has the meaning specified in
Section 2.6(b).
- -------------
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of November 30, 1997. The
Preliminary Closing Balance Sheet shall be delivered to Global and ESI not less
than one (1) nor more than five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., and any successor statute, and any regulations
-- ---
promulgated thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SELLERS" has the meaning set forth in the first paragraph of
this Agreement.
"SHARES" means all of the issued and outstanding shares of the
capital stock of the Company.
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed thereon by an Governmental
Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
-5-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and its current liabilities as calculated in accordance with
GAAP.
"WORKING CAPITAL ESTIMATE" shall mean the amount of Working
Capital reflected on the Preliminary Closing Balance Sheet.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Sellers agree to sell the Shares to
ESI and ESI agrees to purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The total purchase price for the Shares (the
--------------
"PURCHASE PRICE") shall be equal to [**], plus the amount, if any, of the actual
Earn-Out Payment, subject to any adjustment required to be made pursuant to
Section 2.6 or Section 2.8 below.
- ----------- -----------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by ESI as follows:
(A) [**] of the Purchase Price will be paid at the Closing
(hereinafter defined), at the direction of each of the Sellers, in cash by wire
transfer of funds or by cashier's checks to the Sellers' accounts specified in
Schedule 2.3 (including the payment of [**] for the covenant not to compete
- ------------
provided in Section 6.4);
-----------
(B) [**] of the Purchase Price will be paid at the Closing in
cash by wire transfer of funds to the Escrow Agent to be held in escrow for
satisfaction of Sellers' indemnification obligations specified in Section 8.1 or
-----------
payment to the Sellers in accordance with the terms of Section 2.5 below;
-----------
and
(C) an amount, if any, equal to: (i) five (5) multiplied by (ii)
the amount by which the Adjusted EBIT (as defined herein) of the Company for the
fiscal years ending March 31, 1999, 2000, 2001 and 2002 in the aggregate exceeds
[**] (the "EARN-OUT PAYMENT"); provided, however, the Earn-out Payment shall
never exceed [**]. The Earn-out Payment, if earned, shall be paid in cash on or
before June 30, 2002; provided, however, that (i) in the event the Adjusted EBIT
of the Company for the fiscal year ending March 31, 1999 exceeds [**], the
Sellers shall be entitled to receive on or before June 30, 1999 a portion of the
Earn-out Payment equal to [**]; (ii) in the event the Adjusted EBIT of the
Company for the fiscal years ending March 31, 1999 and 2000 in the aggregate
exceeds [**], the Sellers shall be entitled to receive on or before June 30,
2000 an additional portion of the Earn-out Payment equal to [**]; (iii) in the
event the Adjusted EBIT of the Company for the fiscal years ending March 31,
1999, 2000 and 2001 in the aggregate exceeds [**], the Sellers
-6-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
shall be entitled to receive on or before June 30, 2001 an additional portion of
the Earn-out Payment equal to [**]; and (iv) in the event the Adjusted EBIT of
the Company for the fiscal years ending March 31, 1999, 2000, 2001 and 2002 in
the aggregate exceeds [**], the Sellers shall be entitled to receive on or
before June 30, 2002 the Earn-out Payment, minus any portion of the Earn-out
Payment previously paid to Sellers in accordance with this Section 2.3(c).
--------------
"ADJUSTED EBIT" shall mean earnings before interest and taxes of the
Company (prepared on an accrual basis of accounting in accordance with GAAP,
consistently applied), plus mutually agreed upon "ADJUSTMENTS" and "ADDBACKS"
computed in accordance with Annex I hereto.
-------
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 11:00 a.m., Eastern time, at
the offices of Kaufman & Canoles in Norfolk, Virginia, on December 23, 1997, or
at such other date and time as the parties shall agree (the "CLOSING DATE"),
effective as of the later of November 30, 1997 or thirty (30) days prior to the
Closing Date (the "EFFECTIVE DATE"). If this Agreement is executed before
Closing, all additional agreements and instruments required for Closing shall be
executed by the necessary parties and placed in escrow with the Company's
counsel, together with this Agreement, pending receipt of the Purchase Price by
Sellers, and Global and ESI shall immediately take all actions necessary to
cause the Purchase Price to be paid to Sellers on the same day this Agreement is
so executed (or, if funding on the same day such execution occurs is impossible,
prior to 2:00 pm on the second following business day). Upon their receipt of
the Purchase Price, Sellers shall cause the Company's counsel to deliver
executed documents to the appropriate parties. Unless execution of this
Agreement and payment of the Purchase Price occur simultaneously, Global and ESI
waive all conditions to their obligations to consummate the Closing set forth in
Section 7.1, except for the conditions set forth in Section 7.1(h). Sellers
- ----------- --------------
shall have the absolute right to terminate this Agreement without any liability
whatsoever to Global or ESI if the Purchase Price is not paid to them in
accordance with the provisions of this Section 2.4. If informed by Mr.
-----------
McCulloch or Mr. Kamarek that Sellers have terminated this Agreement pursuant to
the preceding sentence, the Company's counsel shall deliver to Mr. McCulloch and
Mr. Kamarek all documents being held in escrow by them pursuant to this Section
-------
2.4, for destruction or other disposal as Mr. McCulloch, Mr. Kamarek and the
- ---
other Sellers deem appropriate.
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Sellers, ESI and the Escrow Agent, [**] of the Purchase Price
shall be delivered to the Escrow Agent at Closing. Such monies (which, together
with all interest accrued thereon, is hereinafter referred to as the "ESCROW
SUM") shall be held pursuant to the terms of the Escrow Agreement for payment
from such Escrow Sum of amounts, if any, owing by Sellers to ESI pursuant to
Section 2.8 or Article VIII below. At the conclusion of the period ending on the
- -----------
365th day after the Closing Date (such period being referred to herein as the
"ESCROW PERIOD"), such remaining portion of the Escrow Sum not theretofore
claimed by or paid to ESI in accordance with the terms of the Escrow Agreement
and this Agreement shall be
-7-
<PAGE>
disbursed to Sellers. Sellers and ESI agree that each will execute and deliver
such reasonable instruments and documents as are furnished by any other party to
enable such furnishing party to receive those portions of the Escrow Sum to
which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be reduced by the total amount of Funded Indebtedness, if any, assumed or
paid by ESI in cash by wire transfer of funds to the accounts of the holders of
Funded Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's
------------
Funded Indebtedness with such institutions. ESI shall notify Mr. McCulloch and
Mr. Kamarek in writing at least two (2) business days before Closing of all
Funded Indebtedness, if any, ESI will be paying at Closing.
(B) The portion of the Purchase Price payable at Closing will be
reduced by the amount (the "PRELIMINARY ADJUSTMENT AMOUNT"), if any, which is
the greater of (i) the amount by which the Working Capital Estimate is less than
$1,000,000 and (ii) the amount by which the Net Worth Estimate is less than
$1,200,000.
(C) If the Closing shall occur more than 30 days after the
Preliminary Closing Balance Sheet date, then Sellers shall be paid at Closing an
additional amount equal to the daily interest on $9,000,000 at a rate equal to
the prime rate of NationsBank, N.A. for each additional day thereafter.
2.7 CLOSING AUDIT. Within 120 days following the Closing Date,
-------------
there shall be delivered to Global, ESI and to Sellers an audit of the
Preliminary Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the
Company at and as of November 30, 1997. The Preliminary Closing Balance Sheet
shall be audited by Ernst & Young, LLP in accordance with GAAP. The cost of the
Audited Closing Balance Sheet shall be paid by Global. In the event that the
majority of the Sellers or Mr. McCulloch or Mr. Kamarek dispute any items on the
Audited Closing Balance Sheet within ten days after Sellers' receipt thereof,
the parties shall jointly select and retain an independent "Big Six" accounting
firm (the "INDEPENDENT ACCOUNTANTS") to review the disputed item(s) on the
Audited Closing Balance Sheet. The final determination of such disputed item(s)
by the Independent Accountants shall be reflected on the Audited Closing Balance
Sheet. The cost of retaining the Independent Accountants shall be borne by
Sellers; provided, however, that Global shall reimburse Sellers for the cost of
the Independent Accountants in the event that such review results in an increase
of more than $75,000 in the Company's Working Capital as reflected on the
Audited Closing Balance Sheet prepared by Ernst & Young, LLP.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. Upon final completion
--------------------------------------
of the Audited Closing Balance Sheet, Ernst & Young, LLP or the Independent
Accountants, as the case may be, shall determine the greater of (i) the amount,
if any, by which the Working Capital reflected on the Audited Closing Balance
Sheet is less than $1,000,000 and (ii) the amount, if
-8-
<PAGE>
any, by which the Net Worth reflected on the Audited Closing Balance Sheet is
less than $1,200,000 (the "FINAL ADJUSTMENT AMOUNT"). In the event that the
Final Adjustment Amount exceeds the Preliminary Adjustment Amount, then the
Purchase Price will be adjusted downward and Sellers shall pay to ESI the amount
of such excess. Conversely, in the event that the Final Adjustment Amount is
less than the Preliminary Adjustment Amount, then the Purchase Price shall be
adjusted upward and ESI shall pay Sellers the lesser of (i) amount by which the
Final Adjustment Amount is less than the Preliminary Adjustment Amount or (ii)
the Preliminary Adjustment Amount. The post-closing adjustment to the Purchase
Price, if any, shall be paid by Sellers to ESI from the Escrow Sum or by ESI to
Sellers, as the case may be, in immediately available funds within ten (10)
business days of delivery of the Audited Closing Balance Sheet, unless Sellers
or Mr. McCulloch or Mr. Kamarek dispute any items on the Audited Closing Balance
Sheet, in which case it shall be paid within ten (10) business days after the
Independent Accountants finally determine the disputed item(s), and ESI delivers
to Sellers an Audited Closing Balance Sheet modified to reflect such
determination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, jointly and severally, represent and warrant
to Global and ESI that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 1500 shares of Common Stock, 1,071 of which are issued and
outstanding. All of the Shares are duly authorized, validly issued, fully paid,
and nonassessable. All of the Shares are owned of record and beneficially by
Sellers in the amounts set forth on Schedule 3.1 hereto. None of the Shares was
------------
issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any Person. The Sellers collectively own
all of the issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Sellers
------------------ ------------
collectively own the Shares, free and clear of any Encumbrances other than the
rights and obligations arising under this Agreement, and none of the Shares is
subject to any outstanding option, warrant, call, or similar right of any other
Person to acquire the same, and none of the Shares is subject to any restriction
on transfer thereof except for restrictions imposed by applicable federal and
state securities laws. At Closing, Sellers will have full power and authority
to convey good and marketable title to the Shares, free and clear of any
Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts,
-9-
<PAGE>
commitments, understandings or arrangements which require the Company to issue,
sell or deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Virginia
and has full corporate power and authority to carry on the Business as now
conducted and as proposed to be conducted through Closing. Complete and correct
copies of the Articles of Incorporation and Bylaws of the Company, and all
amendments thereto, have been heretofore delivered to Global and are attached
hereto as Schedule 3.4. The Company is qualified to do business in Virginia and
------------
in each jurisdiction in which the nature of the Business or the ownership of its
properties requires such qualification except where the failure to be so
qualified does not and could not reasonably be expected to have a Material
Adverse Effect.
3.5 NO SUBSIDIARIES. The Company does not directly or indirectly
---------------
have any subsidiaries or any direct or indirect ownership interests in any
Person. The Sellers do not own any other Person engaged in the Business, except
for certain of the Sellers' ownership interests in Global and formerly in ESI,
as described in Schedule 3.5.
------------
3.6 DUE AUTHORIZATION. The Company and the Sellers each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Sellers and constitutes the valid and binding obligations of the Company and
Sellers, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by the Company
and Sellers, do not (a) violate any Requirements of Laws or any Court Order of
any Governmental Body applicable to the Company or Sellers, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any material agreement to which the Company or
Sellers are a party, or by which any of them or any of their respective property
is bound, (c) permit the acceleration of the maturity of any material
indebtedness of, or indebtedness secured by the property of, the Company or
Sellers, or (d) violate or conflict with any provision of the charter or bylaws
of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements (herein
--------------------
so called) of the Company have been delivered to Global and ESI by the Company:
balance sheets of the Company as of December 31, 1994, December 31, 1995,
December 31, 1996 and October 31, 1997, and statements of income of the Company
for the fiscal years ended December 31, 1994, December 31, 1995 and December 31,
1996 and for the 10 month period ending October 31, 1997.
-10-
<PAGE>
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated (except for variations from GAAP acceptable to the
Company's independent accountants which do not, in the aggregate, cause any of
the Financial Statements to materially understate the value or performance of
the Company, taken as a whole) and fairly present the financial position,
results of operations and changes in financial position of the Company as of the
indicated dates and for the indicated periods, subject to the matters set forth
in Schedule 3.7 and (in the case of the 6 month Financial Statements) to year
------------
end accruals made in the ordinary course of the Business which are not
materially adverse and which are consistent with past practices. Except to the
extent reflected or provided for in the Financial Statements or the notes
thereto and obligations and liabilities incurred in the ordinary course of
business since the date of the last of such Financial Statements, the Company
has no liabilities required by GAAP to be reflected on the Company's balance
sheet or notes thereto that are not so reflected, nor any other obligations
(whether absolute, contingent, or otherwise) which are (individually or in the
aggregate) material (in amount or to the conduct of the Business); and neither
the Company nor Sellers have knowledge of any basis for the assertion of any
such liability or obligation. Since December 31, 1996, there has been no
Material Adverse Change except as disclosed on Schedule 3.8B or any of the
-------------
Financial Statements or notes thereunder.
3.8 CERTAIN ACTIONS. Since June 30, 1997, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder; (c) made or agreed to make any loans
or advances or guaranteed or agreed to guarantee any loans or advances to any
party whatsoever; (d) suffered or permitted any Encumbrance to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) canceled, waived, or released or agreed to cancel, waive, or
release any of its debts, rights, or claims against third parties in excess of
$25,000 individually or $50,000 in the aggregate; (f) sold, assigned, pledged,
mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any assets
(except in the ordinary course of the Business); (g) amended its charter or
bylaws; (h) paid or made a commitment to pay any severance or termination
payment to any employee or consultant; (i) made any material change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $100,000; (k) made any investment or commitment therefor in any Person;
(l) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) materially amended or experienced a
termination
-11-
<PAGE>
of any material contract, agreement, lease, franchise or license to which the
Company is a party that would or could reasonably be expected to have a Material
Adverse Effect, except in the ordinary course of the Business; or (o) entered
into any other material transactions that would or could reasonably be expected
to have a Material Adverse Effect except in the ordinary course of the Business.
Since June 30, 1997, except as disclosed on Schedule 3.8B hereto or any of the
-------------
Financial Statements or notes thereto, there has not been (a) any Material
Adverse Change including, but not limited to, the loss of any material customers
or suppliers of the Company, or in any material assets of the Company, (b) any
extraordinary contracts, commitments, orders or rebates, (c) any strike,
material slowdown, or demand for recognition by a labor organization by or with
respect to any of the employees of the Company, or (d) any shutdown, material
slow-down, or cessation of any material operations conducted by, or constituting
part of, the Company, nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of each interest in real property (including, without limitation,
leasehold interests) and each item of personal property utilized by the Company
in the conduct of the Business having a book value in excess of $25,000 as of
the date hereof. Except for Permitted Exceptions or as expressly set forth on
Schedule 3.9, such real and personal properties are free and clear of
- ------------
Encumbrances other than Encumbrances (taken as a whole) which do not materially
detract from the value of such properties or materially interfere with their
intended use. Sellers and the Company have delivered to Global a lien search
obtained from the Virginia State Corporation Commission of all UCC liens of
record against the Company's personal property in the Commonwealth of Virginia.
All of the properties and assets necessary for continued operation of the
Business as currently conducted are owned, leased or licensed by the Company and
are suitable for the purposes for which they are currently being used. With the
exception of used equipment and inventory valued at no more than $10,000 on the
Company's Financial Statements, the physical properties of the Company,
including the real properties leased by the Company, are in good operating
condition and repair, normal wear and tear excepted, and are free from any
defects of a material nature. Except for Permitted Exceptions or as otherwise
set forth on Schedule 3.9, the Company has full and unrestricted legal and
------------
equitable title to all such properties and assets. The operation of the
properties and Business of the Company in the manner in which they are now and
have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for Permitted Exceptions or as set forth on Schedule 3.9, no restrictive
------------
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and will remain legal, valid,
binding, enforceable and in full force and effect on identical terms immediately
following the Closing, except to the extent that enforceability may be limited
by laws affecting creditors' rights and debtors' obligations generally, and
legal limitations relating to remedies of specific performance and injunctive
and other forms of equitable relief. All facilities owned or leased by the
Company have received all approvals of any Governmental Body (including
Governmental
-12-
<PAGE>
Permits) required in connection with the operation thereof and have
been operated and maintained in accordance with all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a
-------------------- -------------
list of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received written notifications from any
Governmental Body of violation of any such Governmental Permit or the
Requirements of Laws governing the issuance or continued validity thereof other
than violations (if any) which would not individually or in the aggregate have a
Material Adverse Effect. To the best knowledge of Sellers and the Company, no
additional Governmental Permit is required from any Governmental Body thereof in
connection with the conduct of the Business which Governmental Permit, if not
obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities, the loss of which
could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY"). The Company has furnished Global and ESI with copies of all license
agreements to which the Company is a party, either as licensor or licensee, with
respect to any Intellectual Property. Except as described on Schedule 3.11
-------------
hereto, the Company has good title to or the right to use such Intellectual
Property and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of their Business, in their Business as
presently conducted without the payment of any royalty or similar payment, and
the Company is not materially infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Sellers are aware of any infringement by others of any
such rights owned by the Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and are in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. The Company has not received written
notification of any claim by any Governmental Body (and, to
-13-
<PAGE>
the best knowledge of the Company and Sellers, no such claim is anticipated) to
the effect that the Business fails to comply, in any respect, with any
Requirements of Laws, Governmental Permit or Environmental Obligation or that a
Governmental Permit or Court Order is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Sellers' knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- -------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding;
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<PAGE>
and (x) all applicable premiums due to the Pension Benefit Guaranty Corporation
for plan termination insurance have been paid in full on a timely basis.
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is
------------------------ -------------
a list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $50,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Sellers and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts, except as
noted on Schedule 3.15. All of the Contracts to which the Company is a party
-------------
are legal, valid, binding, enforceable and in full force and effect and will
remain legal, valid, binding, enforceable and in full force and effect on
identical terms immediately after the Closing, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. Except as set
forth in Schedule 3.15, the Company has not guaranteed any obligations of any
-------------
other Person. To the best of Seller's and the Company's Knowledge, no material
manufacturer of office equipment sold by the Company will cease doing business
with the Company immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Sellers or
the Company, threatened against or directly affecting the Company or any of its
properties or assets, at law or in equity, or before or by any court,
municipality or other Governmental Body. Except as set forth on Schedule 3.16,
-------------
none of such claims, actions, suits, proceedings, or investigations, if
adversely determined, will result in any liability or loss which will have a
Material Adverse Effect on the Company. The Company has not been and the
Company is not now, subject to any Court Order, stipulation, or consent of or
with any court or Governmental Body. No inquiry, action or proceeding has been
instituted or, to the best knowledge and belief of the Sellers or the Company,
threatened or asserted against the Sellers or the Company to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement or
to challenge the validity of such transactions or any part thereof or seeking
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<PAGE>
damages on account thereof. To the best knowledge of the Company and Sellers,
except as set forth on Schedule 3.16, there is no basis for any such valid claim
-------------
or action.
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing have been paid and all
Tax Returns which are required to be filed by the Company on or before the date
hereof have been filed within the time and in the manner provided by law, and
all such Tax Returns are true and correct and accurately reflect the Tax
liabilities of the Company. No Tax Returns of the Company or any of the Sellers
are presently subject to an extension of the time to file. All Taxes,
assessments, penalties, and interest of the Company which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes of which any of the Sellers or the Company are aware.
For Governmental Bodies with respect to which the Company does not file Tax
Returns, no such Governmental Body has given the Company written notification
that the Company is or may be subject to taxation by that Governmental Body.
The Company has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, shareholder,
creditor, independent contractor or other party. There are no Tax liens on any
of the property or assets of the Company.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company has made an election to be taxed under subchapter S of the
Code. The Company's election to be taxed under subchapter S of the Code is
valid, legally binding and in full force and effect.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes,
real estate transfer taxes
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<PAGE>
or similar taxes will be imposed upon the transfer and sale of the Shares
pursuant to this Agreement.
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of
--------- -------------
the names and annual rates of compensation of the directors and executive
officers of the Company, and of the employees of the Company whose annual rates
of compensation during the fiscal year ended December 31, 1996 (including base
salary, bonus and incentive pay) exceed (or by December 31, 1997 are expected to
exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended December 31, 1996 and to the date hereof.
Schedule 3.18 also contains a brief description of all material terms of
- -------------
employment agreements to which the Company is a party and all severance benefits
which any director, officer or employee of the Company is or may be entitled to
receive. The employee relations of the Company are generally good and there is
no pending or, to the best knowledge of Sellers or the Company, threatened labor
dispute or union organization campaign. None of the employees of the Company
are represented by any labor union or organization. The Company is in
compliance in all material respects with all Requirements of Laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and are not engaged in any unfair labor practices. Neither the
Company or Sellers have been advised, or has good reason to believe, that any of
the persons whose names are set forth on Schedule 3.18 or any other employee
-------------
will not agree to remain employed by the Company after the consummation of the
transactions contemplated hereby. There is no unfair labor practice claim
against the Company before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or, to the best knowledge of the Company
and Sellers, threatened against or involving the Company, and none has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Sellers knows or
------------------
has good reason to believe that any customer or supplier of the Company will
cease to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Sellers or the Company have received any
written notice of any material disruption (including delayed deliveries or
allocations by suppliers) in the availability of any material portion of the
materials used by the Company nor are the Company or Sellers aware of any facts
which could lead them to believe that the Business will be subject to any such
material disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
-------------
accounts, plus an additional allowance of $25,000) will be collected in full
within 180 days following the Closing Date. Except as disclosed on Schedule
--------
3.20 hereto (a) all of such accounts, notes, and loans receivable are free and
- ----
clear of any Encumbrances; (b) no claims of offset have been asserted in writing
against any of such accounts, notes, or loans receivable; and (c) none of the
obligors of such accounts, notes, or
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<PAGE>
loans receivable has given written notice that it will or may refuse to pay the
full amount or any portion thereof.
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of
------------- -------------
all banks or other financial institutions with which the Company has an account
or maintains a safe deposit box, showing the type and account number of each
such account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and
----------
in the ordinary course of the Business, no written claim for breach of product
or service warranty to any customer has been made against the Company since
January 1, 1997. To the best knowledge of Sellers and the Company, no state of
facts exists, and no event has occurred, which could reasonably be expected to
form the basis of any present claim against the Company for liability on account
of any express or implied warranty to any third party in connection with
products sold or services rendered by the Company.
3.23 BROKERS. Neither the Company nor Sellers have engaged, or
-------
caused to be incurred any liability to any finder, broker, or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. Except as
--------------------------------------------------
set forth in Schedule 3.5, no officer, director, or shareholder of the Company
------------
or any affiliate of any such officer, director, or shareholder, has any
ownership interest in any competitor, supplier, or customer of the Company
(other than ownership of securities of a publicly-held corporation of which such
Person owns, or has real or contingent rights to own, less than one percent of
any class of outstanding securities) or any property used in the operation of
the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description
- --------- -------------
of the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in the Schedules
-----------------------
hereto, the Company does not have any material liabilities (whether absolute,
accrued, contingent or otherwise), of a nature required by GAAP to be reflected
on a corporate balance sheet or disclosed in the notes thereto, except such
liabilities which are accrued or reserved against in the Financial Statements or
disclosed in the notes thereto, including without limitation any accounts
payable or service liabilities of the Company incurred prior to the Closing
Date, other than liabilities incurred in the ordinary course of business since
the date of the latest of such Financial Statements.
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<PAGE>
3.27 INFORMATION FURNISHED. The Company and Sellers have made
---------------------
available to Global and ESI true and correct copies of all material corporate
records of the Company and all material agreements, documents, and other items
listed on the Schedules to this Agreement or referred to in Section 2 of this
---------
Agreement, and neither this Agreement, the Schedules hereto, nor any written
information, instrument, or document delivered to Global and ESI pursuant to
this Agreement contains any untrue statement of a material fact or omits any
material fact necessary to make the statements herein or therein, as the case
may be, not misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $35,000, the terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $20,000 per occurrence or $35,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
ARTICLE IV
GLOBAL'S AND ESI'S REPRESENTATIONS AND WARRANTIES
Global and ESI represent and warrant to Sellers as follows:
4.1 DUE ORGANIZATION. Each of Global and ESI is a corporation
----------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and Virginia, respectively, and each has full corporate power
and authority to execute, deliver and perform this Agreement and to carry out
the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance
-----------------
of this Agreement has been duly authorized by all necessary corporate action of
Global and ESI, and the Agreement has been duly and validly executed and
delivered by Global and ESI and constitutes the valid and binding obligation of
Global and ESI, enforceable in accordance with its terms, except to the extent
that enforceability may be limited by laws affecting creditors' rights and
debtors' obligations generally, and legal limitations relating to remedies of
specific performance and injunctive and other forms of equitable relief. The
execution, delivery, and performance of this Agreement (as well as all other
instruments, agreements, certificates or other documents contemplated hereby) by
Global and ESI, do not (a) violate any Requirements of Laws or Court Order of
any Governmental Body applicable to Global or its property or ESI or its
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under any agreement to which Global or ESI is a party or by
which it or its property is bound, (c) permit the acceleration of the maturity
of any indebtedness of, or any indebtedness secured by the property
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<PAGE>
of, Global or ESI, or (d) violate or conflict with any provision of the charter
or bylaws of Global or ESI.
4.3 NO BROKERS. Neither Global nor ESI has engaged, or caused
----------
to be incurred any liability to any finder, broker or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
4.4 INVESTMENT. ESI will acquire the Shares for investment and for
----------
its own account and not with a view to the distribution thereof.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLERS
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
------------------
Sellers shall use their best efforts to obtain and to cause the Company to
obtain all authorizations, consents and permits required of the Company and
Sellers to permit them to consummate the transactions contemplated by this
Agreement. The Sellers shall also use their best efforts to obtain the written
consent of the lessors of the Buildings to the transactions contemplated hereby.
5.2 SELLERS' EFFORTS. The Company and Sellers shall use all
----------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Sellers shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Global and
Mr. McCulloch and Mr. Kamarek) to carry out the purposes of this Agreement, each
of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other party
reasonably may request, all at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Article VIII below). The Sellers acknowledge and agree that from and after the
Closing Global and ESI will be entitled to possession of all documents, books,
records, agreements, and financial data of any sort relating to the Company,
which shall be maintained at the chief executive office of the Company;
provided, however, that each Seller shall be entitled to reasonable access to
and to make copies of such books and records at his or her sole cost and expense
and Global or ESI will
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
maintain all of the same for a period of at least three (3) years after Closing.
Thereafter, the Company will offer such documentation to Sellers before disposal
thereof.
6.2 TRANSITION. For a period of four (4) years following Closing,
----------
the Sellers will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing, if such action could reasonably be expected to have a
Material Adverse Effect. For a period of four (4) years following Closing, the
Sellers will refer all customer inquiries relating to the Business to the
Company.
6.3 CONFIDENTIALITY. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Global and ESI for a period of three (3) years from the Closing, and
deliver promptly to Global or ESI or destroy, at the written request and option
of Global or ESI, all tangible embodiments (and all copies) of the Confidential
Information which are in their possession except as otherwise permitted herein.
In the event that any Seller is requested or required (by oral question or
written request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar legal
proceeding) to disclose any Confidential Information, that such Seller will
notify Global and ESI promptly of the request or requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by ESI, each Seller
covenants and agrees, for a period of four (4) years from and after the Closing
Date, that he or she will not, directly or indirectly without the prior written
consent of Global (which shall not be unreasonably withheld), for or on behalf
of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/ office equipment dealer or service
business, or the computer systems integration or computer equipment
manufacturing or distribution business in competition with the Company, within
the greater of (i) a 100 mile radius of the Company's office facilities in
Richmond, Virginia (the "CURRENT TRADE AREA") or (ii) in any geographic area in
which the Company currently conducts business;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company or
to cause them to reduce or end their business with the Company; or
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<PAGE>
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof and that the foregoing covenant shall remain effective as to
Mr. McCulloch for no longer than one year after termination of his employment
with the Company and as to Mr. Kamarek for no more than one year after
termination of his employment with ESI, in the event that the Company is no
longer "controlled" as such term is defined in Rule 405 of the Securities Act of
1933, as amended, by Global, or if Global undergoes a "Change in Control" during
the term of such individual's employment by the Company or ESI, as the case may
be, "Change in Control" having the same meaning for purposes of this provision
as in such individual's respective employment agreements with the Company and
ESI.
6.5 ADDITIONAL MATTERS.
------------------
(A) The Sellers shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Sellers shall
cause Edmondson, Ledbetter & Ballard, CPA to prepare a short period tax return
for the Company covering the period January 1, 1997 through the Effective Date.
The cost of preparation of such short period tax return shall be paid for by
Sellers.
(B) Global, ESI and Sellers recognize that each of them will
need access, from time to time, after the Closing Date, to certain accounting
and Tax records and information held by Global, ESI and/or the Company to the
extent such records and information pertain to events occurring on or prior to
the Closing Date; therefore, Global and ESI agree to cause the Company to (A)
---------
use its best efforts to properly retain and maintain such records for a period
of six (6) years from the date the Tax Returns for the year in which the Closing
occurs are filed or until the expiration of the statute of limitations with
respect to such year, whichever is later, and (B) allow the Sellers and their
agents and representatives at times and dates mutually acceptable to the
parties, to inspect, review and make copies of such records as such other party
may deem necessary or appropriate from time to time, such activities to be
conducted during normal business hours and at the other party's expense.
(C) SECTION 338(H)(10) ELECTION. The Sellers (as requested by
---------------------------
Global at Global's expense) and ESI shall join in making a timely election (but
in no event later than 180 days following the Closing) under Section 338(h)(10)
of the Code (including the prerequisite election under Section 338 of the Code)
and any similar state law provisions in all applicable states which permit
corporations to make such elections, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall exert reasonable
effort to provide the
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
others all necessary information to permit such elections to be made. Global,
ESI and the Sellers (as requested by ESI at Global's expense) shall, as promptly
as practicable following the Closing Date, take all reasonable actions necessary
and appropriate (including filing such forms, returns, schedules and other
documents as may be required) to effect and preserve timely elections; provided,
however, that Global and ESI shall be the party responsible for preparing and
filing the forms, returns, schedules and other documents necessary for making an
effective and timely election. All additional Taxes attributable to the
elections made pursuant to this Section 6.5(c) shall be the liability of
--------------
Global and ESI which shall (upon written notification from Sellers) promptly
reimburse Sellers (on a grossed up basis) for all such taxes that are incurred
by them as a result of such election. In connection with such elections, within
sixty (60) days following the Closing Date, Global, ESI and the Sellers shall
act together in good faith to determine and agree upon the "deemed sales price"
to be allocated to each asset of the Company in accordance with Treasury
Regulation Section 1.338(h)(10)-1(f) and the other regulations under Section 338
of the Code. Notwithstanding the generality of the immediately preceding
sentence, Global, ESI and the Sellers agree that the "deemed sales price" shall
be allocated to the monetary assets of the Company at their fair market value as
of the Closing Date as determined as part of the determination of the Working
Capital of the Company in accordance with Article II hereof, [**] shall be
allocated to the covenant not to compete contained in Section 6.4 hereof, and
-----------
the balance of the "deemed sales price" shall be allocated to the fixed assets,
good will and other intangible assets of the Company. Both Global (and ESI) and
Sellers shall report the tax consequences of the transactions contemplated by
this Agreement consistently with such allocations and shall not intentionally
take any position inconsistent with such allocations in any Tax Return or
otherwise. In the event that Global, ESI and the Sellers are unable to agree as
to such allocations, Global's reasonable positions with respect to such
allocations shall control.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S AND ESI'S OBLIGATIONS. Subject to
--------------------------------------------
Section 2.4 above, the obligation of Global and ESI under this Agreement to
- -----------
consummate the Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company
-----------------------------------------
and Sellers shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The material representations and warranties of the Company
and Sellers set forth in this Agreement shall be accurate in all material
respects at and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date except for any changes resulting from
activities or transactions which may have taken place after the date hereof and
which are permitted or contemplated by the Agreement or which have been entered
into in the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date
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<PAGE>
and, as to such representation, the same shall be true in all material respects
as of such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Sellers of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation of the transactions contemplated hereby shall have been obtained in
form and substance reasonably satisfactory to Global and ESI unless such failure
could not reasonably be expected to have a Material Adverse Effect. All
approvals of the Board of Directors and shareholders of the Company necessary
for the consummation of this Agreement and the transactions contemplated hereby
shall have been obtained.
(C) INTENTIONALLY OMITTED.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Sellers and the Company
-----------------------------------
shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company and all extended credit from vendors at the Closing
(other than customary accounts payable outstanding on 90 day or less payment
terms in accordance with past practices). Such Funded Indebtedness, if any, as
of December 1, 1997, is listed on Schedule 7.1(d) hereto. Sellers shall have
also provided for the termination of all Encumbrances of record on the
properties of the Company, except for those Encumbrances listed on Schedule 3.9
------------
other than Signet Bank, N.A. and Permitted Exceptions. All liens or UCC filings
of Signet Bank, NA., shall have been terminated as of the Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change with respect to the Company since September 30, 1997.
(F) TRANSFER TAXES. Sellers shall be responsible for all
--------------
stock transfer or gains taxes imposed on Sellers incurred in connection with
this Agreement.
(G) FINANCIAL CONDITION. The Company's total adjusted Working
-------------------
Capital as projected at the Closing shall be greater than $1,000,000 and the
Company shall continue to have cash on hand (included in Working Capital) at the
Closing in an amount satisfactory to continue to operate the Business in the
ordinary course consistent with past practice following the Closing.
(H) DOCUMENTS TO BE DELIVERED BY SELLERS AND THE COMPANY. The
----------------------------------------------------
following documents shall be delivered at the Closing by Sellers and the
Company:
(I) OPINION OF SELLERS' COUNSEL. Global and ESI shall
---------------------------
have received an opinion of counsel to the Company and Sellers, dated
the Closing Date, in substantially the same form as the form of
opinion that is Exhibit C hereto.
---------
-24-
<PAGE>
(II) CERTIFICATES. Global and ESI shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in
substantially the same forms as the forms of certificates that are
Exhibit D hereto.
---------
(III) RELEASE. Sellers shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in the form attached as Exhibit E hereto.
---------
(IV) ESCROW AGREEMENT. Sellers shall have delivered to
----------------
Global and ESI at the Closing the duly executed Escrow Agreement
required pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Mr. McCulloch shall have duly
--------------------
executed and delivered the Employment Agreement in substantially the
same form attached as Exhibit F hereto, pursuant to which he will be
---------
employed by the Company following the Closing.
(VI) OFFICE LEASE. The Sellers shall have delivered to
------------
Global an Estoppel Certificate of the Landlords of the Buildings to
Global's lenders in the same form attached as Exhibit B hereto.
---------
(VII) STOCK CERTIFICATES. Sellers shall have delivered
------------------
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
(VIII) COLLATERAL ASSIGNMENT OF RIGHTS. Sellers and the
-------------------------------
Escrow Agent shall have executed and delivered the Collateral
Assignment of Rights in the form attached as Exhibit I hereto.
---------
7.2 CONDITIONS TO SELLERS AND THE COMPANY'S OBLIGATIONS. The
---------------------------------------------------
obligation of Sellers and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global and ESI
-----------------------------------------
shall have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by Global or ESI prior to or at the Closing
and the representations and warranties of Global and ESI set forth in Article IV
hereof shall be accurate in all material respects, at and as of the Closing
Date, with the same force and effect as though made on and as of the Closing
Date except for any changes resulting from activities or transactions which may
have taken place after the date hereof and which are permitted or contemplated
by the Agreement or which have been
-25-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
entered into in the ordinary course of the Business and except to the extent
that such representations and warranties are expressly made as of another
specified date and, as to such representations, the same shall be true as of
such specified date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global and ESI of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Global and ESI of the transactions contemplated hereby shall
have been obtained unless such failure shall not have a Material Adverse Effect
on the Business. Global shall have used its reasonable best efforts to have
obtained the release of the Sellers from all personal guarantees with respect to
the Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL AND ESI. The following
-------------------------------------------
documents shall be delivered at the Closing by Global and ESI:
(I) OPINION OF GLOBAL'S AND ESI'S COUNSEL. Sellers shall
-------------------------------------
have received an opinion of Hogan & Hartson, LLP, counsel to Global
and ESI, dated the Closing Date, in substantially the same form as the
form of opinion that is Exhibit G hereto.
---------
(II) CERTIFICATES. Sellers shall have received an
------------
officers' certificate and a secretary's certificate executed by
officers of Global and ESI, dated the Closing Date, in substantially
the same forms as the forms of certificates that are Exhibit H hereto.
---------
(III) ESCROW AGREEMENT. ESI shall have delivered to
----------------
Sellers at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(IV) EMPLOYMENT AGREEMENT. Global and ESI shall have
--------------------
caused the Company to duly execute and deliver the Employment
Agreement with Mr. McCulloch in the same form attached as Exhibit F
---------
hereto, pursuant to which he will be employed by the Company following
the Closing.
(VI) PURCHASE PRICE. Sellers shall have received the
--------------
Purchase Price for the Shares.
(D) RIGHT OF REINVESTMENT. The Persons designated by Mr.
---------------------
McCulloch and Mr. Kamarek including certain other Sellers and employees of the
Company (not to exceed ten (10) Persons in all) shall have been offered the
right to invest up to [**] in the capital stock of Global on the same terms
provided to other recent outside investors in Global.
-26-
<PAGE>
The allocation of such capital stock shall be made by Mr. Kamarek and Mr.
McCulloch, subject to Global's prior written consent (not to be unreasonably
withheld).
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL AND ESI. Except as provided in
---------------------------------
Section 8.6, as Global's and ESI'S sole and exclusive remedy for any breach by
- -----------
the Sellers hereunder, Sellers agree to jointly and severally indemnify and hold
harmless Global and ESI and each officer, director, and affiliate of Global and
ESI, including without limitation the Company or any successor of the Company
(collectively, the "INDEMNIFIED PARTIES") from and against any and all damages
(excluding consequential, incidental and indirect damages), losses (excluding
lost profits), claims, liabilities, demands, charges, suits, penalties, costs
and expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding)
(collectively, the "INDEMNIFIABLE COSTS"), which any of the Indemnified Parties
may sustain, or to which any of the Indemnified Parties may be subjected,
arising out of (A) any misrepresentation, breach or default by Sellers or the
Company prior to the Closing of or under any of the representations, covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith; (B) the assertion and final determination of
any claim or liability against the Company or any of the Indemnified Parties by
any Person based upon the facts which form the alleged basis for any litigation
to the extent it should have been, but was not, reserved for in the Financial
Statements in accordance with GAAP; (C) the Company's tortious acts or omissions
to act prior to Closing for which the Company did not carry liability insurance
for themselves as the insured party, whether or not such acts or omissions to
act result in a breach or violation of any representation or warranty; and (D)
any Taxes or other costs attributable solely to a failure on the part of the
Company to qualify, at or prior to the Closing, as an "S Corporation" for
federal and/or state income Tax purposes.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Sellers may be liable hereunder, such Indemnified Party shall give prompt
written notice thereof to Sellers and, except as otherwise provided in Section
-------
8.4 below, Sellers shall have the right to defend, or cause the Company or its
- ---
successors to defend, any litigation, action, suit, demand, or claim for which
it may seek indemnification unless, in the reasonable judgment of Global and
ESI, such litigation, action, suit, demand, or claim, or the resolution thereof,
would have an ongoing effect on Global, ESI, the Company or its successors, and
such Indemnified Party shall extend reasonable cooperation in connection with
such defense, which shall be at Sellers' expense if it is determined that
indemnification for such legal proceeding is required hereunder. In the event
Sellers fail or refuse to defend the same within a reasonable length of time,
the Indemnified Parties shall be entitled to assume the defense thereof, and
Sellers shall be liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including reasonable
attorneys' fees and settlement payments) if it is determined that such
-27-
<PAGE>
request for indemnification was proper. If Sellers shall not have the right to
assume the defense of any litigation, action, suit, demand, or claim in
accordance with either of the two preceding sentences, the Indemnified Parties
shall have the absolute right to control the defense of and to settle, in their
sole discretion and without the consent of Sellers, such litigation, action,
suit, demand, or claim, but Sellers shall be entitled, at their own expense, to
participate in such litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.5 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Sellers,
which shall not unreasonably be withheld and subject to the right of Sellers to
have their accountants and attorneys consult with Global on such audits or
procedures at Sellers' expense). Sellers shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith; provided, however, that none of the Sellers
will be obligated to take any such action that would or could reasonably be
expected to result in incurrence of any liability by such Seller, except as
required by applicable Tax law (provided, however, that if such Tax law
specifies that more than one option may be made to comply with such law, nothing
contained herein shall require Sellers to make the option most adverse to them).
If additional Taxes are payable by the Company as a result of any such audit or
other proceeding, Sellers shall be responsible for and shall promptly pay all
Taxes, interest, and penalties to which any of the Indemnified Parties shall be
entitled to indemnification.
8.5 INDEMNIFICATION OF SELLERS. Global agrees to indemnify and
--------------------------
hold harmless Sellers and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global or ESI of or
under any of the covenants, agreements or other provisions of this Agreement or
any agreement or document executed in connection herewith, (B) any tortious acts
or omissions by Global or ESI before or after or the Company after, the Closing,
and (C) any additional income taxes incurred by the Sellers, if any, arising out
of any attribution of the income of the Company to Sellers during the period
from the Effective Date through the Closing Date. In addition, the Company and
Global shall indemnify the Sellers for any payment or satisfaction of any
guarantees by Sellers of the Company's obligations occurring after the Closing
Date.
-28-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by
-------------------------
any party hereunder shall be net of any insurance proceeds received by such
Person with respect to such claim (less the present value of any premium
increases occurring as a result of such claim). Except for any claims for
breach of the representations and warranties of the Sellers under Sections 3.1,
------------
3.2, 3.3 or 3.17 hereof (the indemnification for which shall expire on the
- --- --- ----
expiration of the applicable statute of limitations) and except for claims for
breaches of Sections 6.2, 6.3 and 6.4 hereunder (the indemnification for which
--- --- ---
shall expire on the date such Sections expire by their terms), the
--------
indemnification provided under this Article VIII shall expire on the second
anniversary of the Closing Date. The Sellers shall not be obligated to pay any
amounts for indemnification under this Article VIII until the aggregate
indemnification obligation hereunder exceeds $25,000, whereupon Sellers shall be
liable for all amounts in excess of $25,000 for which indemnification may be
sought. Notwithstanding the foregoing, in no event shall the aggregate
liability of Sellers to Global and ESI exceed [**] (except for claims made for
any breach of the representations and warranties of Sellers under Sections
--------
3.1, 3.2, 3.3, or 3.17 hereof, as to which the limit of indemnification
- ------------- ----
hereunder shall be the Purchase Price); nor shall any of the Sellers be liable
under this Article VIII or any other provision of this Agreement (or any
------------
instrument, agreement, certificate or other document contemplated by or entered
into pursuant to this Agreement) for any amount in excess of the portion of the
Purchase Price paid to such Seller, reduced by all income taxes paid or payable
by such Seller; provided, however, that the limitation of such Seller's
indemnification obligation to such Seller's portion of the Purchase Price
(described above) shall not apply if such Seller individually breaches Section
-------
3.1 or 3.2 hereof (in which case, the breaching Seller shall be liable to the
- --- ---
fullest extent described in this Section). However nothing in this Article VIII
shall limit Global, ESI or Sellers in exercising or securing any remedies
provided by applicable common law with respect to the conduct of Sellers or
Global and ESI in connection with this Agreement or in the amount of damages
that it can recover from the other in the event that Global or ESI successfully
proves intentional fraud or intentional fraudulent conduct in connection with
this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
-29-
<PAGE>
Global or ESI:
-------------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
The Company or Sellers:
----------------------
c/o Electronic Systems of Richmond, Inc.
Three James Center
1051 East Cary Street, Suite 1150
Richmond, Virginia 23219
Attention: Timothy D. McCulloch
Fax No.: (804) 849-1700
Tel No.: (804) 649-1800
and
c/o Electronic Systems, Inc.
361 Southport Circle
Virginia Beach, Virginia 23452
Attention: William G. Kamarek
Fax No.: (757) 497-2095
Tel No.: (757) 497-8000
-30-
<PAGE>
With a copy to:
Kaufman & Canoles
One Commercial Place
Norfolk, Virginia 23514-3037
Attention: Robert E. Smartschan
Fax No.: (757) 624-3169
Tel No.: (757) 624-3221
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs, charges
--------
and expenses incurred by such party in connection with this Agreement and the
consummation of the transactions contemplated herein, provided, however, that
Sellers shall bear all costs and expenses of any broker involved in this
transaction and the Company shall bear all of the Seller's and the Company's
legal costs and other transactional expenses associated with the transactions
contemplated hereby (which costs and expenses shall be included in determining
the Company's Net Worth and Net Working Capital).
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company, Global, ESI and Sellers, their
heirs, representatives, successors, and permitted assigns, in accordance with
the terms hereof. This Agreement shall not be assignable by the Company or
Sellers without the prior written consent of Global.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other schedules
-------------------------
and agreements referred to herein, constitute the entire agreement between the
parties hereto and supersede all prior agreements, representations, warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied, with respect to the subject matter hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
Commonwealth of Virginia.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions
-31-
<PAGE>
contemplated hereby shall survive the Closing for a period of two (2) years,
provided (a) the representations and warranties contained in Section 3.17 of
------------
this Agreement, and the related indemnities, shall survive the Closing until the
expiration of the applicable statutes of limitations for determining or
contesting Tax liabilities and (b) the representations and warranties contained
in Sections 3.1, 3.2 and 3.3 of this Agreement, and the related indemnities,
------------ --- ---
shall survive the Closing until expiration of the applicable statute of
limitations. Notwithstanding the foregoing, it is understood and agreed that all
representations and warranties made by the parties in this Agreement are made as
of the date of execution of this Agreement only.
9.9 INVALID PROVISIONS. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLERS AND GLOBAL
------------------
AND ESI WITH RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND
OBLIGATIONS OF SELLERS AND GLOBAL AND ESI HEREUNDER (OTHER THAN DISPUTES
INVOLVING ALLEGATIONS OF INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL
AGREEMENT, WILL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES
OF THE AMERICAN ARBITRATION ASSOCIATION IN NORFOLK, VIRGINIA, OR BY ANY OTHER
MEANS OF ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-32-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
----------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
ESI:
---
ELECTRONIC SYSTEMS, INC.
By: /s/ Thomas S. Johnson
----------------------------------------
Thomas S. Johnson
Chairman
THE COMPANY:
-----------
ELECTRONIC SYSTEMS OF RICHMOND, INC.
By: /s/ Timothy D. McCulloch
----------------------------------------
Title: Vice President
-------------------------------
-33-
<PAGE>
SELLERS:
-------
/s/ Timothy D. McCulloch
---------------------------------------------
Timothy D. McCulloch
/s/ William G. Kamarek
---------------------------------------------
William G. Kamarek
/s/ Benjamin E. Collier
---------------------------------------------
Benjamin E. Collier
/s/ David M. Weaver
---------------------------------------------
David M. Weaver
/s/ James R. Stroud
---------------------------------------------
James R. Stroud
-34-
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.26
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
BY AND AMONG
GLOBAL IMAGING SYSTEMS INC.,
("GLOBAL")
CONNECTICUT BUSINESS SYSTEMS, INC.
(THE "COMPANY")
AND
THE SHAREHOLDERS OF THE COMPANY
(THE "SELLERS")
DATED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS.................................................. 1
1.1 Definitions................................................... 1
ARTICLE II AGREEMENT OF PURCHASE AND SALE; CLOSING..................... 6
2.1 Agreement to Sell and Purchase................................ 6
2.2 Purchase Price and Assumption of Indebtedness................. 6
2.3 Payment of Purchase Price and Assumption of Indebtedness...... 6
2.4 Closing....................................................... 6
2.5 Escrow Arrangements........................................... 7
2.6 Purchase Price Adjustments.................................... 7
2.7 Closing Audit................................................. 8
2.8 Post-Closing Purchase Price Adjustment........................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.. 9
3.1 Capitalization................................................ 9
3.2 No Liens on Shares............................................ 9
3.3 Other Rights to Acquire Capital Stock......................... 9
3.4 Due Organization.............................................. 9
3.5 Subsidiaries.................................................. 10
3.6 Due Authorization............................................. 10
3.7 Financial Statements.......................................... 11
3.8 Certain Actions............................................... 11
3.9 Properties.................................................... 12
3.10 Licenses and Permits.......................................... 13
3.11 Intellectual Property......................................... 13
3.12 Compliance with Laws.......................................... 14
3.13 Insurance..................................................... 14
3.14 Employee Benefit Plans........................................ 14
(a) Employee Welfare Benefit Plans......................... 14
(b) Employee Pension Benefit Plans......................... 15
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements........................................ 15
3.15 Contracts and Agreements...................................... 15
3.16 Claims and Proceedings........................................ 16
3.17 Taxes......................................................... 16
3.18 Personnel..................................................... 17
3.19 Business Relations............................................ 18
3.20 Accounts Receivable........................................... 18
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
3.21 Bank Accounts................................................. 18
3.22 Warranties.................................................... 18
3.23 Brokers....................................................... 19
3.24 Interest in Competitors, Suppliers, Customers, Etc............ 19
3.25 Indebtedness To and From Officers, Directors, Shareholders,
and Employees.............................................. 19
3.26 Undisclosed Liabilities....................................... 19
3.27 Information Furnished......................................... 19
ARTICLE IV GLOBAL'S REPRESENTATIONS AND WARRANTIES..................... 20
4.1 Due Organization.............................................. 20
4.2 Due Authorization............................................. 20
4.3 No Brokers.................................................... 20
4.4 Investment.................................................... 20
4.5 Information Furnished......................................... 21
ARTICLE V COVENANTS OF THE COMPANY AND SELLERS......................... 21
5.1 Consents of Others............................................ 21
5.2 Best Efforts.................................................. 21
5.3 Powers of Attorney............................................ 21
ARTICLE VI POST-CLOSING COVENANTS...................................... 21
6.1 General....................................................... 21
6.2 Transition.................................................... 22
6.3 Confidentiality............................................... 22
6.4 Covenant Not to Compete....................................... 22
6.6 Additional Matters............................................ 23
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO
CONSUMMATE CLOSING.................................................. 24
7.1 Conditions to Global's Obligations............................ 24
(a) Covenants, Representations and Warranties.............. 24
(b) Consents............................................... 25
(c) Suppliers/Leases....................................... 25
(d) Discharge of Indebtedness and Liens.................... 25
(e) Material Adverse Change................................ 25
(f) Transfer Taxes......................................... 25
(g) Intentionally Omitted.................................. 26
(h) Documents to be Delivered by Seller and the Company.... 26
(i) Opinion of Seller's Counsel..................... 26
(ii) Certificates................................... 26
(iii) Release....................................... 26
(iv) Escrow Agreement............................... 26
(v) Employment Agreement............................ 26
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
(vi) Building Leases................................ 26
(vii) Collateral Assignment of Rights............... 26
(viii) Stock Certificates........................... 27
7.2 Conditions to Seller's and the Company's Obligations............. 27
(a) Covenants, Representations and Warranties................. 27
(b) Consents.................................................. 27
(c) Documents to be Delivered by Global....................... 27
(i) Certificates.................................... 27
(ii) Escrow Agreement............................... 28
(iii) Employment Agreement.......................... 28
(iv) Payments to Sellers and the Company............ 28
(d) Right of Reinvestment..................................... 28
ARTICLE VIII INDEMNIFICATION........................................... 28
8.1 Indemnification of Global..................................... 28
8.2 Defense of Claims............................................. 29
8.3 Escrow Claim.................................................. 29
8.4 Tax Audits, Etc............................................... 29
8.5 Indemnification of Sellers.................................... 30
8.6 Limits on Indemnification..................................... 30
ARTICLE IX MISCELLANEOUS............................................... 30
9.1 Modifications................................................. 30
9.2 Notices....................................................... 31
9.3 Counterparts.................................................. 32
9.4 Expenses...................................................... 33
9.5 Binding Effect; Assignment.................................... 33
9.6 Entire and Sole Agreement..................................... 33
9.7 Governing Law................................................. 33
9.8 Survival of Representations, Warranties and Covenants......... 33
9.9 Invalid Provisions............................................ 33
9.10 Public Announcements.......................................... 34
9.11 Remedies Cumulative........................................... 34
9.12 Waiver........................................................ 34
9.13 DISPUTE RESOLUTION............................................ 34
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS
EXHIBIT A FORM OF ESCROW AGREEMENT
EXHIBIT B FORM OF ESTOPPEL CERTIFICATE FOR BUILDING LEASES
EXHIBIT C OPINION OF THE COMPANY'S AND SELLERS' COUNSEL
EXHIBIT D SELLERS' CERTIFICATES
EXHIBIT E FORM OF RELEASE
EXHIBIT F SHEA EXECUTIVE AGREEMENT
EXHIBIT G GLOBAL CERTIFICATES
EXHIBIT H COLLATERAL ASSIGNMENT OF RIGHTS
LIST OF SCHEDULES
SCHEDULE 2.3 SELLER'S ACCOUNTS
SCHEDULE 2.6 HOLDERS OF FUNDED INDEBTEDNESS
SCHEDULE 3.1 OWNERSHIP OF SHARES
SCHEDULE 3.4 ARTICLES AND BYLAWS
SCHEDULE 3.5 SUBSIDIARIES
SCHEDULE 3.8A CERTAIN ACTIONS
SCHEDULE 3.8B MATERIAL CHANGES
SCHEDULE 3.9 PROPERTIES
SCHEDULE 3.10 LICENSES AND PERMITS
SCHEDULE 3.11 PATENTS AND TRADEMARKS
SCHEDULE 3.13 INSURANCE
SCHEDULE 3.14 EMPLOYEE BENEFIT PLANS
SCHEDULE 3.15 CONTRACTS AND AGREEMENTS
SCHEDULE 3.16 CLAIMS AND PROCEEDINGS
SCHEDULE 3.18 PERSONNEL
SCHEDULE 3.20 ACCOUNTS RECEIVABLE
SCHEDULE 3.21 BANK ACCOUNTS
SCHEDULE 3.25 INDEBTEDNESS WITH OFFICERS, DIRECTORS AND SHAREHOLDERS
SCHEDULE 3.26 UNDISCLOSED LIABILITIES
SCHEDULE 7.1(D) LIST OF INDEBTEDNESS
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide such exhibits
and schedules upon the request of the Securities and Exchange Commission.
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
December 31, 1997, by and among GLOBAL IMAGING SYSTEMS INC., a Delaware
corporation ("GLOBAL"), CONNECTICUT BUSINESS SYSTEMS, INC., a Connecticut
corporation (the "COMPANY") and MICHAEL E. SHEA, JR. AND PETER WENZKE
(collectively, the "SELLERS").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the distribution, sale and service
of office equipment in the State of Connecticut (the "BUSINESS"); and
WHEREAS, Sellers own all of the outstanding shares of capital stock of
the Company (the "SHARES"), which Shares constitute all of the issued and
outstanding capital stock of the Company; and
WHEREAS, Global desires to purchase from Sellers and Sellers desire to
sell to Global hereby all of the Shares owned by Sellers all on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"ASSUMED FUNDED INDEBTEDNESS" has the meaning specified in Section
-------
2.3(b).
-------
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in Section
-------
2.7.
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<PAGE>
"BUILDINGS" shall mean collectively (i) the Company's offices,
showroom and warehouse facilities located at 31 Inwood Road, Rocky Hill,
Connecticut, (ii) 1 Norwalk, West 40 Richards Avenue, Norwalk, Connecticut, and
(iii) 108 Corporate Drive, Harrison, New York.
"BUSINESS" has the meaning specified in the first recital of the
Agreement
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments thereto, any
-- ---
successor statutes, and any regulations promulgated thereunder.
"CLOSING" means the closing of the transfer of the Shares from the
Sellers to Global.
"CLOSING DATE" has the meaning specified in Section 2.4.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which
is disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, (iii) which subsequently becomes known to a third party not
subject to a confidentiality agreement with Global or the Company, or (iv) which
is subsequently disclosed by any third party not in breach of a confidentiality
agreement.
"CONTRACTS" has the meaning specified in Section 3.15.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"EFFECTIVE DATE" has the meaning specified in Section 2.4.
-----------
"EMPLOYMENT AGREEMENT" shall mean the executive agreement with Michael
E. Shea, Jr. to be entered into at Closing in the form of Exhibit F.
---------
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<PAGE>
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind.
"ENVIRONMENTAL OBLIGATIONS" has the meaning specified in Section 3.12.
------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means Robinson & Cole LLP.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Sellers, Global and the Escrow Agent in substantially the same form as
Exhibit A.
- ---------
"ESCROW PERIOD" has the meaning specified in Section 2.5.
-----------
"ESCROW SUM" has the meaning specified in Section 2.5.
-----------
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.7.
-----------
"FUNDED INDEBTEDNESS" means all (i) indebtedness of the Company for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of the Company which are accrued or required to be accrued under
GAAP; (iii) obligations of the Company to pay the deferred purchase or
acquisition price for goods or services, other than trade accounts payable or
accrued expenses in the ordinary course of business on no more than 90 day
payment terms; (iv) indebtedness of others guaranteed by the Company or secured
by an Encumbrance on the Company's property; (v) indebtedness of the Company
under extended credit terms of more than 30 days from manufacturers provided to
the Company; or (vi) any receivables owed by the Company to the Sellers;
provided, however, that Funded Indebtedness shall not include those certain
unsecured promissory notes in the aggregate amount of $90,000 issued by the
Company on December 31, 1997 to the Sellers in connection with the distributions
by the Company to the Sellers for payment of income taxes payable by the Sellers
attributable to the Company's net income for the period from October 1, 1997
through the Effective Date, the amount of which distrubutions was loaned by the
Sellers to the Company on December 31, 1997.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GLOBAL" has the meaning specified in the first paragraph of this
Agreement.
"GLOBAL STOCK" has the meaning specified in Section 7.2(d).
--------------
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
-3-
<PAGE>
"GOVERNMENTAL PERMITS" has the meaning specified in Section 3.10.
------------
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"IRS" means the Internal Revenue Service.
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section 2.7.
-----------
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INTELLECTUAL PROPERTY" has the meaning specified in Section 3.11.
------------
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, or financial condition of the Company and its
subsidiaries, taken as a whole. In determining whether a "Material Adverse
Change" or "Material Adverse Effect" has occurred, the quantitative amounts set
forth at the end of Article III shall be conclusive.
-----------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)
651 et seq., any amendment thereto, and any regulations promulgated thereunder.
-- ---
"PERMITTED EXCEPTION" means (a) liens for Taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable, (c) other liens or imperfections on property which are not material
in amount or do not materially detract from the value or the existing use of the
property affected by such lien or imperfection, and (d) such statements of fact
and exceptions shown on any title insurance policies delivered to Global.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY CLOSING BALANCE SHEET" shall mean the Company's best
estimate of the Company's balance sheet as of the Effective Date. The
Preliminary Closing Balance Sheet shall be delivered to Global not less than
three (3) nor more than five (5) days prior to the Closing Date.
"PURCHASE PRICE" has the meaning specified in Section 2.2.
-----------
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S) 6901 et seq., and any successor statute, and any regulations promulgated
-- ---
thereunder.
-4-
<PAGE>
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SELLERS" has the meaning set forth in the first paragraph of this
Agreement.
"SHARES" means all of the issued and outstanding shares of the capital
stock of the Company.
"SUBSIDIARY" has the meaning set forth in Section 3.5 of this
-----------
Agreement.
"SUBSIDIARY SHARES" has the meaning set forth in Section 3.5 of this
-----------
Agreement.
"TAX" or "TAXES" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed thereon by any Governmental Body.
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Company's
current assets and current liabilities as calculated in accordance with GAAP,
provided, that, (i) current assets shall include $84,150 in obsolete inventory
and (ii) for the purposes of calculating the Working Capital Target below (i.e.
for calculating the average working capital of the Company for the six month
period ended October 31, 1997), current liabilities shall include $168,837 in
deferred maintenance costs.
"WORKING CAPITAL TARGET" shall have the meaning assigned to such term
in Section 2.6 hereof.
-----------
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
Agreement, Sellers agree to sell the Shares to Global and Global agrees to
purchase the Shares from Sellers.
2.2 PURCHASE PRICE AND ASSUMPTION OF INDEBTEDNESS. The total
---------------------------------------------
purchase price for the Shares (the "PURCHASE PRICE") shall be equal to [**],
subject to any adjustment required to be made pursuant to Section 2.6 or Section
----------- -------
2.8 below. In addition, the redemption price for the Assumed Funded Indebtedness
- ---
(as defined below) shall be equal to [**].
2.3 PAYMENT OF PURCHASE PRICE AND ASSUMPTION OF INDEBTEDNESS.
--------------------------------------------------------
(A) The Purchase Price shall be payable by Global at the Closing
(hereinafter defined) as follows:
(I) [**] of the Purchase Price as adjusted as set forth in
Section 2.6 below will be paid, at the direction of the Sellers, in
-----------
cash by wire transfer of funds as specified in Schedule 2.3 (including
------------
the payment of [**] for the covenant not to compete provided in
Section 6.4); and
-----------
(II) [**] of the Purchase Price as adjusted as set forth in
Section 2.6(d) below will be paid in cash by wire transfer of funds to
--------------
the Escrow Agent to be held in escrow for satisfaction of Sellers'
indemnification obligations specified in Section 8.1 or payment to the
Sellers in accordance with the terms of Section 2.5 below.
(B) At the Closing, Global will pay in cash by wire transfer of
funds to an account as specified in Schedule 2.3, the sum of [**] in order to
------------
redeem certain Funded Indebtedness owed to Sellers (collectively, the "ASSUMED
FUNDED INDEBTEDNESS").
2.4 CLOSING. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at 10:00 a.m., Eastern Time, at
the offices of Robinson & Cole LLP in Hartford, Connecticut on January 9, 1998,
or at such other date and time as the parties shall agree (the "CLOSING DATE"),
effective as of December 31, 1997 (the "EFFECTIVE DATE"). Global, the Company
and the Sellers may terminate this Agreement at any time prior to the Closing
Date by mutual written consent. In addition, (i) Global may terminate this
Agreement at any time prior to the Closing by giving written notice to the
Sellers if the Closing shall not have occurred on or before January 31, 1998 by
reason of the failure of any condition precedent under Section 7.1 hereof
-----------
(unless the failure results primarily from Global itself breaching any
representation, warranty, or covenant contained in this Agreement) and (ii) the
Sellers may terminate this Agreement by giving written notice to Global at any
time prior to the Closing if the Closing shall not have occurred on or before
January 31, 1998 by reason of the failure of any condition precedent under
Section 7.2 hereof (unless the failure results primarily from either Sellers
- -----------
themselves or the Company itself breaching any representation, warranty, or
covenant contained in this Agreement).
-6-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Sellers, Global and the Escrow Agent, [**] of the Purchase
Price shall be delivered to the Escrow Agent at Closing. Such monies (which,
together with all interest accrued thereon, is hereinafter referred to as the
"ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement for
payment from such Escrow Sum of the amounts, if any, owing by Sellers to Global
pursuant to Section 2.8 or Article VIII below. At the conclusion of the period
-----------
ending on the first anniversary of the Closing Date (such period being referred
to herein as the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not
theretofore claimed by or paid to Global in accordance with the terms of the
Escrow Agreement and this Agreement shall be disbursed to Sellers. Sellers and
Global agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party
to receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.6 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) Except for the Assumed Funded Indebtedness, the Purchase
Price payable pursuant to Section 2.3(a) above will be reduced by the total
--------------
amount of Funded Indebtedness as of the Closing, if any, assumed or
paid by Global in cash by wire transfer of funds to the accounts of the holders
of Funded Indebtedness listed on Schedule 2.6 hereto to satisfy the Company's
------------
Funded Indebtedness with such holders.
(B) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the Working Capital as reflected on the
Preliminary Closing Balance Sheet is less than the amount which is $50,000 less
than the average of the Working Capital balances at the end of each of the six
months ended October 31, 1997 (the "WORKING CAPITAL TARGET"); provided, however,
that the Working Capital Target will be adjusted downward by any income taxes
payable by the Sellers attributable to the Company's net income for the period
from October 1, 1997 through the Effective Date.
(C) The Purchase Price payable pursuant to Section 2.3(a) above
--------------
will be decreased or increased, as the case may be, by the amount
that the Company's Assumed Funded Indebtedness on the Closing Date is more or
less than $1,405,614.
(D) In the event that Sellers purchase any Global Stock, Sellers
shall have the right to contribute all or a portion of such Global Stock to the
Escrow Sum in lieu of cash (which contributed Global Stock shall be in the form
of both Class A Common and Class B Common shares based on the aggregate
investment by Sellers in each such class). The cash portion of the Purchase
Price payable to the Sellers pursuant to Section 2.3(a)(i) shall be increased
-----------------
and the cash portion of the Purchase Price payable to the Escrow
Agent pursuant to Section 2.3(a)(ii) shall be correspondingly decreased,
-----------------
by the aggregate purchase price of the contributed Global Stock.
-7-
<PAGE>
(E) The portion of the Purchase Price payable at Closing will be
reduced by the amount, if any, by which the cash on hand of the Company
(included in the Working Capital) at Closing is less than $50,000 (including the
"S" deposit; provided, that, the "S" deposit can be converted to cash of the
Company within five (5) days after the Closing Date).
2.7 CLOSING AUDIT. Within 120 days following the Closing Date, there
-------------
shall be delivered to Global and to Sellers an audited version of the
Preliminary Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of the
Company at and as of the Effective Date. The Audited Closing Balance Sheet
shall be prepared in accordance with GAAP and audited by Ernst & Young, LLP in
accordance with generally accepted auditing standards as promulgated by the
American Institute of Certified Public Accountants at Global's expense. In the
event that both Sellers dispute any items on the Audited Closing Balance Sheet
within ten (10) days after Sellers' receipt thereof, the parties shall jointly
select and retain an independent "Big Six" accounting firm (the "INDEPENDENT
ACCOUNTANTS") to review the disputed item(s) on the Audited Closing Balance
Sheet. The final determination of such disputed item(s) by the Independent
Accountants shall be reflected on the Audited Closing Balance Sheet. The cost
of retaining the Independent Accountants shall be borne by Sellers; provided,
however, that Global shall reimburse Sellers for the cost of the Independent
Accountants in the event that such review results in an increase of more than
$87,500 in the Company's Working Capital as reflected on the Audited Closing
Balance Sheet prepared by Ernst & Young, LLP.
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. In the event that the
--------------------------------------
Working Capital as reflected on the Audited Closing Balance Sheet is less than
the Working Capital Target, then the Purchase Price will be adjusted downward,
on a dollar-for-dollar basis, to reflect the lesser of (i) the decrease, if any,
in Working Capital as reflected on the Audited Closing Balance Sheet from the
amount of Working Capital reflected on the Preliminary Closing Balance Sheet or
(ii) the amount, if any, by which the Working Capital reflected on the Audited
Closing Balance Sheet is less than the Working Capital Target. Conversely, the
Purchase Price will be adjusted upward, on a dollar-for dollar basis, to reflect
the increase, if any, in the total Working Capital as reflected on the Audited
Closing Balance Sheet from the amount of Working Capital reflected on the
Preliminary Closing Balance Sheet, provided, however, that in no event shall
such upward adjustment exceed the total amount of any adjustment to the Purchase
Price made pursuant to Section 2.6(b) above. The post-closing adjustment to the
--------------
Purchase Price, if any, shall be paid by Sellers to Global from the Escrow Sum
or by Global to Sellers, as the case may be, in immediately available funds
within ten (10) business days of delivery of the Audited Closing Balance Sheet,
unless both Sellers dispute any items on the Audited Closing Balance Sheet, in
which case it shall be paid within ten (10) business days after the Independent
Accountants finally determine the disputed item(s), and Global delivers to
Sellers an Audited Closing Balance Sheet modified to reflect such determination.
-8-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers jointly and severally represent and warrant to
Global that:
3.1 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 5,000 shares of Common Stock, 1,000 of which are issued and
outstanding. All of the Shares are duly authorized, validly issued, fully paid,
and nonassessable. All of the Shares are owned of record and beneficially by
Sellers in the amounts set forth on Schedule 3.1 hereto. None of the Shares was
------------
issued or will be transferred under this Agreement in violation of any
preemptive or preferential rights of any Person. The Sellers own all of the
issued and outstanding capital stock of the Company.
3.2 NO LIENS ON SHARES. Except as shown on Schedule 3.1, Sellers own
------------------ ------------
the Shares, free and clear of any Encumbrances other than the rights and
obligations arising under this Agreement, and none of the Shares is subject to
any outstanding option, warrant, call, or similar right of any other Person to
acquire the same, and none of the Shares is subject to any restriction on
transfer thereof except for restrictions imposed by applicable federal and state
securities laws. At Closing, Sellers will have full power and authority to
convey good and marketable title to the Shares, free and clear of any
Encumbrances.
3.3 OTHER RIGHTS TO ACQUIRE CAPITAL STOCK. Except as set forth in
-------------------------------------
this Agreement, there are no authorized or outstanding warrants, options, or
rights of any kind to acquire from the Company any equity or debt securities of
the Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
3.4 DUE ORGANIZATION. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of
Connecticut and has full corporate power and authority to carry on the Business
as now conducted and as proposed to be conducted through Closing. Complete and
correct copies of the Articles of Incorporation and Bylaws of the Company, and
all amendments thereto, have been heretofore delivered to Global and are
attached hereto as Schedule 3.4. The Company is qualified to do business in the
------------
State of Connecticut and in each jurisdiction in which the nature of the
Business or the ownership of its properties requires such qualification except
where the failure to be so qualified does not and could not reasonably be
expected to have a Material Adverse Effect.
3.5 SUBSIDIARIES. The Company is the owner of all of the outstanding
------------
shares of the capital stock of each subsidiary (individually, a "SUBSIDIARY" and
collectively, the "SUBSIDIARIES") of the Company listed on Schedule 3.5 (such
------------
shares shall be collectively
-9-
<PAGE>
referred to as the "SUBSIDIARY SHARES"), free and clear of all Encumbrances, and
none of the Subsidiary Shares is subject to any outstanding option, warrant,
call, or similar right of any other Person to acquire the same, and none of the
Subsidiary Shares is subject to any restriction on transfer thereof except for
restrictions imposed by applicable federal and state securities laws. There are
no authorized or outstanding warrants, options, or rights of any kind to acquire
from the Company, or any Subsidiary of the Company, any equity or debt
securities of any Subsidiary of the Company, or securities convertible into or
exchangeable for equity or debt securities of any Subsidiary of the Company, and
there are no Subsidiary Shares reserved for issuance for any purpose nor any
contracts, commitments, understandings or arrangements which require the Company
or any Subsidiary of the Company to issue, sell or deliver any additional
Subsidiary Shares. Except for the Subsidiaries of the Company listed on Schedule
--------
3.5, neither the Company, nor its subsidiaries, directly or
- ---
indirectly have any subsidiaries or any direct or indirect ownership interests
in any Person. The Sellers do not own any other Person engaged in the Business.
3.6 DUE AUTHORIZATION. The Company and the Sellers each have full
-----------------
power and authority to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and Sellers and constitutes the valid and binding obligations of the Company and
Sellers, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by laws affecting creditors' rights and debtors'
obligations generally, and legal limitations relating to remedies of specific
performance and injunctive and other forms of equitable relief. Except for the
enforceability exceptions specifically set forth on Schedule 3.15 and assuming
-------------
all necessary consents to the consummation of the transactions contemplated
hereby, as specifically set forth on Schedules 3.9 and 3.15, are obtained, the
------------- ----
execution, delivery, and performance of this Agreement (as well as all other
instruments, agreements, certificates, or other documents contemplated hereby)
by the Company and Sellers, do not (a) violate any Requirements of Laws or any
Court Order of any Governmental Body applicable to the Company or Sellers, or
their respective property, (b) violate or conflict with, or permit the
cancellation of, or constitute a default under, any material agreement to which
the Company or Sellers are a party, or by which any of them or any of their
respective property is bound, (c) permit the acceleration of the maturity of any
Material indebtedness of, or Material indebtedness secured by the property of,
the Company or Sellers, or (d) violate or conflict with any provision of the
charter or bylaws of the Company.
3.7 FINANCIAL STATEMENTS. The following Financial Statements (herein
--------------------
so called) of the Company have been delivered to Global by the Company:
reviewed, unaudited balance sheets of the Company as of September 30, 1995,
September 30, 1996 and September 30, 1997 and an unreviewed, unaudited balance
sheet as of November 30, 1997, and reviewed, unaudited statements of income of
the Company for the fiscal years ended September 30, 1995, September 30, 1996
and September 30, 1997 and an unreviewed, unaudited statement of income for the
two month period ending November 30, 1997.
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<PAGE>
The Financial Statements have been prepared in accordance with GAAP throughout
the periods indicated and fairly present the financial position, results of
operations and changes in financial position of the Company as of the indicated
dates and for the indicated periods, subject (in the case of the two month
Financial Statements) to year end accruals made in the ordinary course of the
Business which are not materially adverse and which are consistent with past
practices and subject to the adjustment to Working Capital set forth in the
definition of Working Capital above. Except to the extent reflected or provided
for in the Financial Statements or the notes thereto and obligations and
liabilities incurred in the ordinary course of business since the date of the
last of such Financial Statements, the Company has no liabilities required by
GAAP to be reflected on the Company's balance sheet or notes thereto that are
not so reflected, nor any other obligations (whether absolute, contingent, or
otherwise) which are (individually or in the aggregate) Material (in amount or
to the conduct of the Business); and neither the Company nor Sellers have
knowledge of any basis for the assertion of any such liability or obligation.
Since September 30, 1997, there has been no Material Adverse Change in the
prospects of the Company.
3.8 CERTAIN ACTIONS. Since September 30, 1997, the Company has not,
---------------
except as disclosed on Schedule 3.8A hereto or any of the Financial Statements
-------------
or notes thereto: (a) discharged or satisfied any Encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of the Business; (b) paid or declared
any dividends or distributions, or purchased, redeemed, acquired, or retired any
stock or indebtedness from any stockholder (other than distributions to pay
estimated income taxes of the Sellers associated with the income of the
Company); (c) made or agreed to make any loans or advances or guaranteed or
agreed to guarantee any loans or advances to any party whatsoever; (d) suffered
or permitted any Encumbrance other than Permitted Exceptions to arise or be
granted or created against or upon any of its assets, real or personal, tangible
or intangible; (e) canceled, waived, or released or agreed to cancel, waive, or
release any of its receivables, rights, or claims against third parties in
excess of $15,000 individually or $35,000 in the aggregate; (f) sold, assigned,
pledged, mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any assets
(except in the ordinary course of the Business); (g) amended its charter or
bylaws; (h) paid or made a commitment to pay any severance or termination
payment to any employee or consultant; (i) made any material change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $40,000; (k) made any investment or commitment therefor in any Person;
(l) made any payment or contracted for the payment of any bonus or other
compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) materially amended or experienced a
termination of any material contract, agreement,
-11-
<PAGE>
lease, franchise or license to which the Company is a party that would or could
reasonably be expected to have a Material Adverse Effect, except in the ordinary
course of the Business; or (o) entered into any other material transactions that
would or could reasonably be expected to have a Material Adverse Effect except
in the ordinary course of the Business. Since September 30, 1997, except as
disclosed on Schedule 3.8B hereto or any of the Financial Statements
-------------
or notes thereto, there has not been (a) any Material Adverse Change including,
but not limited to, the loss of any material customers or suppliers of the
Company, or in any material assets of the Company, (b) any extraordinary
contracts, commitments, orders or rebates, (c) any strike, material slowdown, or
demand for recognition by a labor organization by or with respect to any of the
employees of the Company, or (d) any shutdown, material slow-down, or cessation
of any material operations conducted by, or constituting part of, the Company,
nor has the Company agreed to do any of the foregoing.
3.9 PROPERTIES. Attached hereto as Schedule 3.9 is a list containing
---------- ------------
a description of each interest in real property (including, without limitation,
leasehold interests) and each item of personal property utilized by the Company
in the conduct of the Business having a book value in excess of $20,000 as of
the date hereof. Except for Permitted Exceptions or as expressly set forth on
Schedule 3.9, such real and personal properties are free and clear of
- ------------
Encumbrances. Sellers and the Company have delivered to Global a lien search
obtained from the counties where the Company conducts business and the
Connecticut Secretary of State office of all UCC liens of record against the
Company's personal property in the State of Connecticut. All of the properties
and assets necessary for continued operation of the Business as currently
conducted (including, without limitation, all books, records, computers and
computer software and data processing systems) are owned, leased or licensed by
the Company and are reasonably suitable for the purposes for which they are
currently being used. With the exception of used equipment and inventory valued
at no more than $15,000 in the aggregate on the Company's Financial Statements,
the physical properties of the Company, including the real properties leased by
the Company, to the best knowledge of the Company and Sellers, are in good
operating condition and repair, normal wear and tear excepted, and are free from
any defects of a material nature. Except for Permitted Exceptions or as
otherwise set forth on Schedule 3.9, the Company has full and unrestricted legal
------------
and equitable title to all such properties and assets. The operation of the
properties and Business of the Company in the manner in which they are now and
have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except for Permitted Exceptions or as set forth on Schedule 3.9, no restrictive
------------
covenants, easements, rights-of-way, or regulations of record impair the uses of
the properties of the Company for the purposes for which they are now operated.
All leases of real or personal property by the Company are legal, valid,
binding, enforceable and in full force and effect and, assuming all necessary
consents to the consummation of the transactions contemplated herein, as set
forth on Schedule 3.9, are obtained, will remain legal, valid, binding,
------------
enforceable and in full force and effect on essentially the same terms
immediately following the Closing, except to the extent that enforceability may
be limited by laws affecting creditors' rights and debtors' obligations
generally, and legal limitations relating to remedies of specific performance
and injunctive and other forms of equitable relief. All facilities owned
-12-
<PAGE>
or leased by the Company have received all material approvals of any
Governmental Body (including Governmental Permits) required in connection with
the operation thereof and have been operated and maintained in accordance with
all Requirements of Laws.
3.10 LICENSES AND PERMITS. Attached hereto as Schedule 3.10 is a list
-------------------- -------------
of all Material licenses, certificates, privileges, immunities, approvals,
franchises, authorizations and permits held or applied for by the Company from
any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS") the
absence of which could have a Material Adverse Effect. The Company has complied
in all material respects with the terms and conditions of all such Governmental
Permits, and the Company has not received notification from any Governmental
Body of violation of any such Governmental Permit or the Requirements of Laws
governing the issuance or continued validity thereof other than violations (if
any) which would not individually or in the aggregate have a Material Adverse
Effect. No additional Governmental Permit is required from any Governmental
Body thereof in connection with the conduct of the Business which Governmental
Permit, if not obtained, would have a Material Adverse Effect.
3.11 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.11 is a
--------------------- -------------
list and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or data (other than general commercial software) or
applications therefor owned by or registered in the name of the Company or in
which the Company has any rights, licenses, or immunities (collectively, the
"INTELLECTUAL PROPERTY"). The Company has furnished Global with copies of all
license agreements to which the Company is a party, either as licensor or
licensee, with respect to any Intellectual Property. Except as described on
Schedule 3.11 hereto, the Company has good title to or the right to use such
- -------------
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of their Business, as presently
conducted without the payment of any royalty or similar payment, and the Company
is not infringing on any patent right, tradename, copyright or trademark right
or other Intellectual Property right of others, and neither the Company nor
Sellers are aware of any infringement by others of any such rights owned by the
Company.
3.12 COMPLIANCE WITH LAWS. The Company has (i) complied in all
--------------------
material respects with all Requirements of Laws, Governmental Permits and Court
Orders applicable to the Business and has filed with the proper Governmental
Bodies all statements and reports required by all Requirements of Laws,
Governmental Permits and Court Orders to which the Company or any of its
employees (because of their activities on behalf of the Company) are subject and
(ii) conducted the Business and is in compliance in all material respects with
all federal, state and local energy, public utility, health, safety and
environmental Requirements of Laws, Governmental Permits and Court Orders
including the Clean Air Act, the Clean Water Act, RCRA, the Safe Drinking Water
Act, CERCLA, OSHA, the Toxic Substances Control Act and any similar state, local
or foreign laws (collectively "ENVIRONMENTAL OBLIGATIONS") and all other
federal, state, local or foreign governmental and regulatory requirements,
except where any such failure to comply or file would not, in the aggregate,
have a Material Adverse Effect. No claim has been made by any Governmental Body
(and, to the best knowledge of the Company and Sellers, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental
-13-
<PAGE>
Permit or Environmental Obligation or that a Governmental Permit or Court Order
is necessary in respect thereto.
3.13 INSURANCE. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to the Company. Copies of the binder for all such
insurance policies have been delivered to Global. To the best of the Company's
and Sellers' knowledge and belief, no event relating to the Company has occurred
which will result in (i) cancellation of any such insurance coverages; (ii) a
retroactive upward adjustment of premiums under any such insurance coverages; or
(iii) any prospective upward adjustment in such premiums. All of such insurance
coverages will remain in full force and effect following the Closing.
3.14 EMPLOYEE BENEFIT PLANS.
----------------------
(A) EMPLOYEE WELFARE BENEFIT PLANS. Except as disclosed on
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any "employee
- -------------
welfare benefit plan" as such term is defined in Section 3(1) of ERISA. With
respect to each such plan, (i) the plan is in material compliance with ERISA;
(ii) the plan has been administered in accordance with its governing documents;
(iii) neither the plan, nor any fiduciary with respect to the plan, has engaged
in any "prohibited transaction" as defined in Section 406 of ERISA other than
any transaction subject to a statutory or administrative exemption; (iv) except
for the processing of routine claims in the ordinary course of administration,
there is no material litigation, arbitration or disputed claim outstanding; and
(v) all premiums due on any insurance contract through which the plan is funded
have been paid.
(B) EMPLOYEE PENSION BENEFIT PLANS. Except as disclosed in
------------------------------
Schedule 3.14, the Company does not maintain or contribute to any arrangement
- ------------
that is or may be an "employee pension benefit plan" relating to employees, as
such term is defined in Section 3(2) of ERISA. With respect to each such plan:
(i) the plan is qualified under Section 401(a) of the Code, and any trust
through which the plan is funded meets the requirements to be exempt from
federal income tax under Section 501(a) of the Code; (ii) the plan is in
material compliance with ERISA; (iii) the plan has been administered in
accordance with its governing documents as modified by applicable law; (iv) the
plan has not suffered an "accumulated funding deficiency" as defined in Section
412(a) of the Code; (v) the plan has not engaged in, nor has any fiduciary with
respect to the plan engaged in, any "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code other than a transaction
subject to statutory or administrative exemption; (vi) the plan has not been
subject to a "reportable event" (as defined in Section 4043(b) of ERISA), the
reporting of which has not been waived by regulation of the Pension Benefit
Guaranty Corporation; (vii) no termination or partial termination of the plan
has occurred within the meaning of Section 411(d)(3) of the Code; (viii) all
contributions required to be made to the plan or under any applicable collective
bargaining agreement have been made to or on behalf of the plan; (ix) there is
no material litigation, arbitration or disputed claim outstanding; and (x) all
applicable premiums due to the Pension Benefit Guaranty Corporation for plan
termination insurance have been paid in full on a timely basis.
-14-
<PAGE>
(C) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.15 is a
------------------------ -------------
list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound pursuant to which the obligations thereunder of either
party thereto are, or are contemplated as being, for any one contract $35,000 or
greater (collectively, the "CONTRACTS"). The Company is not and, to the best
knowledge of Sellers and the Company, no other party thereto is in default (and
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default by the Company) under any of the Contracts,
and the Company has not waived any right under any of the Contracts, except for
any such defaults or waivers, which would not have a Material Adverse Effect.
Except for the enforceability exceptions specifically set forth on Schedule
--------
3.15, all of the Contracts are legal, valid, binding, enforceable and in full
- ----
force and effect and, assuming all necessary consents to the consummation of the
transactions contemplated herein, as specifically set forth on Schedules 3.9 and
-------------
3.15, are obtained, will remain legal, valid, binding, enforceable and in full
- ----
force and effect on essentially the same terms immediately after the Closing,
except to the extent that enforceability may be limited by laws affecting
creditors' rights and debtors' obligations generally, and legal limitations
relating to remedies of specific performance and injunctive and other forms of
equitable relief. Except as set forth in Schedule 3.15, the Company has not
-------------
guaranteed any obligations of any other Person. To the best knowledge of the
Company and Sellers, no manufacturer of office equipment sold by the Company
will cease doing business with the Company immediately following the Closing.
3.16 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.16 is a
---------------------- -------------
list and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge and belief of the Sellers or
the Company, threatened against or affecting the Company or any of its
properties or assets, at law or in equity, or before or by any court,
municipality or other Governmental Body. Except as set forth on Schedule 3.16,
-------------
none of such claims, actions, suits, proceedings, or investigations, if
adversely determined, will result in any Material liability or loss to the
Company. The Company has not been and the Company is not now, subject to any
Court Order, stipulation, or consent of or with any court or Governmental Body.
No inquiry, action or proceeding has been instituted or, to the best knowledge
and belief of the Sellers or the Company, threatened or asserted against the
Sellers or the Company to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof. To the
best knowledge of the Company and Sellers, except as set forth on Schedule 3.16,
-------------
there is no basis for any such valid claim or action.
-15-
<PAGE>
3.17 TAXES.
-----
(A) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding and
other Taxes due from the Company on or before the Closing will have been paid
and all Tax Returns which are required to be filed by the Company on or before
the Closing will have been filed within the time and in the manner provided by
law, and all such Tax Returns are true and correct and accurately reflect the
Tax liabilities of the Company. No Tax Returns of the Company or any of the
Sellers are presently subject to an extension of the time to file, except for
the September 30, 1997 federal and state corporate income tax returns which are
currently under an extension. All Taxes, assessments, penalties, and interest
of the Company which have become due pursuant to such Tax Returns or any
assessments received have been paid or adequately accrued on the Company's
Financial Statements. The provisions for Taxes reflected on the balance sheets
contained in the Financial Statements are adequate to cover all of the Company's
Tax liabilities for the respective periods then ended and all prior periods.
The Company has not executed any presently effective waiver or extension of any
statute of limitations against assessments and collection of Taxes, and there
are no pending or threatened claims, assessments, notices, proposals to assess,
deficiencies, or audits with respect to any such Taxes of which any of the
Sellers or the Company are aware. For Governmental Bodies with respect to which
the Company does not file Tax Returns, no such Governmental Body has given the
Company written notification that the Company is or may be subject to taxation
by that Governmental Body. The Company has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, shareholder, creditor, independent contractor or other party. There
are no Tax liens on any of the property or assets of the Company. The Company
presently is and will be a subchapter S corporation through the date of Closing.
(B) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company's election to be taxed under subchapter S of the Code is
valid, legally binding and in full force and effect under all applicable Tax
laws.
(C) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
-16-
<PAGE>
3.18 PERSONNEL. Attached hereto as Schedule 3.18 is a list of the
--------- -------------
names and annual rates of compensation of the directors and executive officers
of the Company, and of the employees of the Company whose annual rates of
compensation during the fiscal year ended September 30, 1997 (including base
salary, bonus and incentive pay) exceed (or by September 30, 1998 are expected
to exceed) $60,000. Schedule 3.18 also summarizes the bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable to such directors, officers, and employees
during the Company's fiscal year ended September 30, 1997 and to the date
hereof. Schedule 3.18 also contains a brief description of all material terms
-------------
of employment agreements to which the Company is a party and all severance
benefits which any director, officer or employee of the Company is or may be
entitled to receive. The employee relations of the Company are generally good
and there is no pending or, to the best knowledge of Sellers or the Company,
threatened labor dispute or union organization campaign. None of the employees
of the Company are represented by any labor union or organization. The Company
is in compliance in all material respects with all Requirements of Laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and are not engaged in any unfair labor
practices. Neither the Company or Sellers has been advised, or has good reason
to believe, that any of the persons whose names are set forth on Schedule 3.18
-------------
or any other employee other than Peter Wenzke will not agree to remain employed
by the Company after the consummation of the transactions contemplated hereby.
There is no unfair labor practice claim against the Company before the National
Labor Relations Board, or any strike, dispute, slowdown, or stoppage pending or,
to the best knowledge of the Company and Sellers, threatened against or
involving the Company, and none has occurred.
3.19 BUSINESS RELATIONS. Neither the Company nor Sellers know or has
------------------
good reason to believe that any customer or supplier of the Company will cease
to do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any reductions which do not result in a
Material Adverse Change. Neither Sellers nor the Company has received any
notice of any material disruption (including delayed deliveries or allocations
by suppliers) in the availability of any material portion of the materials used
by the Company nor is the Company or Sellers aware of any facts which could lead
them to believe that the Business will be subject to any such material
disruption.
3.20 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered and except as
disclosed on Schedule 3.20 all such amounts (net of any allowance for doubtful
-------------
accounts) will be collected in full within 180 days following the Closing Date.
Except as disclosed on Schedule 3.20 hereto (a) all of such accounts, notes, and
-------------
loans receivable are free and clear of any Encumbrances; (b) no claims of offset
have been asserted in writing against any of such accounts, notes, or loans
receivable; and (c) none of the obligors of such accounts, notes, or loans
receivable has given written notice that it will or may refuse to pay the full
amount or any portion thereof.
-17-
<PAGE>
3.21 BANK ACCOUNTS. Attached hereto as Schedule 3.21 is a list of all
------------- -------------
banks or other financial institutions with which the Company has an account or
maintains a safe deposit box, showing the type and account number of each such
account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 WARRANTIES. Except for warranty claims that are typical and in
----------
the ordinary course of the Business, no written claim for breach of product or
service warranty to any customer has been made against the Company since January
1, 1997. To the best knowledge of Sellers and the Company, no state of facts
exists, and no event has occurred, which could reasonably be expected to form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company, except for warranty claims which are
typical and in the ordinary course of business, none of which individually or in
the aggregate would have a Material Adverse Effect.
3.23 BROKERS. Neither the Company nor Sellers have engaged, or caused
-------
to be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
3.24 INTEREST IN COMPETITORS, SUPPLIERS, CUSTOMERS, ETC. No officer,
--------------------------------------------------
director, or shareholder of the Company or any affiliate of any such officer,
director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, SHAREHOLDERS, AND
---------------------------------------------------------------
EMPLOYEES. Attached hereto as Schedule 3.25 is a list and brief description of
- --------- -------------
the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for expenses incurred on
behalf of and in the ordinary course of the Business, consistent with past
practices.
3.26 UNDISCLOSED LIABILITIES. Except as indicated in Schedule 3.26
----------------------- -------------
hereto, the Company does not have any liabilities in excess of $10,000 in the
aggregate (whether absolute, accrued, contingent or otherwise), of a nature
required by GAAP to be reflected on a corporate balance sheet or disclosed in
the notes thereto, except such liabilities which are accrued or reserved against
in the Financial Statements or disclosed in the notes thereto, including without
limitation any accounts payable or service liabilities of the Company incurred
prior to the Closing Date, other than liabilities incurred in the ordinary
course of the Business since the date of the latest of such Financial
Statements.
-18-
<PAGE>
3.27 INFORMATION FURNISHED. The Company and Sellers have made
---------------------
available to Global true and correct copies of all material corporate records of
the Company and all material agreements, documents, and other items listed on
the Schedules to this Agreement or referred to in Section 2 of this Agreement,
---------
and neither this Agreement, the Schedules hereto, nor any written information,
instrument, or document delivered to Global pursuant to this Agreement contains
any untrue statement of a material fact or omits any material fact necessary to
make the statements herein or therein, as the case may be, not misleading.
In making the representations and warranties set forth above, the term
"Material" or "material" shall, where appropriate in context of its use, be
deemed to mean an amount of money greater than $25,000. The terms "Material
Adverse Change," "material adverse trend," "Material Adverse Effect," or any
other term of like import shall mean the occurrence of any single event, or any
series of related events, or set of related circumstances, which proximately
causes an actual, direct economic loss to the Company, taken as a whole, in
excess of $25,000 per occurrence or $50,000 in the aggregate. The term
"knowledge" shall mean actual knowledge after reasonable inquiry of the
employees of the Company with responsibility for the applicable subject matter.
All references to the "COMPANY" in Sections 3.6 through 3.27 shall include the
------------ ----
Companies' subsidiaries.
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Sellers as follows:
4.1 DUE ORGANIZATION. Global is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Delaware
and has full corporate power and authority to execute, deliver and perform this
Agreement and to carry out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement has been duly authorized by all necessary corporate action of
Global and the Agreement has been duly and validly executed and delivered by
Global and constitutes the valid and binding obligation of Global, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by laws affecting creditors' rights and debtors' obligations generally,
and legal limitations relating to remedies of specific performance and
injunctive and other forms of equitable relief. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates or other documents contemplated hereby) by Global, do not (a)
violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any indebtedness secured by the
property of, Global, or (d) violate or conflict with any provision of the
charter or bylaws of Global.
-19-
<PAGE>
4.3 NO BROKERS. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 INVESTMENT. Global will acquire the Shares for investment and
----------
for its own account and not with a view to the distribution thereof.
4.5 INFORMATION FURNISHED. To the best knowledge of Global, neither
---------------------
this Agreement, nor any written information, instrument, or document delivered
to Sellers by Global pursuant to this Agreement contains any untrue statement of
a material fact or omits any material fact necessary to make the statements
herein or therein, as the case may be, not misleading.
ARTICLE V
PRE-CLOSING COVENANTS
5.1 CONSENTS OF OTHERS. Prior to the Closing, the Company and
------------------
Sellers shall use their best efforts to obtain and to cause the Company to
obtain all authorizations, consents and permits required of the Company and
Sellers to permit them to consummate the transactions contemplated by this
Agreement.
5.2 BEST EFFORTS. Global, the Company and the Sellers shall use all
------------
reasonable efforts to cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. The Company and Sellers shall cause the
------------------
Company to terminate at or prior to Closing all powers of attorney granted by
the Company other than those limited powers of attorney in favor of Automated
Data Processing, Inc., Copelco Capital, Inc. and Tokai Financial Services, Inc.
and other than those relating to service of process, qualification or pursuant
to governmental regulatory or licensing agreements, or representation before the
IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Global and
Sellers) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). The Sellers and
Global acknowledge and agree that from and after the Closing, Global will be
entitled to possession of all documents, books, records, agreements, and
financial data of any sort
-20-
<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
relating to the Company, which shall be maintained at the chief executive office
of the Company; provided, however, that Sellers shall be entitled to reasonable
access to and to make copies of such books and records at their sole cost and
expense and Global will maintain all of the same for a period of at least six
(6) years after Closing. Thereafter, the Company will offer such documentation
to Sellers before disposal thereof.
6.2 TRANSITION. For a period of three (3) years following Closing,
----------
the Sellers will not take any action that primarily is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relations with the Company after the Closing as it maintained with the Company
prior to the Closing. For a period of three (3) years following Closing, the
Sellers will refer all customer inquiries relating to the Business to the
Company.
6.3 CONFIDENTIALITY. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of the
Company or Global for a period of three (3) years from the Closing, and deliver
promptly to Global or destroy, at the written request and option of Global, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession except as otherwise permitted herein. In the event that any
Seller is requested or required (by oral question or written request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal proceeding) to disclose any Confidential
Information, such Seller will notify Global promptly of the request or
requirement.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by Global, each
Seller covenants and agrees, for a period of three years from and after the
Closing Date, that he will not, directly or indirectly without the prior written
consent of Global, for or on behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the copier/office equipment dealer, service or
distribution business in competition with the Company, within the greater of (i)
a 100 mile radius of the Company's office facilities in the State of Connecticut
(the "CURRENT TRADE AREA") or (ii) in any geographic area in which the Company
currently conducts business;
(B) enter into any agreement with, service, assist or solicit the
business of any customers of the Company for the purpose of providing office
equipment sales or service to such customers in competition with the Company in
the Current Trade Area or to cause them to reduce or end their business with the
Company; or
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<PAGE>
(C) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company;
Provided, however, that no owner of less than one percent (1%) of the
outstanding stock of any publicly-traded corporation, and no owner of any amount
of Global stock, shall be deemed to be in a violation of this Section 6.4 solely
-----------
by reason thereof.
6.5 ADDITIONAL MATTERS.
------------------
(A) The Sellers shall cause the Company to file with the
appropriate governmental authorities all Tax Returns required to be filed by it
for any taxable period ending prior to the Closing Date and the Company shall
remit any Taxes due in respect of such Tax Returns. In addition, Sellers shall
cause Arthur Andersen, LLP to prepare a short period tax return for the Company
covering the period from October 1, 1997 through the Effective Date. The cost of
preparation of such short period tax return shall be paid for by the Sellers.
(B) Global and Sellers recognize that each of them will need
access, from time to time, after the Closing Date, to certain accounting and Tax
records and information held by Global and/or the Company to the extent such
records and information pertain to events occurring on or prior to the Closing
Date; therefore, Global agrees to cause the Company to (A) use its best efforts
---------
to properly retain and maintain such records for a period of six (6) years from
the date the Tax Returns for the year in which the Closing occurs are filed or
until the expiration of the statute of limitations with respect to such year,
whichever is later, and (B) allow each Seller and his agents and representatives
at times and dates mutually acceptable to the parties, to reasonably inspect,
review and make copies of such records from time to time, such activities to be
conducted during normal business hours and at the inspecting party's expense.
(C) SECTION 338(H)(10) ELECTION. The Sellers and Global shall
---------------------------
join in making a timely election (but in no event later than 180 days following
the Closing) under Section 338(h)(10) of the Code (including the prerequisite
election under Section 338 of the Code) and any similar state law provisions in
all applicable states which permit corporations to make such elections, with
respect to the sale and purchase of the Shares pursuant to this Agreement, and
each party shall provide the others all necessary information to permit such
elections to be made. Global and the Sellers shall, as promptly as practicable
following the Closing Date, take all actions necessary and appropriate
(including filing such forms, returns, schedules and other documents as may be
required) to effect and preserve timely elections; provided, however, that
Global shall be the party responsible for preparing and filing the forms,
returns, schedules and other documents necessary for making an effective and
timely election. All Taxes attributable to the elections made pursuant to this
Section 6.5(c) shall be the liability of the Sellers; provided, however, that
- --------------
(i) Global shall make a one-time payment prior to such election to reimburse
Sellers for any additional Taxes and other costs solely as a result of such
election, (ii) said reimbursement shall be grossed up so that the Sellers will
be
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
made whole, after taxes, for the additional Taxes to be paid, and (iii) the
one-time reimbursement payment shall be mutually agreed upon by Sellers and
Ernst & Young. In connection with such elections, within sixty (60) days
following the Closing Date, Global and the Sellers shall act together in good
faith to determine and agree upon the "deemed sales price" to be allocated to
each asset of the Company in accordance with Treasury Regulation Section
1.338(h)(10)-1(f) and the other regulations under Section 338 of the Code.
Notwithstanding the generality of the immediately preceding sentence, Global and
the Sellers agree that the "deemed sales price" shall be allocated to the
monetary assets of the Company at their fair market value as of the Closing Date
as determined as part of the determination of the Working Capital of the Company
in accordance with Section 2.8 hereof, [**] shall be allocated to the
-----------
covenant not to compete contained in Section 6.4 hereof, and the balance of the
-----------
"deemed sales price" shall be allocated to the fixed assets, goodwill and other
intangible assets of the Company. Both Global and Sellers shall report the tax
consequences of the transactions contemplated by this Agreement consistently
with such allocations and shall not take any position inconsistent with such
allocations in any Tax Return or otherwise. In the event that Global and the
Sellers are unable to agree as to such allocations, Global's reasonable
positions with respect to such allocations shall control. The Sellers shall be
liable for, and shall indemnify and hold Global and the Company harmless
against, any Taxes or other costs attributable solely to (i) a failure on the
part of any Seller to take all actions required of him under this Section
-------
6.5(c); or (ii) a failure on the part of the Company to qualify, at or prior to
- ------
the Closing, as an "S corporation" for federal and/or state income Tax
purposes.
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO GLOBAL'S OBLIGATIONS. The obligation of Global
----------------------------------
under this Agreement to consummate the Closing is subject to the conditions
that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company and
-----------------------------------------
Sellers shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement to be performed and complied with by each of them prior to or at
the Closing Date. The representations and warranties of the Company and Sellers
set forth in this Agreement shall be accurate in all material respects at and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date except for any changes resulting from activities or
transactions which may have taken place after the date hereof and which are
permitted or contemplated by the Agreement or which have been entered into in
the ordinary course of business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representation, the same shall be true in all material respects
as of such specified date. In addition, Global shall have determined from its
due diligence review of the Company that no Material Adverse Change or Material
adverse effect shall have occurred in the financial condition, business,
operations or prospects of the Company from those presented to Global.
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<PAGE>
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by the Company and Sellers of the transactions contemplated by this
Agreement shall have been fulfilled and all authorizations, consents and
approvals, including expiration or early termination of all waiting periods
under the HSR Act and those of all federal, state, local and foreign
governmental agencies and regulatory authorities required to be obtained in
order to permit the consummation of the transactions contemplated hereby shall
have been obtained in form and substance reasonably satisfactory to Global
unless such failure could not reasonably be expected to have a Material Adverse
Effect. All approvals of the Board of Directors and shareholders of the Company
necessary for the consummation of this Agreement and the transactions
contemplated hereby shall have been obtained.
(C) SUPPLIERS/LEASES. Sellers shall have obtained, where
----------------
necessary, the written consent of (i) the Company's Material office equipment
suppliers and (ii) the lessors of the Buildings to the transactions contemplated
by the Agreement. The lessors of the Buildings shall have provided an Estoppel
Certificate to Global's lenders in substantially the same form as Exhibit B
---------
hereto, except as specifically waived by Global.
(D) DISCHARGE OF INDEBTEDNESS AND LIENS. Sellers and the Company
-----------------------------------
shall have provided for the payment in full by the Company of all Funded
Indebtedness of the Company (other than Assumed Funded Indebtedness). Such
Funded Indebtedness, if any, as of October 31, 1997, is listed on Schedule
--------
7.1(d) hereto. Sellers shall have also provided for the termination of all
- ------
Encumbrances of record on the properties of the Company, except for Permitted
Exceptions and except for the security interests set forth on the schedules to
this Agreement; provided, however, that such security interests in favor of
Tokai Financial Services, Inc. and Copelco Capital, Inc. are modified to the
satisfaction of Global's lender prior to Closing. All liens or UCC filings
against the Company and each of the Subsidiaries or Affiliates of the Company
which engaged in the Business other than Permitted Exceptions and except for the
security interests set forth on the schedules to this Agreement, shall have been
terminated as of the Closing; provided, however, that such security interests in
favor of Tokai Financial Services, Inc. and Copelco Capital, Inc. are adjusted
to the satisfaction of Global's lender prior to Closing.
(E) MATERIAL ADVERSE CHANGE. There has been no Material Adverse
-----------------------
Change with respect to the Company since September 30, 1997.
(F) TRANSFER TAXES. Sellers shall be responsible for all stock
--------------
transfer or gains taxes imposed on Sellers incurred in connection with this
Agreement.
(G) INTENTIONALLY OMITTED..
---------------------
(H) DOCUMENTS TO BE DELIVERED BY SELLERS AND THE COMPANY. The
----------------------------------------------------
following documents shall be delivered at the Closing by Sellers and the
Company:
(I) OPINION OF SELLERS' COUNSEL. Global shall have
---------------------------
received an opinion of counsel to the Company and Sellers, dated the
Closing Date, in substantially the same form as the form of opinion
that is Exhibit C hereto.
---------
-24-
<PAGE>
(II) CERTIFICATES. Global shall have received an
------------
officer's certificate and a secretary's certificate of the Company
executed by officers of the Company, dated the Closing Date, in
substantially the same forms as the forms of certificates that are
Exhibit D hereto.
---------
(III) RELEASE. Sellers shall have furnished the Company
-------
with a general release of liabilities, excluding compensation and
employee benefits as well as obligations pursuant to this Agreement,
in substantially the same form as the form attached as Exhibit E
---------
hereto.
(IV) ESCROW AGREEMENT. Sellers shall have delivered to
----------------
Global at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(V) EMPLOYMENT AGREEMENT. Michael E. Shea, Jr. shall
--------------------
have duly executed and delivered the Employment Agreement in
substantially the same form attached as Exhibit F hereto, pursuant to
---------
which he will be employed by the Company following the Closing.
(VI) BUILDING LEASES. Global shall be reasonably
---------------
satisfied with the terms of the leases of the Buildings. Sellers shall
have delivered to Global an Estoppel Certificate of the landlords of
the Buildings to Global's lenders in substantially the same form as
the form attached as Exhibit B hereto, except as specifically waived
---------
by Global.
(VII) COLLATERAL ASSIGNMENT OF RIGHTS. Sellers shall have
-------------------------------
executed and delivered to Jackson National Life Insurance Company a
Collateral Assignment of Rights in substantially the same form as the
form attached hereto as Exhibit H.
---------
(VIII) STOCK CERTIFICATES. Sellers shall have delivered
------------------
the Shares accompanied by duly executed stock powers, together with
any stock transfer stamps or receipts for any transfer taxes required
to be paid thereon.
7.2 CONDITIONS TO SELLERS' AND THE COMPANY'S OBLIGATIONS. The
----------------------------------------------------
obligation of Sellers and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Global shall have
-----------------------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by Global prior to or at the Closing and the
representations and warranties of Global set forth in Article IV hereof shall be
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
into in the ordinary course of the Business and except to the extent that such
representations and warranties are expressly made as of another specified date
and, as to such representations, the same shall be true as of such specified
date.
(B) CONSENTS. All statutory requirements for the valid
--------
consummation by Global of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
expiration or early termination of all waiting periods under the HSR Act and
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation by Global of the transactions contemplated hereby shall have been
obtained unless such failure shall not have a Material Adverse Effect on the
Business. Global shall have used its reasonable best efforts to have obtained
the release of the Sellers from all personal guarantees with respect to the
Company.
(C) DOCUMENTS TO BE DELIVERED BY GLOBAL. The following documents
-----------------------------------
shall be delivered at the Closing by Global:
(I) CERTIFICATES. Sellers shall have received an officers'
------------
certificate and a secretary's certificate executed by officers of
Global, dated the Closing Date, in substantially the same forms as the
forms of certificates that are Exhibit G hereto.
---------
(II) ESCROW AGREEMENT. Global shall have delivered to
----------------
Sellers at the Closing the duly executed Escrow Agreement required
pursuant to Section 2.5 hereof.
-----------
(III) EMPLOYMENT AGREEMENT. Global shall have caused the
--------------------
Company to duly execute and deliver the Employment Agreement with
Michael E. Shea, Jr. in the same form attached as Exhibit F hereto,
---------
pursuant to which he will be employed by the Company following the
Closing.
(IV) PAYMENTS TO SELLERS AND THE COMPANY AND THE ESCROW
--------------------------------------------------
AGENT. Sellers shall have received the Purchase Price for the Shares.
-----
The Sellers shall have been repaid in full by Global for the aggregate
amount of all Assumed Funded Indebtedness. The Escrow Agent shall
have received the Escrow Sum from Global.
(D) RIGHT OF REINVESTMENT. Michael E. Shea, Jr. shall have been
---------------------
offered the right to invest up to [**] in the capital stock of Global on the
same terms provided to other recent outside investors in Global (the "GLOBAL
STOCK").
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<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF GLOBAL. Except as provided in Section 8.6, as
------------------------- -----------
Global's sole and exclusive remedy for any breach by the Sellers hereunder,
Sellers agree to jointly and severally indemnify and hold harmless Global and
each officer, director, and affiliate of Global, including without limitation
the Company or any successor of the Company (collectively, the "INDEMNIFIED
PARTIES") from and against any and all damages, losses, claims, liabilities,
demands, charges, suits, penalties, costs and expenses (including court costs
and reasonable attorneys' fees and expenses incurred in investigating and
preparing for any litigation or proceeding) (collectively, the "INDEMNIFIABLE
COSTS"), which any of the Indemnified Parties may sustain, or to which any of
the Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by Sellers or the Company of or under any
of the representations, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith; (B) the
assertion and final determination of any claim or liability against the Company
or any of the Indemnified Parties by any Person based upon the facts which form
the alleged basis for any litigation to the extent it should have been, but was
not, reserved for in the Financial Statements in accordance with GAAP; and (C)
the Company's tortious acts or omissions to act prior to Closing for which the
Company did not carry liability insurance for themselves as the insured party,
whether or not such acts or omissions to act result in a breach or violation of
any representation or warranty. Notwithstanding the foregoing, (i) a Seller
will not incur any indemnification obligation to any other party to this
Agreement for Indemnifiable Costs incurred solely in connection with a breach of
the provisions of Sections , 6.2, 6.3 and 6.4 hereof by the other Seller and
--------- --- --- ---
(ii) Peter Wenzke will not incur any indemnification obligation to any other
party to this Agreement for Indemnifiable Costs incurred solely in connection
with a breach of the Employment Agreement with Michael E. Shea, Jr.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Sellers may be liable hereunder, such Indemnified Party shall give prompt
written notice thereof to Sellers and, except as otherwise provided in Section
-------
8.4 below, Sellers shall have the right to defend, or cause the Company or its
- ---
successors to defend, any litigation, action, suit, demand, or claim for which
it may seek indemnification unless, in the reasonable judgment of Global, such
litigation, action, suit, demand, or claim, or the resolution thereof, would
have an ongoing effect on Global, the Company or its successors, and such
Indemnified Party shall extend reasonable cooperation in connection with such
defense, which shall be at Sellers' expense. In the event Sellers fail or
refuse to defend the same within a reasonable length of time, the Indemnified
Parties shall be entitled to assume the defense thereof, and Sellers shall be
jointly and severally liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including reasonable
attorneys' fees and settlement payments) if it is determined that such request
for indemnification was proper. If Sellers shall not have the right to assume
the defense of any litigation, action, suit, demand, or claim in accordance with
either of the two preceding sentences, the Indemnified Parties shall have the
absolute right to control the defense of and to settle, in Indemnified Parties'
sole discretion
-27-
<PAGE>
after obtaining the written consent of the Sellers (such consent not to be
unreasonably withheld), such litigation, action, suit, demand, or claim, but
each Seller shall be entitled, at his own expense, to participate in such
litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party or a Seller pursuant to this Article VIII prior to the
expiration of the Escrow Period, such Indemnified Party or Seller shall first
apply to the Escrow Agent provided in Section 2.5 of this Agreement for
-----------
reimbursement of such claim in accordance with the provisions of the Escrow
Agreement prior to seeking reimbursement for such claim.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Global shall have the right to
control any and all such audits which may result in the assessment of additional
Taxes against the Company and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Sellers,
which shall not unreasonably be withheld and subject to the right of Sellers to
have their accountants and attorneys consult with Global on such audits or
procedures at Sellers' expense). Sellers shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, Sellers shall be
responsible for and shall promptly pay all Taxes, interest, and penalties to
which any of the Indemnified Parties shall be entitled to indemnification.
8.5 INDEMNIFICATION OF SELLERS. Global agrees to indemnify and hold
--------------------------
harmless Sellers and the Company and each officer, director, stockholder or
affiliate of the Company, from and against any Indemnifiable Costs arising out
of (A) any material misrepresentation, breach or default by Global of or under
any of the covenants, agreements or other provisions of this Agreement or any
agreement or document executed in connection herewith, and (B) any tortious acts
or omissions by Global before or after or the Company after, the Closing. In
addition, the Company and Global shall indemnify the Sellers for any payment or
satisfaction of any guarantees by Sellers of the Company's obligations occurring
after the Closing Date.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by any
-------------------------
party hereunder shall be net of any insurance proceeds received by such Person
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations and warranties of the Sellers under Sections 3.1, 3.2, 3.3 or
-------------------------
3.17 hereof (the indemnification for which shall expire on the expiration of the
- ----
applicable statute of limitations), the indemnification provided under this
Article VIII shall expire on the third anniversary of the Closing Date. The
Sellers shall not be obligated to pay any amounts for indemnification under this
Article VIII until the aggregate indemnification obligation hereunder exceeds
$50,000, whereupon Sellers shall be liable for all amounts for which
indemnification may be sought in excess of $25,000. Notwithstanding the
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
foregoing, in no event shall the aggregate liability of Sellers to Global exceed
[**] (except for claims made for any breach of the representations and
warranties of Sellers under Sections 3.1, 3.2, 3.3, or 3.17 hereof, as to which
---------------------- ----
the limit of indemnification hereunder shall be the Purchase Price). However
nothing in this Article VIII shall limit Global or Sellers in exercising or
securing any remedies provided by applicable common law with respect to the
conduct of Sellers or Global in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that Global or
Sellers successfully proves intentional fraud or intentional fraudulent conduct
in connection with this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 MODIFICATIONS. Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto. No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 NOTICES. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Global:
------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3478
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel No.: (813) 960-5508
With a copy to:
---------------
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
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<PAGE>
The Company:
------------
31 Inwood Road
Rocky Hill, Connecticut 06067
Attention: President
Fax No.: (860) 529-6866
Tel No.: (860) 529-7757
With a copy to:
---------------
Robinson & Cole LLP
One Commercial Plaza
Hartford, Connecticut 06103-3597
Attention: Richard G. Shechtman, Esq.
Fax No.: (860) 275-8299
Tel No.: (860) 275-8230
Seller: Michael E. Shea, Jr.:
------------------------------
Michael E. Shea, Jr.
68 Pheasant Hill Road
Weston, Connecticut 06883
Fax No.: ______________
Tel No.: (203) 222-1291
With a copy to:
---------------
Robinson & Cole LLP
One Commercial Plaza
Hartford, Connecticut 06103-3597
Attention: Richard G. Shechtman, Esq.
Fax No.: (860) 275-8299
Tel No.: (860) 275-8230
Seller: Peter Wenzke:
----------------------
Peter Wenzke
7 Emily Road
Marlborough, Connecticut 06447
Fax No.: ______________
Tel No.: (860) 295-0411
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<PAGE>
With a copy to:
---------------
Sorokin Gross & Hyde, P.C.
One Corporate Center
Hartford, Connecticut 06103
Attention: Barry Greene, Esq.
Fax No.: (860) 525-9099
Tel No.: (860) 525-6645
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions contemplated herein, provided, however,
that Sellers shall bear all costs and expenses of (i) any broker involved in
this transaction and (ii) all legal expenses of Sellers or the Company with
respect to this Agreement and the transactions contemplated hereby.
9.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Company, Global and Sellers, their heirs,
representatives, successors, and permitted assigns, in accordance with the
terms hereof. This Agreement shall not be assignable by the Company or Sellers
without the prior written consent of Global. This Agreement shall be assignable
by Global to a wholly-owned subsidiary of Global without the prior written
consent of Sellers, but any such assignment shall not relieve Global of its
obligations hereunder.
9.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
9.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Connecticut.
9.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection
-31-
<PAGE>
with the transactions contemplated hereby shall survive the Closing for a period
of three (3) years, provided (a) the representations and warranties contained in
Section 3.17 of this Agreement, and the related indemnities, shall survive the
- ------------
Closing until the expiration of the applicable statutes of limitations for
determining or contesting Tax liabilities and (b) the representations and
warranties contained in Sections 3.1, 3.2 and 3.3 of this Agreement, and the
-------------------------
related indemnities, shall survive the Closing until expiration of the
applicable statute of limitations.
9.9 INVALID PROVISIONS. If any provision of this Agreement is deemed
------------------
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this
Agreement ever be reformed or rewritten by any judicial body of competent
jurisdiction, such provision as so reformed or rewritten shall be binding upon
all parties hereto.
9.10 PUBLIC ANNOUNCEMENTS. Neither party shall make any public
--------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 WAIVER. No failure or delay on the part of any party in
------
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a waiver
of such right, power, or privilege; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
9.13 DISPUTE RESOLUTION. ALL DISPUTES BETWEEN SELLERS AND GLOBAL WITH
------------------
RESPECT TO ANY PROVISION OF THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF
SELLERS AND GLOBAL HEREUNDER (OTHER THAN DISPUTES INVOLVING ALLEGATIONS OF
INTENTIONAL FRAUD), WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT, WILL BE
RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN HARTFORD, CONNECTICUT, OR BY ANY OTHER MEANS OF
ALTERNATIVE DISPUTE RESOLUTION MUTUALLY AGREED UPON BY THE PARTIES. EACH PARTY
SHALL BE ENTITLED TO DISCOVERY PURSUANT TO THE FEDERAL RULES OF CIVIL PROCEDURE
AND FEDERAL RULES OF EVIDENCE.
-32-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
-----------
CONNECTICUT BUSINESS SYSTEMS, INC.
By: /s/ Michael E. Shea, Jr.
--------------------------------------
Michael E. Shea, Jr.
President
SELLERS:
-------
/s/ Michael E. Shea, Jr.
-------------------------------------------
Michael E. Shea, Jr.
/s/ Peter Wenzke
-------------------------------------------
Peter Wenzke
-33-
<PAGE>
January 7, 1998
CBSI Acquisition Corporation
110 Perimeter Road
Nashua, New Hampshire 03063
RE: ASSIGNMENT OF RIGHTS UNDER AGREEMENT TO CBSIAC
Ladies and Gentlemen:
Reference is made to that certain stock purchase agreement (the
"AGREEMENT"), dated as of December 31, 1997, by and among Global Imaging Systems
Inc., a Delaware corporation ("GLOBAL"), Connecticut Business Systems, Inc., a
Connecticut corporation ("CBSI") and certain shareholders of CBSI (the
"SELLERS").
Pursuant to Section 9.5 of the Agreement, the Agreement is assignable
-----------
by Global to a wholly-owned subsidiary of Global without the prior written
consent of the Sellers, but any such assignment shall not relieve Global of its
obligations under the Agreement.
Global hereby assigns all its rights and interests in the Agreement to
CBSI Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary
of Global ("CBSIAC"). Notwithstanding the foregoing, Global acknowledges that
it is not relieved of its obligations under the Agreement.
By signing below, CBSIAC agrees to assume and be bound by all
obligations of Global under the agreement and all provisions of the Agreement
and ratifies and confirms the Agreement as if an original party to it.
Very truly yours,
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Thomas S. Johnson
------------------------------
Thomas S. Johnson
President
Accepted and Agreed:
CBSI ACQUISITION CORPORATION
By: /s/ Thomas S. Johnson
----------------------------
Thomas S. Johnson
President
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.27
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[**]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***
ASSET PURCHASE AGREEMENT
BY AND AMONG
CONNECTICUT BUSINESS SYSTEMS, INC.
AND
BLOOM'S INCORPORATED
DATED FEBRUARY 26, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS............................................... 1
1.1 DEFINITIONS.................................................... 1
------------
ARTICLE II AGREEMENT OF PURCHASE AND SALE; CLOSING................... 6
2.1 PURCHASED ASSETS............................................... 6
----------------
(a) ACCOUNTS RECEIVABLE....................................... 6
-------------------
(b) REAL PROPERTY............................................. 6
-------------
(c) INVENTORY................................................. 7
---------
(d) BUSINESS, EQUIPMENT AND SUPPLIES.......................... 7
--------------------------------
(e) CONTRACTS AND OTHER AGREEMENTS RELATING TO THE BUSINESS... 7
-------------------------------------------------------
(f) BOOKS, RECORDS, LISTS AND OTHER DATA...................... 7
------------------------------------
(g) EMPLOYMENT AGREEMENTS AND EMPLOYEE RELATIONSHIPS.......... 7
------------------------------------------------
(h) LICENSES, PERMITS......................................... 7
-----------------
(i) INTELLECTUAL PROPERTY..................................... 7
---------------------
(j) GENERAL INTANGIBLES....................................... 8
-------------------
2.2 ASSUMED LIABILITIES............................................ 8
-------------------
2.3 EXCLUDED LIABILITIES........................................... 8
--------------------
2.4 TITLE TO THE PURCHASED ASSETS: DOCUMENTS OF CONVEYANCE........ 9
-------------------------------------------------------
2.5 PURCHASE PRICE; ALLOCATION OF PURCHASE PRICE................... 10
--------------------------------------------
2.6 PAYMENT OF PURCHASE PRICE...................................... 10
-------------------------
2.7 REDEMPTION PRICE AND STOCK PURCHASE PRICE ADJUSTMENTS.......... 10
-----------------------------------------------------
(A) FUNDED INDEBTEDNESS ADJUSTMENT............................ 10
------------------------------
(B) WORKING CAPITAL ADJUSTMENT................................ 10
--------------------------
2.8 CLOSING........................................................ 11
-------
2.9 ESCROW ARRANGEMENTS............................................ 11
-------------------
2.10 CLOSING AUDIT................................................. 11
-------------
2.11 POST-CLOSING PURCHASE PRICE ADJUSTMENT........................ 11
--------------------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................ 12
3.1 DUE ORGANIZATION............................................... 12
----------------
3.2 SUBSIDIARIES................................................... 12
------------
3.3 DUE AUTHORIZATION.............................................. 13
-----------------
3.4 FINANCIAL STATEMENTS........................................... 13
--------------------
3.5 CERTAIN ACTIONS................................................ 13
---------------
3.6 PROPERTIES..................................................... 14
----------
3.7 LICENSES AND PERMITS........................................... 15
--------------------
3.8 INTELLECTUAL PROPERTY.......................................... 15
---------------------
3.9 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS..................... 16
------------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.10 INSURANCE.......................................................... 16
---------
3.11 EMPLOYEE BENEFIT PLANS............................................. 16
----------------------
3.12 CONTRACTS AND AGREEMENTS........................................... 18
------------------------
3.13 CLAIMS AND PROCEEDINGS............................................. 19
----------------------
3.14 TAXES.............................................................. 19
-----
3.15 PERSONNEL.......................................................... 20
---------
3.16 BUSINESS RELATIONS................................................. 20
------------------
3.17 ACCOUNTS RECEIVABLE................................................ 20
-------------------
3.18 CUSTOMER CLAIMS.................................................... 20
3.19 BROKERS............................................................ 21
-------
3.20 AFFILIATED TRANSACTIONS............................................ 21
3.21 FUNDED INDEBTEDNESS; LETTERS OF CREDIT; UNDISCLOSED LIABILITIES.... 21
---------------------------------------------------------------
(A) FUNDED INDEBTEDNESS............................................ 21
-------------------
(B) UNDISCLOSED LIABILITIES........................................ 21
-----------------------
3.22 INDEBTEDNESS TO AND FROM EMPLOYEES................................. 21
----------------------------------
3.24 INFORMATION FURNISHED.............................................. 22
---------------------
ARTICLE IV BUYER'S REPRESENTATIONS AND WARRANTIES........................ 22
4.1 DUE ORGANIZATION.................................................... 22
----------------
4.2 DUE AUTHORIZATION................................................... 22
-----------------
4.3 NO BROKERs.......................................................... 22
--- ---------
ARTICLE V COVENANTS OF SELLER............................................ 23
5.1 CONSENTS OF OTHERS.................................................. 23
----------------------
5.2 SELLER'S EFFORTS.................................................... 23
--------------------
5.3 POWERS OF ATTORNEY.................................................. 23
----------------------
5.4 CONDUCT OF BUSINESS PENDING CLOSING................................. 23
-----------------------------------
5.5 ACCESS TO RECORDS BEFORE CLOSING.................................... 24
--------------------------------
ARTICLE VI POST-CLOSING COVENANTS......................................... 24
6.1 GENERAL............................................................. 24
--------
6.2 TRANSITION.......................................................... 24
----------
6.3 CONFIDENTIALITY..................................................... 25
---------------
6.4 COVENANT NOT TO COMPETE............................................. 25
-----------------------
6.5 ACCESS TO RECORDS AFTER CLOSING..................................... 26
-------------------------------
6.6 LITIGATION SUPPORT.................................................. 26
-------------------
6.7 HIRING OF EMPLOYEES................................................. 26
-------------------
6.8 ASSIGNMENT OF CONTRACTS............................................. 26
-----------------------
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING... 27
7.1 CONDITIONS TO BUYER'S OBLIGATIONS................................... 27
---------------------------------
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES...................... 27
-----------------------------------------
(B) CONSENTS....................................................... 27
--------
(C) LEASES......................................................... 28
------
(D) FINANCIAL CONDITION............................................ 28
-------------------
(E) DOCUMENTS TO BE DELIVERED BY SELLER............................ 28
-----------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(I) CONVEYANCE DOCUMENTS..................................... 28
--------------------
(II) OPINION OF SELLER'S COUNSEL............................. 28
---------------------------
(III) CERTIFICATES........................................... 28
------------
(IV) RESOLUTIONS............................................. 28
-----------
(V) UCC MATTERS.............................................. 29
-----------
(VI) ESCROW AGREEMENT........................................ 29
----------------
(VII) SELLER MANAGEMENT SERVICES AGREEMENT................... 29
------------------------------------
(VIII) NON-COMPETE AGREEMENT................................. 29
---------------------
(IX) COLLATERAL ASSIGNMENT OF RIGHTS......................... 29
-------------------------------
(X) RECORDS OF SELLER........................................ 29
-----------------
(XI) AUDIT OF DIVISION....................................... 29
------------------
7.2 CONDITIONS TO SELLER'S AND SELLER'S OBLIGATIONS.................... 29
-----------------------------------------------
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES..................... 29
-----------------------------------------
(B) CONSENTS...................................................... 30
--------
(C) DOCUMENTS TO BE DELIVERED BY BUYER............................ 30
----------------------------------
(I) ESCROW AGREEMENT......................................... 30
----------------
(II) ASSIGNMENT AND ASSUMPTION AGREEMENT..................... 30
-----------------------------------
(III) MANAGEMENT SERVICES AGREEMENT.......................... 30
-----------------------------
(D) PAYMENTS TO SELLER............................................ 30
------------------
ARTICLE VIII INDEMNIFICATION............................................ 31
8.1 INDEMNIFICATION OF BUYER........................................... 31
------------------------
8.2 DEFENSE OF CLAIMS.................................................. 31
-----------------
8.3 ESCROW CLAIM....................................................... 32
------------
8.4 TAX AUDITS, ETC.................................................... 32
---------------
8.5 INDEMNIFICATION OF SELLER.......................................... 32
-------------------------
8.6 LIMITS ON INDEMNIFICATION.......................................... 32
-------------------------
ARTICLE IX TERMINATION.................................................. 33
9.1 TERMINATION........................................................ 33
-----------
9.2 EFFECT OF TERMINATION.............................................. 33
---------------------
ARTICLE X MISCELLANEOUS................................................. 34
10.1 MODIFICATIONS; WAIVERS............................................ 34
----------------------
10.2 NOTICES........................................................... 34
--------
10.3 COUNTERPARTS; FACSIMILE TRANSMISSION.............................. 35
------------------------------------
10.4 EXPENSES.......................................................... 35
--------
10.5 BINDING EFFECT; ASSIGNMENT........................................ 35
--------------------------
10.6 ENTIRE AND SOLE AGREEMENT......................................... 35
-------------------------
10.7 GOVERNING LAW..................................................... 36
-------------
10.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS............. 36
-----------------------------------------------------
10.9 INVALID PROVISIONS................................................ 36
------------------
10.10 PUBLIC ANNOUNCEMENTS............................................. 36
--------------------
10.11 REMEDIES CUMULATIVE.............................................. 36
-------------------
10.12 THIRD PARTIES.................................................... 36
------------
10.13 NO STRICT CONSTRUCTION........................................... 36
----------------------
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of General Assignment, Bill of Sale and
Assumption Agreement
Exhibit C Form of Opinion of Seller's Counsel
Exhibit D-1 Form of Seller's Officer Certificate
Exhibit D-2 Form of Seller's Secretary Certificate
Exhibit E Form of Management Services Agreement
Exhibit F Form of Non-Compete Agreement
Exhibit G Intentionally Omitted
Exhibit H Form of Collateral Assignment of Rights
Exhibit I Form of Landlord Waiver for Building Leases
LIST OF DISCLOSURE SCHEDULES
Schedule 2.1 Real Property (Leases)
Schedule 2.1(d) Business, Equipment and Supplies
Schedule 2.6 Seller's Account and Wire Transfer Instructions
Schedule 3.1-1 Articles of Incorporation
Schedule 3.1-2 Bylaws
Schedule 3.1-3 Qualified Jurisdictions
Schedule 3.5(k) Bonuses
Schedule 3.6 List of Properties
Schedule 3.7 List of Licenses and Permits
Schedule 3.8 List of Intellectual Property
Schedule 3.10 List of Insurance
Schedule 3.11 Employee Plans
Schedule 3.12 List of Contracts and Certain Exceptions
Schedule 3.15 List of Personnel and Employee Agreements and Benefits
Schedule 3.22 Payment and Indebtedness of Seller to Employees
The Exhibits and Schedules to this Asset Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") is entered into as of
February 26, 1998 between CONNECTICUT BUSINESS SYSTEMS, INC., a Connecticut
corporation ("BUYER"), and BLOOMS INCORPORATED, a Massachusetts corporation
("SELLER").
RECITALS
--------
A. Seller, through its Bloom's Business Systems Division (the
"DIVISION"), is engaged in the sale and service of office equipment in the State
of Connecticut, the State of Rhode Island, and the Commonwealth of Massachusetts
(the "BUSINESS").
B. Seller owns and leases certain operating assets and properties,
real and personal, tangible and intangible, which are used by the Seller in the
conduct of the Business of the Division.
C. Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, substantially all of Seller's operating assets used in, or useful to
and related to the operation of the Business by the Division on the terms and
conditions set forth in this Agreement.
D. Buyer, in connection with such purchase, desires to assume
certain of the liabilities and obligations of Seller relating to the Business
(and none others), as more specifically set forth herein.
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" has the meaning specified
in Section 2.4.
-----------
"ASSUMED LIABILITIES" has the meaning specified in Section 2.2.
-----------
<PAGE>
"AUDITED CLOSING BALANCE SHEET" has the meaning specified in
Section 2.10.
- ------------
"BUILDINGS" shall mean the sites where the operations of the
Business are located at (i) 135 Freshwater Boulevard, Enfield, Connecticut, (ii)
299 North Street, Pittsfield, Massachusetts, (iii) 109 Pitkin Street, East
Hartford, Connecticut, and (iv) 457 Castle Avenue, Fairfield, Connecticut.
"BUSINESS" has the meaning specified in the first recital of the
Agreement.
"BUYER" has the meaning specified in the first paragraph of this
Agreement.
"CLOSING" means the closing of the transfer of the Purchased
Assets from Seller to Buyer.
"CLOSING DATE" has the meaning specified in Section 2.8.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all (i) terms and provisions of
this Agreement or the transactions to be consummated pursuant hereto (including
the Purchase Price), and (ii) confidential information and trade secrets of
Seller related to the Business including, without limitation, any of the same
comprising the identity, lists or descriptions of any customers, referral
sources or organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals. Confidential Information shall not include any information (i) which is
disclosed pursuant to subpoena or other legal process, (ii) which has been
publicly disclosed, or (iii) which is subsequently disclosed by any third party
not in breach of a confidentiality agreement with Buyer.
"CONTRACTS" has the meaning specified in Section 3.12.
------------
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"DISCLOSURE SCHEDULES" shall mean the Disclosure Schedules
--------------------
attached to this Agreement pursuant to which exceptions to the Seller's specific
representations and warranties set forth in Article III (and listed on a
-----------
Section-by-Section basis) are disclosed to Buyer pursuant to said Article III.
-----------
"EFFECTIVE DATE" has the meaning specified in Section 2.8.
-----------
"EMPLOYEES" has the meaning specified in Section 3.11.
------------
"EMPLOYEE PLANS" has the meaning specified in Section 3.11.
------------
-2-
<PAGE>
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, restrictive covenant or other restrictions of any kind.
"ENVIRONMENTAL AND OSHA OBLIGATIONS" has the meaning specified in
Section 3.9.
- -----------
"EQUITABLE EXCEPTIONS" shall have the meaning specified in
Section 3.3.
- -----------
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means Cooley, Shrair, P.C.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by
and among Seller, Buyer and the Escrow Agent in the form of Exhibit A.
---------
"ESCROW PERIOD" has the meaning specified in Section 2.9
-----------
"ESCROW SUM" has the meaning specified in Section 2.9
-----------
"EQUIPMENT" has the meaning specified in Section 2.1(d).
--------------
"EXCLUDED LIABILITIES" has the meaning specified in Section 2.3.
-----------
"FINAL ADJUSTMENT AMOUNT" has the meaning specified in Section
-------
2.11.
- ----
"FINANCIAL STATEMENTS" has the meaning specified in Section 3.4.
-----------
"FUNDED INDEBTEDNESS" means with relation to the Division and the
Assumed Liabilities all (i) indebtedness of Seller related to the Business for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of Seller; (iii) obligations of Seller to pay the deferred purchase
or acquisition price for goods or services, other than trade accounts payable or
accrued expenses in the ordinary course of business on no more than 90 day
payment terms; (iv) indebtedness of others guaranteed by Seller or secured by an
Encumbrance on Seller's property; and (v) indebtedness of Seller under extended
credit terms of more than 30 days from vendors provided to Seller; provided,
however, that the following will not be deemed to be Funded Indebtedness: any
shortfall under (i) commitments by Seller to Copelco Capital Corporation
("COPELCO") as described in agreements between Copelco and Seller dated January
19, 1996 and December 31, 1997 which is based on commitments from Connecticut
College to Seller under leases of equipment to Connecticut College dated January
4, 1996, April 23, 1996, November 5, 1996 and September 15, 1997 or (ii)
commitments by Seller to Ricoh Corporation ("RICOH") as described in that
certain Aficio 3 month Commitment Promotion executed by Seller on January 27,
1998.
"GAAP" shall mean generally accepted accounting principles,
consistently applied except the assets shall include (i) the advertising barter
receivables; provided such
-3-
<PAGE>
receivables do not exceed $50,000 in the aggregate, and (ii) used in-stock
inventory at wholesale value in the aggregate of $10,000.
"GLOBAL" has the meaning specified in Section 5.5
-----------
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has meaning specified in Section 3.7.
-----------
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended and the rules and regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"INDEMNIFIABLE COSTS" has the meaning specified in Section 8.1.
-----------
"INDEMNIFIED PARTIES" has the meaning specified in Section 8.1.
-----------
"INDEPENDENT ACCOUNTANTS" has the meaning specified in Section
-------
2.10.
- ----
"INTELLECTUAL PROPERTY" has the meaning specified in Section
-------
2.1(i).
- ------
"KNOWLEDGE" (whether or not capitalized) with respect to Seller
shall mean actual knowledge after reasonable inquiry of the employees of Seller
with responsibility for the applicable subject matter.
"MANAGEMENT SERVICES AGREEMENT" has the meaning specified in
Section 7.1(e).
- --------------
"MATERIAL" (whether or not capitalized) shall, where appropriate
in context of its use in making the representations and warranties set forth in
Article III, be deemed to mean an amount of money greater than $25,000.
- -----------
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change or effect on the assets, properties, Business,
operations, liabilities, financial condition or prospects of Seller and its
subsidiaries, taken as a whole. In determining whether a "Material Adverse
Change" or "Material Adverse Effect" has occurred in the context of the use of
such terms in the Seller's representations and warranties set forth in Article
-------
III, such terms shall refer to the occurrence of any single event, or any series
- ---
of related events or set of related circumstances, which results in or may
result in a loss to Seller or Buyer in excess of $25,000 per occurrence or
$75,000 in the aggregate.
"NET WORTH" shall mean the difference between the Purchased
Assets and the Assumed Liabilities (excluding Special Liabilities), as
determined in accordance with GAAP as modified in this Agreement.
-4-
<PAGE>
"NON-COMPETE AGREEMENT" has the meaning specified in Section
-------
7.1(e).
- ------
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"PERMITTED EXCEPTION" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, or (c) other liens or imperfections on property
which are not material in amount or do not materially detract from the value or
the existing use of the property affected by such lien or imperfection.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"PRELIMINARY ADJUSTMENT AMOUNT" has the meaning specified in
Section 2.7(b).
- --------------
"PRELIMINARY CLOSING BALANCE SHEET" has the meaning specified in
Section 2.1.
- -----------
"PURCHASE PRICE" has the meaning specified in Section 2.5.
-----------
"PURCHASED ASSETS" has the meaning specified in Section 2.1.
-----------
"REAL PROPERTY" has the meaning specified in Section 2.1(b)
--------------
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or any common law.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SPECIAL LIABILITIES" mean the following: (i) the sick pay days
transferred to Buyer as set forth in item 5 on Schedule 3.11 and (ii) the cost
-------------
of the yellow page advertisements of the Business for the telephone numbers
described in Section 2.2(i) herein after the Effective Date.
--------------
"TAX" or "TAXES" means any federal, state, local or foreign
income, alternative or add-on minimum, gross income, gross receipts, windfall
profits, severance, property, production, sales, use, transfer, gains, license,
excise, employment, payroll, withholding or minimum tax, transfer, goods and
services, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amounts imposed thereon by any
Governmental Body.
-5-
<PAGE>
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"WORKING CAPITAL" shall mean the difference between the Seller's
current assets (other than cash and prepaid expenses) and its current
liabilities (other than the current portion of any long-term indebtedness);
provided, however, that for purposes hereof only the Business as it relates to
the Purchased Assets and Assumed Liabilities (if any) shall be taken into
account when measuring Working Capital.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 PURCHASED ASSETS. On the terms and subject to the conditions and
----------------
exceptions contained herein, Seller agrees to sell to Buyer and Buyer agrees to
purchase from Seller at the Closing and on the Closing Date (each as hereinafter
defined), free and clear of all liens, claims and encumbrances except for
Permitted Exceptions of Seller's right, title and interest in and to all of the
operating assets of the Business, reflected on the Division's balance sheet as
of the Effective Date, prepared by Seller within five days of the Closing Date
in good faith in accordance with GAAP as modified in this Agreement (the
"PRELIMINARY CLOSING BALANCE SHEET"), together with all accounts (whether or not
evidenced by a written contract) and customer lists, and copies of all books,
records and files containing any information or documents relevant to any of the
foregoing, and all assets acquired by Seller, or which otherwise have been used,
in the ordinary course of Seller's operation of the Business since the Effective
Date (collectively, the "PURCHASED ASSETS"). Notwithstanding the foregoing, the
Purchased Assets shall not include cash and cash equivalents or prepaid
expenses. The Purchased Assets include, without limitation, the following as
they exist on the Effective Date (as hereinafter defined):
(A) ACCOUNTS RECEIVABLE. All accounts and notes receivable and
-------------------
other deposits, advances and suppliers' or vendors' rebates and all other
receivables of Seller solely related to the Business as reflected on the
Preliminary Closing Balance Sheet, and all such accounts receivable accrued
after the Preliminary Closing Balance Sheet, and existing on the Closing Date
(as hereinafter defined), in the ordinary course of the operation of the
Business.
(B) REAL PROPERTY. All real property and interests, options or
-------------
rights therein leased by Seller with respect to the Business and reflected on
the Preliminary Closing Balance Sheet, and all office facilities, buildings,
easements, rights of way and appurtenances thereon and thereto and other
improvements and fixtures attached to such real property owned or leased by
Seller (collectively, the "REAL PROPERTY"). All Real Property is identified as
leased and described on Schedule 2.1 attached hereto; provided, however, that
------------
the 135 Freshwater Boulevard, Enfield, Connecticut location is excluded from the
Purchased Assets.
(C) INVENTORIES. All inventory items held by the Division and
-----------
reflected on the Preliminary Closing Balance Sheet.
-6-
<PAGE>
(D) BUSINESS, EQUIPMENT AND SUPPLIES. All tangible personal
--------------------------------
property, equipment, supplies, furniture, leasehold improvements, including but
not limited to, leases and subleases of personal property or equipment, all
automobiles and other vehicles, computers and peripherals and all maintenance
and other operating supplies and other miscellaneous tangible personal property
of Division used in the Business, whether or not located at or on the Real
Property at the Closing Date and reflected on the Preliminary or Audited Closing
Balance Sheet as listed on Schedule 2.1(d) attached hereto (collectively, the
---------------
"EQUIPMENT"); excluding all furniture and equipment (but including inventory)
located at the 135 Freshwater Boulevard, Enfield, Connecticut location.
(E) CONTRACTS AND OTHER AGREEMENTS RELATING TO THE BUSINESS. All
-------------------------------------------------------
rights of Division as of and since the Effective Date under all contracts
(written or oral), licenses, leases, purchase orders and other agreements or
arrangements of the Division related to the Business.
(F) BOOKS, RECORDS, LISTS AND OTHER DATA. All files, books,
------------------------------------
records, invoices, accounts, surveys, customer lists and records, supplier
lists, catalogs, price lists, marketing and advertising information, purchasing
histories, profiles and materials, technical bulletins, books and records of
account and other financial, customer and credit data, and access to all
computer programs, software, hardware, firmware, tapes and other materials used
to store, record or produce such data, owned or leased by the Division used in
the Business; provided, however, that the following items are hereby excluded
from Purchased Assets: (i) corporate minute books of Seller, (ii) tax returns of
Seller, and (iii) any other information related to Seller's graphic arts
division.
(G) EMPLOYMENT AGREEMENTS AND EMPLOYEE RELATIONSHIPS. All rights
------------------------------------------------
of Seller and the Division as of the Closing Date under all employment and non-
compete agreements plus all relationships of Seller with any of its employees to
the extent any of the foregoing are used solely in the Business.
(H) LICENSES, PERMITS. All federal, state, local and other
-----------------
governmental licenses, permits, approvals and authorizations that relate solely
to the operation of the Business.
(I) INTELLECTUAL PROPERTY. All technology, computer software,
---------------------
data and documentation (including electronic media), trade secrets (technical
and non-technical), know-how, customer lists and other confidential business
information and proprietary rights, including, without limitation, inventions,
patents, patent disclosures, copyrights, mask works, trademarks, service marks,
trade dress, trade names, corporate names and licenses or other agreements to or
from third parties regarding the foregoing, which are solely used in the
Business (including applications and registrations) and including, without
limitation the non-exclusive right to use the tradename "Bloom's Business
Systems" and the non-exclusive right to use the Blooms trademark logo and the
right to use the telephone numbers of the Business and the goodwill associated
with any such patent, copyright, trademark, trade name or other such right
(collectively, the "INTELLECTUAL PROPERTY").
(J) GENERAL INTANGIBLES. All general intangibles used solely by
-------------------
the Business including, without limitation, all goodwill as a going concern and
any and all causes of
-7-
<PAGE>
action or claims of Seller or the Division against any third party that arose or
will arise in connection with the Business prior to the Closing Date.
2.2 ASSUMED LIABILITIES. On the terms and subject to the conditions
-------------------
and exceptions contained herein, at Closing, Seller and Division shall assign
and delegate to Buyer, and Buyer shall assume and undertake to pay, defend,
discharge and perform in full when due the liabilities of Seller and Division
(but (i) only insofar as such liabilities relate solely to the Business and the
Purchased Assets and (ii) excluding any Funded Indebtedness and certain other
liabilities related to vacation pay and sick pay as described in items 4 and 5
of Schedule 3.11) properly reflected on the Division's most recent balance
-------------
sheet, as updated by the Preliminary Closing Balance Sheet other than any
Excluded Liabilities (as defined in Section 2.3) reflected thereon (the "ASSUMED
-----------
LIABILITIES"), and no others, pursuant to this Agreement and the Assignment and
Assumption Agreement referred to in Section 2.4; provided, however, that the
-----------
following shall be considered to be Assumed Liabilities: (i) the liabilities of
Seller incurred for the benefit of Buyer from the Effective Date through April
30, 1998 pursuant to the Management Services Agreement and (ii) any product
liability claims which arise from products purchased by the Division after the
Effective Date, but only in the event Seller uses its best efforts to recover
all insurance proceeds for such claims if the liability for such claims is
covered by Seller's insurance.
2.3 EXCLUDED LIABILITIES. Notwithstanding anything to the contrary
--------------------
contained in this Agreement, Buyer will not assume or be liable for and Seller
will retain and remain responsible for all of Seller's and the Business' debts,
liabilities and obligations of any nature whatsoever, other than the Assumed
Liabilities, whether accrued, absolute or contingent, whether known or unknown,
whether due or to become due and whether related to the Purchased Assets or
otherwise, and regardless of when asserted (the "EXCLUDED LIABILITIES"),
including, without limitation, the following liabilities or obligations of
Seller (none of which will constitute Assumed Liabilities; provided, however,
that the liabilities of Seller incurred for the benefit of Buyer from the
Effective Date through April 30, 1998 pursuant to the Management Services
Agreement shall be deemed Assumed Liabilities):
(A) All of Seller's or Division's liabilities or obligations
under this Agreement or under any other agreement between Seller or Division on
the one hand and Buyer on the other hand entered into on or after the date of
this Agreement;
(B) All liabilities and obligations of Seller or Division for
Taxes which are imposed on or measured by income, for any period, and all of
Seller's and Division's liabilities or obligations with respect to any Taxes not
specifically accrued as a current liability on the Preliminary Closing Balance
Sheet and therefor assumed pursuant to Section 2.2;
-----------
(C) All of Seller's or Division's liabilities or obligations
arising out of or in connection with the breach of any contract or agreement
included in the Purchased Assets, other than for such amounts as are adequately
and properly reserved for in the Preliminary Closing Balance Sheet;
(D) All of Seller's or Division's liabilities or obligations for
expenses, Taxes or fees incident to or arising out of the negotiation,
preparation, approval, or authorization of
-8-
<PAGE>
[*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
this Agreement or the consummation (or preparation for the consummation) of the
transactions contemplated hereby, including all attorneys' and accountants' fees
(excluding the cost of the audit contemplated in Section 2.10 which shall be
------------
paid by the Buyer in accordance with the terms hereof), brokerage fees,
consultants' fees and finders' fees, and sales, bulk sales and transfer taxes
which are Seller's responsibility hereunder;
(E) Seller's or Division's obligations and liabilities for the
period up to and including the Closing Date which relate to any Employee Plan
(as defined in Section 3.11(a)) (including unfunded pension plan liabilities and
---------------
retiree health benefits), except as otherwise provided in Section 2.2;
-----------
(F) All of Seller's or Division's liabilities or obligations
against which Seller or Division is insured or otherwise contractually
indemnified by a Person other than Buyer, provided Seller receives payment for
such liability or obligation (Seller is obligated to pursue any such insurance
or indemnification claim);
(G) Any liability or obligation under COBRA (as defined in
Section 3.11(b)) to any person covered by Seller's or Division's health plans or
- ---------------
any Employee who ceases to be employed by Seller or Division on or before the
Closing Date, or who is not employed by Buyer on the Closing Date, and any
liability or obligation under COBRA to any family member of such person or
Employee; and
(H) Any liability or obligation for Funded Indebtedness or any
other liability or obligation of Seller or Division that does not relate to, or
arise from, the Business and the Purchased Assets.
2.4 TITLE TO THE PURCHASED ASSETS: DOCUMENTS OF CONVEYANCE. At
-------------------------------------------------------
Closing, Seller and Division shall convey all of their right, title and interest
in and to the Purchased Assets to Buyer free and clear of all liabilities,
obligations, liens and encumbrances, excepting only the Assumed Liabilities (as
defined in Section 1.1). Title to the Purchased Assets other than the Real
-----------
Property shall be conveyed pursuant to a General Assignment, Bill of Sale and
Assumption Agreement substantially in the form attached hereto as Exhibit B (the
---------
"ASSIGNMENT AND ASSUMPTION AGREEMENT"), and by such other documents as are
reasonably acceptable to counsel for Seller and counsel for Buyer in accordance
with the terms hereof. Each of the parties hereto agrees to use its best
efforts to take or cause to be taken all action, and to do, or cause to be done,
all things reasonably necessary, proper or advisable, whether before or after
Closing, to ensure transfer of title to the Purchased Assets to Buyer occurs as
contemplated hereunder.
2.5 PURCHASE PRICE; ALLOCATION OF PURCHASE PRICE. The total purchase
--------------------------------------------
price for the Purchased Assets (the "PURCHASE PRICE") shall be equal to
[**], subject to any adjustment required to be made pursuant to Sections 2.7
------------
and 2.11 below. The Purchase Price shall be allocated among the assets as
----
follows: (i) all tangible assets shall be reflected at their "book value" on
the Audited Closing Balance sheet; (ii) [**] of the Purchase Price will be
allocated to the non-competition covenant; and (iii) the balance of the Purchase
Price will be allocated to goodwill.
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
2.6 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
-------------------------
by Buyer at the Closing (as defined in Section 2.8) as follows:
-----------
(I) [**] of the Purchase Price as adjusted as set forth in
Sections 2.7 and 2.11 below will be paid, at the direction of Seller,
------------ ----
by wire transfer of funds to Seller's account as specified in
Schedule 2.6 (including the payment of [**] for the agreements not to
------------
compete provided in Section 6.4); and
-----------
(II) [**] of the Purchase Price, or [**], will be paid in
cash by wire transfer of funds to the Escrow Agent to be held in
escrow pursuant to Section 2.9 for satisfaction of Seller's
-----------
indemnification obligations specified in Section 8.1.
-----------
2.7 PURCHASE PRICE ADJUSTMENTS.
--------------------------
(A) FUNDED INDEBTEDNESS ADJUSTMENT. The Purchase Price shall be
------------------------------
reduced by an amount equal to the total amount of any Funded Indebtedness paid
at the Closing by Buyer in order to remove all Encumbrances on the Purchased
Assets.
(B) PRELIMINARY ADJUSTMENT AMOUNT. The Purchase Price shall be
-----------------------------
further reduced by an amount (the "PRELIMINARY ADJUSTMENT AMOUNT"), if any,
which is the greater of (i) the amount by which the Working Capital as reflected
on the Preliminary Closing Balance Sheet is less than $1,242,000 or (ii) the
amount by which the Net Worth reflected on the Preliminary Closing Balance Sheet
is less than $1,870,000; provided, however, that the adjustments set forth in
(i) and (ii) above are subject to the $50,000 basket set forth in Section 8.6
-----------
herein.
2.8 CLOSING. The closing of the transactions contemplated hereby
-------
(the "CLOSING") shall occur on February 26, 1998 at the offices of Cooley,
Shrair in Springfield, Massachusetts, or by facsimile and wire transfer should
the parties otherwise agree, to be effective as of February 1, 1998 (the
"EFFECTIVE DATE"). The actual date of Closing is referred to herein as the
"CLOSING DATE."
2.9 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be
-------------------
entered into among Seller, Buyer and the Escrow Agent, the portion of the
Purchase Price specified in Section 2.6(ii) shall be delivered to the Escrow
---------------
Agent at Closing in immediately available funds. Such monies (which, together
with all interest accrued thereon, is hereinafter referred to as the "ESCROW
SUM") shall be held pursuant to the terms of the Escrow Agreement for payment
from such Escrow Sum of the amounts, if any, owing by Seller to Buyer pursuant
to the indemnification provisions of Article VIII below. Upon the completion of
------------
the Audited Closing Balance Sheet, the Escrow Sum shall be promptly reduced by
an amount, if any, equal to the difference between (i) [**] and (ii) the sum
of [**] and the aggregate amount of all claims made against the Escrow Sum
prior to such date (including the Final Adjustment Amount). At the conclusion
of the period ending on the first anniversary of the Closing Date (such period
being referred to herein as the "ESCROW PERIOD"), such remaining portion of the
Escrow Sum not theretofore claimed by or paid to Buyer in accordance with the
terms of the
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<PAGE>
Escrow Agreement and this Agreement shall be disbursed to Seller. Seller and
Buyer agree that each will execute and deliver such reasonable instruments and
documents as are furnished by any other party to enable such furnishing party to
receive those portions of the Escrow Sum to which the furnishing party is
entitled under the provisions of the Escrow Agreement and this Agreement.
2.10 CLOSING AUDIT. Within 120 days following the Closing Date, there
-------------
shall be delivered to Buyer and to Seller an audited version of the Preliminary
Closing Balance Sheet (the "AUDITED CLOSING BALANCE SHEET") of Seller at and as
of the Effective Date. The Audited Closing Balance Sheet shall be audited by
Ernst Young, LLP in accordance with GAAP as modified in this Agreement. The
cost of the Audited Closing Balance Sheet shall be paid by Buyer. In the event
that the either Buyer or Seller disputes any items on the Audited Closing
Balance Sheet within ten days after such party's receipt thereof, the parties
agree that Arthur Andersen, LLP (the "INDEPENDENT ACCOUNTANTS") will review the
disputed item(s) on the Audited Closing Balance Sheet. The final determination
of such disputed item(s) by the Independent Accountants shall be reflected on
the Audited Closing Balance Sheet and shall be final and binding on the parties
for all purposes. The cost of retaining the Independent Accountants shall be
borne by the disputing party; provided, however, that the non-disputing party
shall reimburse the disputing party for the cost of the Independent Accountants
in the event that such review results in an increase (if Seller is the disputing
party) or decrease (if Buyer is the disputing party) of more than $25,000 in the
Final Adjustment Amount as reflected on the Audited Closing Balance Sheet
prepared by Ernst & Young, LLP.
2.11 POST-CLOSING PURCHASE PRICE ADJUSTMENT. Upon final completion of
--------------------------------------
the Audited Closing Balance Sheet, Ernst & Young, LLP or the Independent
Accountants, as the case may be, shall determine the greater of (i) the amount,
if any, by which the Working Capital reflected on the Audited Closing Balance
Sheet is less than $1,242,000 or (ii) the amount, if any, by which the Net Worth
reflected on the Audited Closing Balance Sheet is less than $1,870,000 (the
"FINAL ADJUSTMENT AMOUNT"). In the event that the Final Adjustment Amount
exceeds the Preliminary Adjustment Amount, then the Purchase Price will be
adjusted downward and Seller shall pay to the Buyer the amount of such excess.
Conversely, in the event that the Final Adjustment Amount is less than the
Preliminary Adjustment Amount, then the Purchase Price shall be adjusted upward
and the Buyer shall pay Seller the lesser of (i) amount by which the Final
Adjustment Amount is less than the Preliminary Adjustment Amount or (ii) the
Preliminary Adjustment Amount. The post-closing adjustment to the Purchase
Price, if any, shall be paid by Seller to the Buyer from the Escrow Sum or by
Buyer to Seller, as the case may be, in immediately available funds within ten
(10) business days of delivery of the Audited Closing Balance Sheet, unless
Seller disputes any items on the Audited Closing Balance Sheet, in which case it
shall be paid within ten (10) business days after the Independent Accountants
finally determine the disputed item(s), and the Buyer delivers to the Seller an
Audited Closing Balance Sheet modified to reflect such determination.
Notwithstanding the foregoing, the Seller shall have the right to (i) make any
final downward adjustment payment out of the Escrow Sum and (ii) utilize all or
a portion of the $50,000 indemnity deductible provided in Section 8.6 hereof
-----------
against either the Preliminary Adjustment Amount or the Final Adjustment Amount.
-11-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER
Except as set forth on the Disclosure Schedules attached hereto (which
--------------------
Disclosure Schedules contains a reasonably detailed description of each such
- --------------------
exception and references the applicable representation so qualified), Seller
represents and warrants to Buyer that:
3.1 DUE ORGANIZATION. Seller is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the Commonwealth of
Massachusetts and has full corporate power and authority to own and lease its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted through Closing. Complete and correct copies of the
Articles of Incorporation and Bylaws of Seller, and all amendments thereto, have
been delivered to Buyer and are attached hereto as Schedule 3.1-1 and Schedule
-------------- --------
3.1-2, respectively. Seller is qualified to do business in every jurisdiction
- -----
in which the nature of the Business or the ownership of its properties requires
such qualification except where the failure to be so qualified does not and
could not reasonably be expected to have a Material Adverse Effect. The
jurisdictions in which Seller is so qualified are listed on Schedule 3.1-3
--------------
attached hereto.
3.2 SUBSIDIARIES. Except as disclosed on the Disclosure Schedules,
------------ --------------------
the Division does not own, directly or indirectly, any capital stock or
ownership interests in any Person. Seller does not own any capital stock or
ownership interest in any other Person engaged in the Business.
3.3 DUE AUTHORIZATION. Seller has full power and authority to
-----------------
execute, deliver and perform this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action of Seller. This Agreement has been duly and
validly executed and delivered by Seller and constitutes the valid and binding
obligations of Seller, enforceable in accordance with its terms, except to the
extent that enforceability may be limited by laws affecting creditors' rights
and debtors' obligations generally, and legal limitations relating to remedies
of specific performance and injunctive and other forms of equitable relief (the
"EQUITABLE EXCEPTIONS"). The execution, delivery, and performance of this
Agreement (as well as all other instruments, agreements, certificates, or other
documents contemplated hereby) by Seller, do not (a) violate any Requirements of
Laws or any Court Order of any Governmental Body applicable to Seller, or their
respective property, (b) violate or conflict with, or permit the cancellation
of, or constitute a default under, any material agreement to which Seller is a
party, or by which it or any of its property is bound, (c) permit the
acceleration of the maturity of any material indebtedness of, or indebtedness
secured by the property of, Seller, (d) violate or conflict with any provision
of the charter or bylaws of Seller, or (e) except for such consents, approvals,
or registrations as may be required under applicable state securities laws,
require any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any Governmental Body or other third party.
-12-
<PAGE>
3.4 FINANCIAL STATEMENTS. The following financial statements have
--------------------
been delivered to Buyer by Seller: audited balance sheet of the Division as of
December 31, 1997, and unaudited balance sheets of the Seller as of January 31,
1996 and January 31, 1997, and audited statements of income and cash flows of
Division for the 11 months ended December 31, 1997 and unaudited statements of
income of the Seller for the fiscal years ending January 31, 1996 and January
31, 1997 (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP, as
modified in this Agreement, on a consistent basis throughout the periods
indicated and fairly present the financial position, results of operations and
changes in financial position of Seller and Division as of the indicated dates
and for the indicated periods and are consistent with the books and records of
Seller and Division (which books and records are correct and complete). Since
the date of the last of such Financial Statements, Division has no material
liabilities required by GAAP, as modified in this Agreement, to be reflected on
Division's balance sheet or notes thereto that are not so reflected, nor any
other obligations (whether absolute, contingent, or otherwise) which are
(individually or in the aggregate) Material (in amount or to the conduct of the
Business); and Seller has no Knowledge of any basis for the assertion of any
such liability or obligation. Since December 31, 1997, the Division has not
experienced any Material Adverse Change.
3.5 CERTAIN ACTIONS. Since September 30, 1997, Division has not,
---------------
except as disclosed on any of the Financial Statements or notes thereto: (a)
made or agreed to make any loans or advances or guaranteed or agreed to
guarantee any loans or advances to any party whatsoever; (b) suffered or
permitted any Encumbrance to arise or be granted or created against or upon any
of the Purchased Assets; (c) canceled, waived, or released or agreed to cancel,
waive, or release any of its debts, rights, or claims against third parties in
excess of $20,000 individually or $40,000 in the aggregate; (d) sold, assigned,
pledged, mortgaged, or otherwise transferred, or suffered any material damage,
destruction, or loss (whether or not covered by insurance) to, any of the
Purchased Assets (except in the ordinary course of the Business); (e) amended
its charter or bylaws; (f) paid or made a commitment to pay any severance or
termination payment to any employee or consultant; provided, however, that
Seller (but not Division) has committed to make severance payments to two (2)
employees named Aiken and Walsh, such severance liability not to be assumed by
Buyer; (g) made any material change in its method of management, operation,
accounting or reporting income or deductions for tax purposes; (h) made any
material acquisitions, capital expenditures, including, without limitation,
replacements of equipment in the ordinary course of the Business, or entered
into commitments therefor, except for capital expenditures or commitments
therefor which do not, in the aggregate, exceed $25,000; (i) made any investment
or commitment therefor in any Person; (j) made any payment or contracted for the
payment of any bonus or other compensation or personal expenses, other than (A)
wages and salaries and business expenses paid in the ordinary course of the
Business, (B) wage and salary adjustments made in the ordinary course of the
Business for employees who are not officers, directors, or shareholders of the
Division, and (C) bonuses set forth on Schedule 3.5(k) (none of which are
---------------
payable by Division unless otherwise noted), (k) made, amended, or entered into
any written employment contract or created or made any material change in any
bonus, stock option, pension, retirement, profit sharing or other employee
benefit plan or arrangement; (l) made or entered into any vendor, supply, sales,
distribution, or leasing agreement which involves annual consideration (or
commissions) in excess of $20,000; (m) entered into any non-competition
agreement; (n) made or entered into any agreement or other arrangement with any
officer, director, shareholder, employee of Seller or Affiliate of Seller or any
of the foregoing
-13-
<PAGE>
Persons; (o) materially amended, experienced a termination or received notice of
actual or threatened termination or non-renewal of any material contract (except
for the contract with Northeast Utilities), agreement, lease, franchise or
license to which Seller or Division is a party that would or could reasonably be
expected to have a Material Adverse Effect; or (p) entered into any other
material transactions that would or could reasonably be expected to have a
Material Adverse Effect.
3.6 PROPERTIES. Attached hereto as Schedule 3.6 is a list containing
---------- ------------
a description of each interest in real property, excluding the 135 Freshwater
Boulevard, Enfield, Connecticut location (including, without limitation,
leasehold interests) and each item of personal property utilized by Division in
the conduct of the Business having a book or fair market value in excess of
$20,000 as of the date hereof. Except for Permitted Exceptions, such real and
personal properties are free and clear of Encumbrances. Seller has delivered to
Buyer copies of all real property leases. All of the properties and assets used
in the operation of the Business and the Purchased Assets as currently conducted
(including, without limitation, all books, records, computers and computer
software and data processing systems) are owned, leased or licensed by Seller
and to the Seller's best Knowledge are suitable for the purposes for which they
are currently being used. With the exception of used equipment and inventory
valued at no more than $50,000 in the aggregate on Division's Financial
Statements, the physical properties comprising the Purchased Assets, including
the real properties leased in connection with the Business, are to the Seller's
best Knowledge in good operating condition and repair, normal wear and tear
excepted, and to the Seller's best Knowledge are free from any defects of a
material nature. Except for Permitted Exceptions, Seller has full and
unrestricted legal and equitable title to all such properties and assets. The
operation of the Purchased Assets and Business in the manner in which they are
now and have been operated does not violate any Requirements of Laws, except for
any such violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Except for Permitted Exceptions, to the Seller's best
Knowledge, no restrictive covenants, easements, rights-of-way, or regulations of
record impair the uses of the properties comprising the Purchased Assets for the
purposes for which they are now operated. All leases of real or personal
property by Seller or Division are, as to Seller, legal, valid, binding,
enforceable and in full force and effect and will remain legal, valid, binding,
enforceable and in full force and effect on identical terms until the Closing,
except for the Equitable Exceptions. All facilities leased by Seller or
Division and included in the Purchased Assets have received all approvals of any
Governmental Body (including Governmental Permits) required in connection with
the operation thereof and have been operated and maintained in accordance with
all Requirements of Laws. Seller owns no real property.
3.7 LICENSES AND PERMITS. Attached hereto as Schedule 3.7 is a list
-------------------- ------------
of all licenses, certificates, privileges, approvals, franchises, authorizations
and permits held or applied for by Seller or Division relating to the Business
from any Governmental Body (herein collectively called "GOVERNMENTAL PERMITS")
the absence of which could, individually or in the aggregate, have a Material
Adverse Effect. Seller and Division have complied in all material respects with
the terms and conditions of all such Governmental Permits, and Seller and
Division have not received notification from any Governmental Body of violation
of any such Governmental Permit or the Requirements of Laws governing the
issuance or continued validity
-14-
<PAGE>
thereof. All of such Governmental Permits are valid and in full force and
effect. No additional Governmental Permit is required from any Governmental Body
thereof in connection with the transfer of the Purchased Assets to Buyer and its
conduct of the Business which Governmental Permit, if not obtained, would have a
Material Adverse Effect.
3.8 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.8 is a list
--------------------- ------------
and brief description of all Intellectual Property owned or utilized by Seller
and Division solely in connection with the Business. Seller has furnished Buyer
with copies of all license agreements to which Seller or Division is a party,
either as licensor or licensee, with respect to any Intellectual Property used
in the Division. Seller has good title to or the right to use all the
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of the Business, in the Business
as presently conducted have received no notice that they are infringing on any
Intellectual Property right of others, and Seller is not aware of any
infringement by others of any such rights owned by Seller or Division. All
intellectual property licenses set forth on Schedule 3.8 are valid and binding
------------
obligations of Seller, and to the Knowledge of Seller the other parties thereto,
and enforceable against Seller, and to the Knowledge of Seller the other parties
thereto in accordance with their respective terms, except for the Equitable
Exceptions. Seller owns and possesses all right, title and interest in and to,
or has the right to use pursuant to a valid license, all Intellectual Property
used in the operation of the Business as presently conducted.
3.9 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Seller and Division
------------------------------------------
have (i) complied in all material respects with all Requirements of Laws,
Governmental Permits and Court Orders applicable to the Business and have filed
with the proper Governmental Bodies all statements and reports required by all
Requirements of Laws, Governmental Permits and Court Orders to which Seller,
Division or any of their employees (because of their activities on behalf of the
Business) are subject and (ii) conducted the Business and is in compliance in
all material respects with all federal, state and local energy, public utility,
health, safety and environmental Requirements of Laws, Governmental Permits and
Court Orders including the Clean Air Act, the Clean Water Act, the Solid Waste
Act, the Comprehensive Environmental Response Compensation and Liability Act,
the Resource Conservation and Recovery Act, the Safe Drinking Water Act, OSHA,
the Toxic Substances Control Act and any similar state, local or foreign laws
(collectively "ENVIRONMENTAL AND OSHA OBLIGATIONS") and all other Governmental
Body requirements, except where any such failure to comply or file would not, in
the aggregate, have a Material Adverse Effect. No claim has been made by any
Governmental Body (and, to the best knowledge of Seller, no such claim is
anticipated) to the effect that the Business fails to comply, in any respect,
with any Requirements of Laws, Governmental Permit or Environmental and OSHA
Obligation or that a Governmental Permit or Court Order is necessary in respect
thereto. Neither the ownership nor use of the Purchased Assets nor the conduct
of the Business conflicts with the rights of any other Person violates or, with
or without the giving of notice or the passage of time, or both, will violate,
conflict with or result in a default, right to accelerate or loss of rights
under, any terms or provisions of its Articles of Incorporation or Bylaws as
presently in effect, or any Encumbrance, lease, license, agreement,
understanding or Requirements of Law, or any order, judgment or decree to which
Seller or Division is a party or by which it may be bound or affected.
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<PAGE>
3.10 INSURANCE. Attached hereto as Schedule 3.10 is a list of all
--------- -------------
coverages for fire, liability, or other forms of insurance and all fidelity
bonds held by or applicable to Seller or Division with respect to the Business.
Copies of the binder for all such insurance policies have been delivered to
Buyer. All of such insurance coverages are in full force and effect as of the
Closing Date.
3.11 EMPLOYEE BENEFIT PLANS.
----------------------
(A) Schedule 3.11 hereto lists all Employee Plans in force at
-------------
any time since January 1, 1996 covering employees of the Division currently
employed in the conduct of the Business ("EMPLOYEES"). The term "EMPLOYEE PLAN"
includes any pension, retirement, savings, disability, medical, dental, health,
life (including, without limitation, any individual life insurance policy under
which any Employee is the named insured and as to which Seller, Division, or an
Affiliate, on behalf of the Business, makes premium payments, whether or not
Seller, Division, or an Affiliate is the owner, beneficiary or both of such
policy), death benefit, group insurance, profit-sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, severance pay, or other employee
benefit plan, trust, arrangement, agreement, policy or commitment (including,
without limitation, any employee pension benefit plan as defined in Section 3(2)
of ERISA ("PENSION PLAN"), and any employee welfare benefit plan as defined in
Section 3(1) of ERISA ("WELFARE PLAN")), whether or not any of the foregoing is
funded or insured and whether written or oral, which is intended to provide or
does in fact provide benefits to any or all Employees, and (i) to which Seller
or Division is party or by which Seller or Division (or any of the rights,
properties or assets of Seller or Division) is bound, (ii) with respect to which
Seller or Division has made any payments, contributions or commitments, or may
otherwise have any liability (whether or not Seller or Division still maintains
such Employee Plan) or (iii) under which any director, Employee or agent of
Seller or Division is a beneficiary as a result of his or her employment or
affiliation with Seller.
(B) With respect to any Employee, Seller and Division have no
obligation to contribute to (or any other liability with respect to) any funded
or unfunded Welfare Plan, whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retirees or current or future former Employees (including their dependents and
spouses) except for limited continued medical benefit coverage for former
Employees, their spouses and their other dependents as required to be provided
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), and Seller and Division are in compliance in all material respects
with the continued medical and other welfare benefit coverage requirements of
COBRA and all applicable Requirements of Laws.
(C) With respect to any Employee, Seller and Division do not
maintain, contribute to or have any material liability under (or with respect
to) any Pension Plan which is a tax qualified "defined benefit plan" (as defined
in Section 3(35) of ERISA) or, except as disclosed in Schedule 3.11, a tax-
-------------
qualified "defined contribution plan" (as defined in Section 3(34) of ERISA),
whether or not terminated. All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each Employee Plan or are reflected as a liability on the books of
Seller and all contributions for any period ending on or
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before the Closing Date which are not yet due have been paid to each such
Employee Plan or accrued in accordance with past custom and practice of Seller.
(D) Seller and Division have, with respect to the Business and
all current and former Employee Plans (and all related trusts, insurance
contracts and funds), at all times complied in all material respects with the
applicable requirements of ERISA, the Code, and all other applicable
Requirements of Laws, or has determined that such Requirements of Laws
(including ERISA) were and are not applicable to the Business. Seller and
Division have not engaged in, nor is it bound to enter into, any transaction
with respect to any Employee Plan related to the Business which would subject
Seller or Division to any material liability due to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code. No actions, suits or claims
with respect to the assets of any Employee Plan (and all related trusts,
insurance contracts and funds), other than routine claims for benefits, are
pending or threatened which could result in or subject Seller or Division to any
material liability. There are not now, nor have there been, any tax-qualified
defined benefit retirement plans sponsored or maintained by Seller or Division
for Employees since January 1, 1975, nor are there any unfunded obligations with
respect thereto. With respect to any Employee, Seller has no obligation to
contribute to (or any other liability with respect to) any "multi-employer
plan," as defined in the Multi-employer Pension Plan Amendments Act of 1980, and
Seller has not incurred nor will incur any current or potential withdrawal or
termination liability as a result of a complete or partial withdrawal from any
multi-employer plan or the sale of the Purchased Assets. Each Employee Plan
intended to qualify under Section 401(a) of the Code has been determined by the
IRS to be qualified under the requirements of Section 401(a) of the Code, the
IRS has issued a determination letter to that effect, and such letter remains
effective and has not been revoked. No unfulfilled obligation to contribute with
respect to an Employee Plan exists with respect to any Employee Plan, except as
shown in the Seller's Preliminary Closing Balance Sheet. There is no agreement
or promise, written or oral, of Seller to the effect that any Employee Plan may
not be terminated at Seller's discretion at any time, subject to applicable law.
Schedule 3.11 sets forth a list and a summary description of all collective
- -------------
bargaining agreements, employment and consulting agreements, executive
compensation plans, bonus plans, deferred compensation agreements, employee
pension plans or retirement plans, employee stock options or stock purchase
plans and group life, health and accident insurance and other employee benefit
plans, agreements, arrangements or commitments, whether or not legally binding,
including, without limitation, holiday, vacation, Christmas and other bonus
practices, to which the Business or the Seller is a party or is bound or which
relate to the operation of the Business. The Preliminary Closing Balance Sheet
reflects all accrued vacation and other benefits for the Business' employees as
of the date thereof.
(E) EMPLOYMENT AND NON-TAX QUALIFIED DEFERRED COMPENSATION
------------------------------------------------------
ARRANGEMENTS. Seller does not maintain or contribute to any retirement or
- ------------
deferred or incentive compensation or stock purchase, stock grant or stock
option arrangement entered into between Seller and any current or former
officer, consultant, director or employee of Seller that is not intended to be a
tax qualified arrangement under Section 401(a) of the Code, other than Seller's
(but not Division's) commitment to make severance payments to two (2) employees
named Aiken and Walsh, such severance liability not to be assumed by Buyer.
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<PAGE>
3.12 CONTRACTS AND AGREEMENTS. Schedule 3.12 hereto contains a list
------------------------ -------------
and brief description of all Business-related written or oral contracts,
commitments, leases, and other agreements (including, without limitation,
promissory notes, loan agreements, and other evidences of indebtedness,
guarantees, hedging agreements, off-balance sheet financing arrangements,
indemnity agreements, vendor contracts with office equipment manufacturers,
leasing and marketing agreements) to which Seller is a party or by which Seller
or its properties are bound pursuant to which the obligations thereunder of
either party thereto are, or are contemplated as being, for any one contract
$25,000 or greater or any contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world (collectively, the
"CONTRACTS"). Seller is not and, to the best knowledge of Seller, no other
party thereto is in default (and no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default by Seller)
under any of the Contracts, and Seller has not waived any right under any of the
Contracts. All of the Contracts to which Seller is a party are legal, valid,
binding, enforceable and in full force and effect and will remain legal, valid,
binding, enforceable and are fully assignable to Buyer and will remain in full
force and effect on identical terms immediately after the Closing, except for
the Equitable Exceptions. Seller has not guaranteed any obligations of any
other Person. Seller has no present expectation or intention of not fully
performing all of its obligations under any Contract, Seller has no knowledge of
any breach or anticipated breach by the other parties to any Contract and
Seller, except with respect to Northeast Utilities (as described on Schedule
--------
3.12) has not received notice of actual or threatened termination or non-renewal
- ----
of any Contract.
3.13 CLAIMS AND PROCEEDINGS. There are no claims, actions, suits,
----------------------
proceedings, or investigations pending or, to the best knowledge and belief of
Seller, threatened against or affecting Seller relating to the Business or any
of its properties or assets, at law or in equity, before or by any court,
municipality or other Governmental Body. To the extent any are disclosed on the
Disclosure Schedule, none of such claims, actions, suits, proceedings, or
investigations, if adversely determined, will result in any liability or loss to
Seller. Seller has not been and Seller is not now, subject to any Court Order,
stipulation, or consent of or with any court or Governmental Body. No inquiry,
action or proceeding has been instituted or, to the best knowledge and belief of
Seller, threatened or asserted against Seller to restrain or prohibit the
carrying out of the transactions contemplated by this Agreement or to challenge
the validity of such transactions or any part thereof or seeking damages on
account thereof. To the best knowledge of Seller there is no basis for any such
valid claim or action.
3.14 TAXES.
-----
(A) All Federal, foreign, state, county and local and other Taxes
due from Seller on or before the Closing have been paid or properly accrued on
Seller's books and all Tax Returns which are required to be filed by Seller on
or before the date hereof have been filed within the time and in the manner
provided by all Requirements of Laws, and all such Tax Returns are true and
correct and accurately reflect the Tax liabilities of Seller. No Tax Returns of
Seller or Division are presently subject to an extension of the time to file.
All Taxes, assessments, penalties, and interest of Seller which have become due
pursuant to such Tax Returns or any assessments received have been paid or
adequately accrued on Seller's Financial
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<PAGE>
Statements. The provisions for Taxes reflected on the balance sheets contained
in the Financial Statements are adequate to cover all of Seller's Tax
liabilities for the respective periods then ended and all prior periods. Seller
has not executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes, and there are no
pending or threatened claims, assessments, notices, proposals to assess,
deficiencies, or audits with respect to any such Taxes of which the Seller is
aware. For Governmental Bodies with respect to which Seller does not file Tax
Returns, no such Governmental Body has given Seller written notification that
Seller is or may be subject to taxation by that Governmental Body. Seller has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, shareholder, creditor,
independent contractor or other party. There are no Tax liens on any of the
property or assets of Seller.
(B) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no transfer taxes, real estate
transfer taxes or similar taxes will be imposed upon the transfer and sale of
the Purchased Assets pursuant to this Agreement.
3.15 PERSONNEL. Attached hereto as Schedule 3.15 is a list of the
--------- -------------
names and annual rates of compensation of the employees of the Division whose
annual rates of compensation during the calendar year ended December 31, 1997
(including base salary, bonus and incentive pay) exceed (or by December 31, 1998
are expected to exceed) $60,000. Schedule 3.15 also summarizes the bonus,
-------------
profit sharing, percentage compensation, company automobile, club membership,
and other like benefits, if any, paid or payable to such employees during
Seller's calendar year ended December 31, 1997 and to the date hereof. Schedule
--------
3.15 also contains a brief description of all material terms of employment
- ----
agreements relating to the Business to which Seller is a party and all severance
benefits which any employee of Seller is or may be entitled to receive. The
employee relations of Seller are generally good and there is no pending or, to
the best knowledge of Seller, threatened labor dispute or union organization
campaign. None of the employees of Seller is represented by any labor union or
organization. Seller is in compliance in all material respects with all
Requirements of Laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any unfair
labor practices. Seller has not been advised that any employee will not agree
to remain employed by Seller after the consummation of the transactions
contemplated hereby. There is no unfair labor practice claim against Seller
before the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending or, to the best knowledge of Seller, threatened against or
involving Seller, and none has previously occurred.
3.16 BUSINESS RELATIONS. Seller does not know or has good reason to
------------------
believe that any customer, supplier, vendor or transportation company engaged in
doing business with the Division will cease to do business with Buyer after the
consummation of the transactions contemplated hereby in the same manner and at
the same levels as previously conducted with Seller except for any reductions
which do not result in a Material Adverse Change or reductions by Northeast
Utilities. Seller has no Knowledge of any notice of cancellation of any
material business arrangement between any Person (excluding Northeast Utilities)
and Seller is not aware
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<PAGE>
of any facts which could lead it to believe that the Business will be subject to
cancellation of any such business arrangement.
3.17 ACCOUNTS RECEIVABLE. All of the accounts, notes, and loans
--------------------
receivable that have been recorded on the books of the Business are bona fide
and represent amounts validly due for goods sold or services rendered in the
ordinary course of business. In addition, (a) all of such accounts, notes, and
loans receivable are free and clear of any security interest, lien, encumbrance,
or other charge; (b) none of such accounts, notes, or loans receivable is
subject to any offsets or, to the best of Seller's Knowledge, claims of offset;
and (c) none of the obligors of such accounts, notes, or loans receivable has
given notice that it will or may refuse to pay the full amount or any portion
thereof.
3.18 CUSTOMER CLAIMS. No written or oral claim for breach of contract
---------------
or other claim any customer has been made against Seller since September 30,
1997 which could, individually or in the aggregate, result in any Material
Adverse Effect. To the best knowledge of Seller, no state of facts exists, and
no event has occurred, which could reasonably be expected to form the basis of
any present claim against Seller for liability to any third party in connection
with office equipment sold or services rendered by the Division.
3.19 BROKERS. Neither Seller nor any Affiliate of Seller has engaged,
-------
or caused to be incurred any liability to any finder, broker, or sales agent in
connection with the origin, negotiation, execution, delivery, or performance of
this Agreement or the transactions contemplated hereby.
3.20 AFFILIATED TRANSACTIONS. No officer, director, stockholder
-----------------------
(including Seller) or Affiliate of Seller or any individual related by blood or
marriage to any such Person, or any entity in which any such Person owns any
beneficial interest, is a party to any agreement, contract, arrangement or
commitment relating to the Business with Seller or engaged in any transaction
relating to the Business with Seller or has any interest in any property used by
Seller with the exception of the 135 Freshwater Boulevard, Enfield, Connecticut
property. No officer, director, or shareholder of Seller or any Affiliate of
any such officer, director, or shareholder, has any ownership interest in any
competitor, supplier, or customer of Seller (other than ownership of securities
of a publicly-held corporation of which such Person owns, or has real or
contingent rights to own, less than one percent of any class of outstanding
securities and other than Elliot M.L. Bloom's ownership of Key Productions,
Inc.) or any property used in the operation of the Business.
3.21 FUNDED INDEBTEDNESS; UNDISCLOSED LIABILITIES.
--------------------------------------------
(A) FUNDED INDEBTEDNESS. The Seller does not have any Funded
-------------------
Indebtedness that is not an Excluded Liability.
(B) UNDISCLOSED LIABILITIES. The Division does not have any
-----------------------
liabilities in excess of $15,000 in the aggregate (whether absolute, accrued,
contingent or otherwise), of a nature required by GAAP, as modified in this
Agreement, to be reflected on a corporate balance sheet or disclosed in the
notes thereto, except such liabilities which are accrued
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<PAGE>
or reserved against in the Financial Statements or disclosed in the notes
thereto, including without limitation any accounts payable or service
liabilities of Seller incurred prior to the Closing Date, other than liabilities
incurred in the ordinary course of the Business since the date of the latest of
such Financial Statements.
3.22 INDEBTEDNESS TO AND FROM EMPLOYEES. Attached hereto as Schedule
---------------------------------- --------
3.22 is a list and brief description of the payment terms of all indebtedness of
- ----
Seller to employees of the Business and all indebtedness of employees of the
Business to Seller, excluding indebtedness for travel advances or similar
advances for expenses incurred on behalf of and in the ordinary course of the
Business and consistent with its past practices.
3.23 INFORMATION FURNISHED. Seller has made available to Buyer true
---------------------
and correct copies of all material records of Seller relating to the Business
and all material agreements, documents, and other items listed on the Exhibits
and Schedules to this Agreement or referred to in Article III of this Agreement,
-----------
and neither this Agreement, the Exhibits or Schedules hereto, nor any written
information, instrument, or document delivered to Buyer pursuant to this
Agreement contains any untrue statement of a material fact or omits any material
fact necessary to make the statements herein or therein, as the case may be, not
misleading.
ARTICLE IV
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as follows:
4.1 DUE ORGANIZATION. Buyer is a corporation duly organized, validly
----------------
existing, and in good standing under the laws of the State of Connecticut, and
Buyer has full corporate power and authority to execute, deliver and perform
this Agreement and to carry out the transactions contemplated hereby.
4.2 DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement have been duly authorized by all necessary corporate action of
Buyer and the Agreement has been duly and validly executed and delivered by
Buyer and constitutes the valid and binding obligations of Buyer, enforceable in
accordance with its terms, except for the Equitable Exceptions. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates or other documents contemplated hereby) by Buyer, do
not (a) violate any Requirements of Laws or Court Order of any Governmental Body
applicable to or Buyer or its properties, (b) violate or conflict with, or
permit the cancellation of, or constitute a default under any agreement to which
Buyer is a party or by which it or its property is bound, (c) permit the
acceleration of the maturity of any indebtedness of, or any indebtedness secured
by the property of, Buyer, or (d) violate or conflict with any provision of the
charter or bylaws of Buyer.
4.3 NO BROKERS. Buyer has not engaged, or caused to be incurred any
----------
liability for which Seller may be liable to any finder, broker or sales agent in
connection with the origin,
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<PAGE>
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
ARTICLE V
COVENANTS OF SELLER
5.1 CONSENTS OF OTHERS. Prior to the Closing, Seller shall use its
------------------
best efforts to obtain and to cause to be obtained all authorizations, consents
and permits required of Seller or the Division to permit them to consummate the
transactions contemplated by this Agreement. To the extent required to
consummate such transactions, Seller shall have used its best efforts to obtain
the written consent of (i) any third party to Contracts with the Business and
(ii) the lessors of the Buildings to the transactions contemplated by the
Agreement.
5.2 SELLER'S EFFORTS. Seller shall use all reasonable efforts to
----------------
cause all conditions for the Closing to be met.
5.3 POWERS OF ATTORNEY. Seller shall terminate or cause to be
------------------
terminated at or prior to Closing all powers of attorney granted by Seller
concerning the Division, the Business or the Purchased Assets, other than those
relating to service of process, qualification or pursuant to governmental
regulatory or licensing agreements, or representation before the IRS or other
Government Bodies.
5.4 CONDUCT OF BUSINESS PENDING CLOSING. From the date of this
-----------------------------------
Agreement to the Closing Date:
(A) Except as otherwise contemplated by this Agreement, or as
Buyer may otherwise consent to in writing, Seller shall conduct the Business and
operate the Purchased Assets only in the ordinary course and shall not engage in
any material activity or enter into any material transaction which would cause a
breach of the representations and warranties contained in Article III.
-----------
(B) Seller shall use its best efforts to cause the Business to
preserve substantially intact its current business organization and present
relationships with its customers, vendors, suppliers and employees and to
maintain all of its insurance currently in effect.
(C) Seller shall give prompt notice to Buyer of any notice of
material default received by Seller or the Division subsequent to the date of
this Agreement under any Contract or any Material Adverse Change occurring prior
to the Closing Date in the operation of the Business and the Purchased Assets.
(D) Neither Seller, nor any of its representatives, shall
solicit, encourage or discuss any Acquisition Proposal (as hereinafter defined)
or supply any non-public information concerning the Business or the Purchased
Assets to any party other than Buyer or its representatives. As used herein,
"ACQUISITION PROPOSAL" means any proposal other than the transactions herein
contemplated, for (i) any merger or other business combination involving the
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<PAGE>
Business, (ii) the acquisition of Seller or a material equity interest in Seller
or a material portion of its assets, or (iii) the dissolution or liquidation of
Seller.
5.5 ACCESS TO RECORDS BEFORE CLOSING. Prior to the Closing Date,
--------------------------------
Seller agrees that it will give, or cause to be given, to Buyer and its
representatives (including without limitation certain employees of Buyer's
parent, Global Imaging Systems, Inc. ("GLOBAL")), during normal business hours
and at Buyer's expense, during reasonable business hours full and unrestricted
access to Seller's personnel, officers, agents, employees, assets, properties,
titles, contracts, other books, records, files and documents of Seller with
respect to the Division and the Business (including financial, tax basis, budget
projections, auditors' work papers and other information as Buyer may reasonably
request) and to the Business' personnel, customers, suppliers and independent
auditors, to allow Buyer to obtain such information as it shall desire, and to
make copies at Buyer's expense of such information to the extent reasonably
necessary. Additionally, Seller will provide Buyer and Global opportunities to
meet with key employees of the Business, to visit facilities of the Business and
to otherwise conduct due diligence in respect of the Business and the Purchased
Assets. All materials copied by Buyer or Global shall be maintained in
confidence by Buyer and Global and returned to Seller if the Closing of the
transactions contemplated hereunder fails to occur.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 GENERAL. In case at any time after the Closing any further
-------
action is legally necessary or reasonably desirable (as determined by Buyer and
Seller) to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article VIII below). Seller
------------
acknowledges and agrees that from and after the Closing, except for Seller's
corporate records, Buyer will be entitled to possession of copies of all
documents, books, records, agreements, and financial data of any sort relating
solely to the Business. For a period of four (4) years after the Closing Date,
Buyer and Global on the one hand and Seller on the other agree that they will
give, or cause to be given, to the other party, its successors and its
representatives, during normal business hours and at the requesting party's
expense, such reasonable access to the properties, titles, contracts, books,
records, files and documents (but excluding attorney work product or other
privileged communications) relating solely to the Business of Buyer or Global
(to the extent Buyer's or Global's records are the records, materials and data
transferred to Buyer from Seller pursuant to this Agreement) or Seller, as the
case may be, as is reasonably necessary to allow the requesting party to obtain
information in the other party's possession with respect to any claims, demands,
audits, suits or matters of a similar nature made by or against the requesting
party as the previous or new owner and operator of the Business, as the case may
be, and to make copies of such information to the extent reasonably necessary.
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[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
6.2 TRANSITION. For a period of four (4) years following Closing,
----------
Seller will not take any intentional action that primarily is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Seller from maintaining the same
business relations with Buyer after the Closing as it maintained with Seller
prior to the Closing. For a period of four (4) years following Closing, (i)
Seller will refer all customer inquiries relating to the Business to Buyer or to
another Person at the Direction of Buyer and (ii) Buyer will refer all customer
inquiries relating to Seller's graphic arts business to Seller or to another
person at the direction of Seller.
6.3 CONFIDENTIALITY. Seller will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement or otherwise for the benefit of Seller,
Buyer, or Global for a period of four (4) years from the date of this Agreement,
and deliver promptly to Buyer or Global or destroy, at the written request and
option of Buyer, all tangible embodiments (and all copies) of the Confidential
Information which are in their possession except as otherwise permitted herein.
In the event that Seller is requested or required (by oral question or written
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar legal proceeding) to disclose
any Confidential Information, Seller will notify Buyer promptly of the request
or requirement. In addition, Buyer agrees (and agrees to cause Global) to
maintain the confidentiality of the terms of this Agreement except as (i)
required to be disclosed pursuant to subpoena or other legal process, (ii)
publicly disclosed, or (iii) subsequently disclosed by any third party not in
breach of a confidentiality agreement with Seller.
6.4 COVENANT NOT TO COMPETE. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to Seller by Buyer, Seller
covenants and agrees, for a period of three (3) years from and after the Closing
Date, that it will not, directly or indirectly without the prior written consent
of Buyer and Global, for or on behalf of any entity:
(A) become interested or engaged, directly or indirectly, as a
shareholder, bondholder, creditor, officer, director, partner, agent, contractor
with, employer or representative of, or in any manner associated with, or give
financial, technical or other assistance to, any Person, firm or corporation for
the purpose of engaging in the Business in competition with Buyer or any of its
Affiliates, within one-hundred (100) miles of any office of the Business, in the
State of Rhode Island or in Bennington County, Vermont;
(B) enter into any agreement with, service, assist or solicit
the business of any customers of Buyer or any of its Affiliates for the purpose
of distributing and servicing office equipment to such customers in competition
with Buyer or such Affiliates within one hundred (100) miles of any office of
the Business, in the State of Rhode Island or in Bennington County, Vermont or
to cause them to reduce or end their business with Seller; or
(C) hire, retain, or solicit the employment or services of
employees, consultants or representatives of Buyer or any of its Affiliates for
the purpose of causing them to leave the employment of Buyer or such Affiliates;
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<PAGE>
provided, however, that Seller may own less than one percent (1%) of the
outstanding stock of any publicly-traded corporation and same shall not be
deemed to be in a violation of this Section 6.4 solely by reason thereof.
-----------
6.5 ACCESS TO RECORDS AFTER CLOSING. For a period of four (4) years
-------------------------------
after the Closing Date, Buyer and Global on the one hand and Seller on the other
agree that they will give, or cause to be given, to the other party, its
successors and its representatives, during normal business hours and at the
requesting party's expense, such reasonable access to the properties, titles,
contracts, books, records, files and documents (but excluding attorney work
product or other privileged communications or corporate records) of Buyer and
Global (to the extent Buyer's or Global's records are the records, materials and
data transferred to Buyer from Seller pursuant to this Agreement) or Seller, as
the case may be, as is reasonably necessary to allow the requesting party to
obtain information in the other party's possession with respect to any claims,
demands, audits, suits or matters of a similar nature made by or against the
requesting party as the previous or new owner and operator of the Business, as
the case may be, and to make copies of such information to the extent reasonably
necessary.
6.6 LITIGATION SUPPORT. In the event and for so long as any party is
------------------
actively contesting or defending against any claim, suit, action or charge,
complaint, or demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, circumstance, status, condition, activity,
practice, occurrence, event, action, failure to act, or transaction on or prior
to the Closing Date involving Seller or Division, each of the other parties will
cooperate and make available themselves or their personnel, as applicable, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense.
6.7 HIRING OF EMPLOYEES. Buyer shall offer employment to all of the
-------------------
Division's employees on terms reasonably similar to those presently being paid
to the Division employees; provided, however, that in no event shall Buyer be
deemed to have guaranteed employment to all of such employees on a long-term
basis and, provided, further, that for a period of two (2) years after the
Closing Date, Buyer will not solicit for employment any current employees of
Seller's graphic arts business. All Division employees hired by Buyer will be
covered by Buyer's health insurance from the effective date of Closing, or if
there is a waiting period required under Buyer's health plans, then Buyer will
reimburse Seller for its costs in providing such relevant health insurance,
disability and/or medical benefits. Seller will not be in breach hereunder if
one or more employees of Seller refuse to accept employment with Buyer.
6.8 ASSIGNMENT OF CONTRACTS. Anything in this Agreement to the
-----------------------
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign or otherwise transfer any Contract or any rights thereunder, if an
attempted assignment or transfer thereof would constitute a breach thereof,
would be ineffective or would violate any applicable law without the consent of
a third party to such assignment or transfer. Seller and Buyer shall use their
best efforts to obtain all such consents on or prior to the Closing, which
efforts shall not include making any monetary payments in connection therewith.
If any such consent has not been obtained as of the Closing Date, Seller shall
continue to use such best efforts to obtain such
-25-
<PAGE>
consent after the Closing. Until such consent or waiver has been obtained, Buyer
shall make all reasonable efforts to perform in Seller's name all of Seller's
obligations under any such Contract for which any such consent has not been
obtained. Seller shall cooperate with Buyer in any reasonable arrangement
designed to provide for Buyer all of the benefits, and to have Buyer assume the
burdens, liabilities, obligations and expenses under all such Contracts. At
Buyer's request, Seller shall, at Buyer's sole cost and expense, take all
reasonable efforts requested by Buyer to enforce, for the benefit of Buyer, any
and all rights of Seller under any such Contract not otherwise transferred
pursuant to the provisions of this Agreement. Seller hereby authorizes Buyer to
perform and Buyer hereby agrees to perform all of Seller's obligations after the
Closing under all such contracts. Seller agrees to remit promptly to Buyer all
collections or payments received by Seller in respect of all such Contracts, and
shall hold all such collections or payments for the benefit of, and promptly pay
the same over to, Buyer; provided, however, that nothing herein shall create or
provide any rights or benefits in or to third parties.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARTIES TO CONSUMMATE CLOSING
7.1 CONDITIONS TO BUYER'S OBLIGATIONS. The obligations of Buyer under this
---------------------------------
Agreement to consummate the Closing is subject to the conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Seller shall have
-----------------------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by each of them prior to or at the Closing Date. The
representations and warranties of Seller set forth in this Agreement shall be
accurate in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of business and except to
the extent that such representations and warranties are expressly made as of
another specified date and, as to such representation, the same shall be true in
all material respects as of such specified date. In addition, Buyer shall have
determined from its due diligence review of Seller that no Material Adverse
Change or Material Adverse Effect shall have occurred in the financial
condition, business, operations or prospects of Seller from those presented to
Buyer prior to execution of this Agreement.
(B) CONSENTS. All statutory requirements for the valid consummation
--------
by Seller of the transactions contemplated by this Agreement shall have been
fulfilled and all authorizations, consents and approvals, including those of all
federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation of the
transactions contemplated hereby shall have been obtained in form and substance
reasonably satisfactory to Buyer and Global unless such failure could not
reasonably be expected to have a Material Adverse Effect. All approvals of the
Board of Directors and shareholders of Seller and Division necessary for the
consummation of this Agreement and the transactions contemplated hereby shall
have been obtained.
-26-
<PAGE>
(C) LEASES. Buyer shall be satisfied that the leases for the
------
Buildings have been assigned to Buyer and remain in full force and effect
without default immediately following the Closing on terms satisfactory to
Buyer. In addition, Seller will use reasonable best efforts to obtain from each
of the lessors of the Buildings a Landlord Waiver to PPM America, Inc., as Agent
for Jackson National Life Insurance Company and certain other lenders, in the
form of Exhibit I hereto, except as specifically waived by Seller.
---------
(D) FINANCIAL CONDITION. Seller's Working Capital as projected at
-------------------
the Closing shall be greater than $1,000,000.
(E) DOCUMENTS TO BE DELIVERED BY SELLER. The following documents
-----------------------------------
shall be delivered at the Closing by Seller:
(I) CONVEYANCE DOCUMENTS. Such instruments of sale, transfer,
--------------------
substance reasonably satisfactory to counsel for Buyer (including, without
limitation, the Assignment and Assumption Agreement in substantially the
form attached hereto as Exhibit B), as are required in order to transfer to
---------
Buyer good and marketable title to the Purchased Assets, free and clear of
all liens, charges, security interests and other encumbrances except as
provided herein.
(II) OPINION OF SELLER'S COUNSEL. Buyer shall have received an
---------------------------
opinion of counsel to Seller, dated the Closing Date, in substantially the
same form as the form of opinion that is Exhibit C hereto.
---------
(III) CERTIFICATES. Buyer shall have received an officer's
------------
certificate and a secretary's certificate of Seller executed by officers of
Seller, dated the Closing Date, in substantially the same forms as the
forms of certificates that are Exhibits D-1 and D-2 hereto.
------------ ---
(IV) RESOLUTIONS. A certified copy of resolutions of Seller's
-----------
Board of Directors authorizing the execution, delivery and consummation of
this Agreement and the transactions contemplated hereby.
(V) UCC MATTERS. UCC termination statements and other
-----------
applicable documentation necessary to release any interest of any third
party in the Purchased Assets.
(VI) ESCROW AGREEMENT. Seller shall have delivered to Buyer at
----------------
the Closing the duly executed Escrow Agreement.
(VII) SELLER MANAGEMENT SERVICES AGREEMENT. Seller shall have
------------------------------------
duly executed and delivered a Management Services Agreement in
substantially the same form attached as Exhibit E hereto (the "Management
---------
Services Agreement"), pursuant to which Seller will continue to provide
certain administrative services to Buyer with respect to the Business until
April 30, 1998.
-27-
<PAGE>
(VIII) NON-COMPETE AGREEMENT. Elliot M.L. Bloom shall have duly
---------------------
executed and delivered the Non-Compete Agreement in substantially the form
attached as Exhibit F hereto (the "NON-COMPETE AGREEMENT").
---------
(IX) COLLATERAL ASSIGNMENT OF RIGHTS. Seller shall have
-------------------------------
executed and delivered to PPM America, Inc., as agent for Jackson National
Life Insurance Company and certain other lenders, a Collateral Assignment
of Rights in substantially the same form as the form attached hereto as
Exhibit H.
---------
(X) RECORDS OF SELLER. Copies of all contracts, files,
-----------------
documents, data, records and information of Seller relating solely to the
conduct of the Business or the Purchased Assets, shall have been delivered
to Buyer, all of which may be delivered to Buyer at the offices of the
Business.
(XI) AUDIT OF DIVISION. Prior to Closing, the Seller shall have
-----------------
audited the Division's financial statements as of and for the eleven month
period ending December 31, 1997. Such audit shall be conducted by Joseph D.
Kalicka and Company, and shall be paid for by Buyer or Global.
7.2 CONDITIONS TO SELLER'S AND SELLER'S OBLIGATIONS. The obligation of
-----------------------------------------------
Seller under this Agreement to consummate the Closing is subject to the
conditions that:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. Buyer shall have
-----------------------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by Buyer prior to or at the Closing and the
representations and warranties of Buyer set forth in Article IV hereof shall be
----------
accurate in all material respects, at and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date except for any
changes resulting from activities or transactions which may have taken place
after the date hereof and which are permitted or contemplated by the Agreement
or which have been entered into in the ordinary course of the Business and
except to the extent that such representations and warranties are expressly made
as of another specified date and, as to such representations, the same shall be
true as of such specified date.
(B) CONSENTS. All statutory requirements for the valid consummation
--------
by Buyer of the transactions contemplated by this Agreement shall have been
fulfilled and all authorizations, consents and approvals, including those of all
federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation by Buyer
of the transactions contemplated hereby shall have been obtained unless such
failure shall not have a Material Adverse Effect on the Business. Buyer shall
have used its reasonable best efforts to have obtained the release of Seller
from all personal guarantees with respect to Seller.
(C) DOCUMENTS TO BE DELIVERED BY BUYER. The following documents
----------------------------------
shall be delivered at the Closing by Buyer:
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<PAGE>
(I) ESCROW AGREEMENT. Buyer shall have delivered to Seller at
----------------
the Closing the duly executed Escrow Agreement.
(II) ASSIGNMENT AND ASSUMPTION AGREEMENT. Buyer shall have
-----------------------------------
executed and delivered the Assignment and Assumption Agreement in
substantially the form attached hereto as Exhibit B, dated as of the
---------
Closing Date.
(III) MANAGEMENT SERVICES AGREEMENT. Buyer shall have executed
-----------------------------
and delivered the Management Services Agreement in the same form
attached as Exhibit E hereto.
---------
(D) PAYMENTS TO SELLER. Seller and Escrow Agent shall each have
------------------
received their respective portion of the Purchase Price payable at the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF BUYER. Except as provided in Section 8.6,
------------------------ -----------
Seller agrees to jointly and severally indemnify and hold harmless Buyer and
each officer, director, and Affiliate of Buyer, including without limitation any
successor of Buyer (collectively, the "INDEMNIFIED PARTIES") from and against
any and all damages, losses, claims, liabilities, demands, charges, suits,
penalties, costs and expenses (including court costs and reasonable attorneys'
fees and expenses incurred in for any litigation or proceeding) (collectively,
the "INDEMNIFIABLE COSTS"), which any of the Indemnified Parties may sustain, or
to which any of the Indemnified Parties may be subjected, arising out of (A) any
misrepresentation, breach or default by Seller of or under any of the
representations, covenants, agreements or other provisions of this Agreement or
any agreement or document executed in connection herewith; (B) the assertion and
final determination of any claim or liability against the Purchased Assets or
any of the Indemnified Parties by any Person based upon the facts which form the
alleged basis for any litigation to the extent it should have been, but was not,
reserved for in the Financial Statements in accordance with GAAP, as modified in
this Agreement; (C) Seller's tortious acts or omissions to act prior to Closing
for which Seller did not carry liability insurance for themselves as the insured
party, whether or not such acts or omissions to act result in a breach or
violation of any representation or warranty; and (D) any Excluded Liability paid
by Buyer. In addition, Buyer shall have the right to collect all insurance
proceeds for claims related to the Business made or occurring after the
Effective Date which are covered under Seller's insurance, and Seller agrees to
use reasonable best efforts to recover such proceeds.
8.2 DEFENSE OF CLAIMS. If any legal proceeding shall be instituted,
-----------------
or any claim or demand made, against any Indemnified Party in respect of which
Seller may be liable hereunder, such Indemnified Party shall give prompt written
notice thereof to Seller and, except as otherwise provided in Section 8.4 below,
-----------
Seller shall have the right to defend, or cause Seller or its successors to
defend, any litigation, action, suit, demand, or claim for which it may seek
-29-
<PAGE>
indemnification unless, in the reasonable judgment of Buyer, such litigation,
action, suit, demand, or claim, or the resolution thereof, would have an ongoing
effect on Buyer, Seller or its successors, and such Indemnified Party shall
extend reasonable cooperation in connection with such defense, which shall be at
Seller's expense. In the event Seller fails or refuses to defend the same within
a reasonable length of time, the Indemnified Parties shall be entitled to assume
the defense thereof, and Seller shall be liable to repay the Indemnified Parties
for all expenses reasonably incurred in connection with said defense (including
reasonable attorneys' fees and settlement payments), but only in the event an
Indemnified Party is found liable. If Seller shall not have the right to assume
the defense of any litigation, action, suit, demand, or claim in accordance with
either of the two preceding sentences, the Indemnified Parties shall have the
absolute right to control the defense of and to settle, in their sole discretion
and without the consent of Seller, such litigation, action, suit, demand, or
claim, but Seller shall be entitled, at their own expense, to participate in
such litigation, action, suit, demand, or claim.
8.3 ESCROW CLAIM. If any claim for indemnification is made by an
------------
Indemnified Party pursuant to this Article VIII prior to the expiration of the
------------
Escrow Period, such Indemnified Party shall apply to the Escrow Agent provided
in Section 2.9 of this Agreement for reimbursement of such claim in accordance
-----------
with the provisions of the Escrow Agreement; provided, however, the Escrow Sum
is not intended to be an exclusive remedy in the event Buyer has indemnification
claims hereunder which exceed such amount.
8.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Seller with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article VIII, Seller shall have the right to
------------
control any and all such audits which may result in the assessment of additional
Taxes against Seller and any and all subsequent proceedings in connection
therewith, including appeals (subject to the prior written consent of Buyer,
which shall not unreasonably be withheld and subject to the right of Buyer to
have its accountants and attorneys consult with Seller on such audits or
procedures at Buyer's expense). Seller shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Division or Seller as a result of any such audit or other proceeding, Seller
shall be responsible for and shall promptly pay all Taxes, interest, and
penalties for which any of the Indemnified Parties shall be entitled to
indemnification.
8.5 INDEMNIFICATION OF SELLER. Buyer agrees to indemnify and hold
-------------------------
harmless Seller and each officer, director, stockholder or Affiliate of Seller,
from and against any Indemnifiable Costs arising out of any material
misrepresentation, breach or default by Buyer of or under any of the covenants,
agreements or other provisions of this Agreement or any agreement or document
executed in connection herewith.
8.6 LIMITS ON INDEMNIFICATION. All Indemnifiable Costs sought by any
-------------------------
party hereunder shall be net of any insurance proceeds received by such Person
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations and warranties of Seller under Sections
--------
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<PAGE>
[******Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.]
3.3 or 3.14 hereof or with respect to Excluded Liabilities (the indemnification
- --- ----
for which shall expire on the expiration of the applicable statute of
limitations except for claims made prior to such date which should continue
after such date until finally resolved), the right to make claims for
indemnification provided under this Article VIII shall expire on June 30, 1999
------------
(except for claims made prior to such date which shall continue after such date
until finally resolved). Seller shall not be obligated to pay any amounts for
indemnification under this Article VIII until the aggregate indemnification
------------
obligation hereunder exceeds $50,000 (as reduced by Seller's election to pay to
Buyer any Preliminary Adjustment Amount or Final Adjustment Amount) whereupon
Seller shall be liable for all amounts for which indemnification may be sought
in excess of [**]. Notwithstanding the foregoing, in no event shall the
aggregate liability of Seller to Buyer exceed the Purchase Price. However
nothing in this Article VIII shall limit Buyer or Seller in exercising or
------------
securing any remedies provided by applicable common law with respect to the
conduct of Seller or Buyer in connection with this Agreement or in the amount of
damages that it can recover from the other in the event that Buyer successfully
proves intentional fraud or intentional fraudulent conduct in connection with
this Agreement. All Indemnified Costs paid by Seller shall be deemed to be a
reduction of the Purchase Price paid by Buyer hereunder.
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior
-----------
to the Closing:
(A) by the mutual written consent of Seller and Buyer;
(B) in writing by Buyer, if Seller has breached in any material
respect any representation, warranty or covenant contained in this Agreement,
and in each case such breach has not been remedied within ten (10) business days
after receipt of notice specifying such breach and demanding such breach to be
remedied; or
(C) in writing by Seller, if Buyer has breached in any material
respect any representation, warranty or covenant contained in this Agreement,
and in each case such breach has not been remedied within ten (10) business days
after receipt of notice specifying such breach and demanding such breach to be
remedied; or
(D) in writing by either Seller, on the one hand, or Buyer, on
the other hand, in the event the Closing has not occurred on or before March 15,
1998, unless the failure of such consummation or the failure to satisfy such
condition, as applicable, shall be due to a breach of any representation or
warranty made by the party or parties seeking to terminate this Agreement or the
failure of such party or parties to comply in all material respects with the
agreements and covenants contained herein to be performed by such party or
parties.
9.2 EFFECT OF TERMINATION. If the transactions contemplated by this
---------------------
Agreement are terminated pursuant to Section 9.1 by notice in writing to the
-----------
non-terminating
-31-
<PAGE>
party or parties, this Agreement shall become void and of no further force and
effect, except that such termination shall not relieve (i) any party from its
covenants in respect of confidentiality contained in Section 6.3 and (ii) any
-----------
party then in breach of any representation, warranty, covenant or agreement
contained in this Agreement from liability in respect of such breach
ARTICLE X
MISCELLANEOUS
10.1 MODIFICATIONS; WAIVERS. Any amendment, change or modification
----------------------
of this Agreement shall be void unless in writing and signed by all parties
hereto. No failure or delay by any party hereto in exercising any right, power
or privilege hereunder (and no course of dealing between or among any of the
parties) shall operate as a waiver of any such right, power or privilege. No
waiver of any default on any one occasion shall constitute a waiver of any
subsequent or other default. No single or partial exercise of any such right,
power or privilege shall preclude the further or full exercise thereof.
10.2 NOTICES. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when personally
delivered, or 48 hours after deposited in the United States mail, first-class,
postage prepaid, or by facsimile addressed to the respective parties hereto as
follows:
Buyer:
-----
c/o Global Imaging Systems, Inc.
P.O. Box 273478
Tampa, Florida 33688-7877
Attention: Thomas Johnson, President
Fax No.: (813) 264-7877
Tel. No.: (813) 960-5508
With a copy to:
--------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Fax No.: (202) 637-5910
Tel No.: (202) 637-5771
-32-
<PAGE>
Seller:
------
Bloom's Incorporated
135 Freshwater Boulevard
P.O. Box 1270
Enfield, Connecticut 06083-1270
Attention: Elliot M.L. Bloom
Fax No.: (860) 263-6896
Tel No.: (860) 745-1082 (ext 351)
With a copy to:
--------------
Cooley, Shrair, P.C.
1380 Main Street
Fifth Floor
Springfield, Massachusetts 01103-1616
Attention: David Shrair, Esq.
Fax No.: (413) 733-3042
Tel No.: (413) 735-8000
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
10.3 COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may be
------------------------------------
executed in several counterparts, each of which shall be deemed an original but
all of which counterparts collectively shall constitute one instrument, and in
making proof of this Agreement, it shall never be necessary to produce or
account for more than one such counterpart. Signatures of a party to this
Agreement or other documents executed in connection herewith which are sent to
the other parties by facsimile transmission shall be binding as evidence of
acceptance of the terms hereof or thereof by such signatory party.
10.4 EXPENSES. Each of the parties hereto will bear all costs,
--------
charges and expenses incurred by such party in connection with this Agreement
and the consummation of the transactions on behalf of Seller contemplated
herein, provided, however, that Seller shall bear all legal and other expenses
of Seller and Division with respect to this Agreement and the transactions
contemplated hereby. The Buyer shall bear the cost of the audit contemplated in
Section 2.10 in accordance with the terms hereof.
- ------------
10.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
--------------------------
upon and inure to the benefit of Seller and Buyer, their heirs, representatives,
successors, and permitted assigns, in accordance with the terms hereof. This
Agreement shall not be assignable by Seller without the prior written consent of
Buyer. This Agreement shall be assignable by Buyer to either (a) any lender
providing financing to Buyer or its Affiliates or (b) an Affiliate of Buyer, in
each case without the prior written consent of Seller. In addition, Buyer may
assign any or all of its rights hereunder, without the consent of Seller, in
connection with any sale of all or
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<PAGE>
substantially all of the assets, capital stock or business of Buyer or Seller
(whether effected by sale, exchange, merger, consolidation or other
transaction).
10.6 ENTIRE AND SOLE AGREEMENT. This Agreement and the other
-------------------------
schedules and agreements referred to herein, constitute the entire agreement
between the parties hereto and supersede all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof.
10.7 GOVERNING LAW. This Agreement and its validity, construction,
-------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Connecticut, without giving effect to the principles of conflicts of
laws thereof.
10.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------------------
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, all
covenants, agreements, representations, and warranties and the related
indemnities made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing until June 30, 1999,
provided, however, that (a) the representations and warranties contained in
Section 3.14 of this Agreement, and the related indemnities, shall survive the
- ------------
Closing until the expiration of the applicable statutes of limitations for
determining or contesting Tax liabilities; (b) the representations and
warranties contained in Section 3.3 of this Agreement, and the related
-----------
indemnities, shall survive the Closing indefinitely and not expire; and (c) all
covenants in Article VI which have an expiration date contained therein shall
----------
expire as of such date.
10.9 INVALID PROVISIONS. If any provision of this Agreement is
------------------
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision and be legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of competent jurisdiction,
such provision as so reformed or rewritten shall be binding upon all parties
hereto.
10.10 PUBLIC ANNOUNCEMENTS. Neither party hereto shall make any
--------------------
public announcement of the transactions contemplated hereby without the prior
written consent of the other party.
10.11 REMEDIES CUMULATIVE. The remedies of the parties under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
10.12 THIRD PARTIES. Except as specifically set forth or referred to
------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to
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<PAGE>
any Person, other than the parties hereto and their permitted successors or
assigns, any rights or remedies under or by reason of this Agreement.
10.13 NO STRICT CONSTRUCTION. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-36-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
BUYER:
-----
CONNECTICUT BUSINESS SYSTEMS, INC.
By: /s/ Thomas S. Johnson
----------------------------------------
Thomas S. Johnson
Chairman
SELLER:
------
BLOOM'S INCORPORATED
By: /s/ Elliot M.L. Bloom
----------------------------------------
Elliot M.L. Bloom
President and Treasurer
-37-
